is mutual fund a good investment?

Answer 1

Let’s look at Investment Company of America (ICA), owned and operated by American Funds (AF). AF is an awesome fund company for a couple of reasons. There are several advantages and disadvantages:

1.AF is a private company which means they only answer to their MF holders. Fidelity is a good company also, but they are owned by stock holders. In the long run the company that only answers to you, the MF holder, is going to look out for your best interests.

2.AF also has some of the lowest annual fees to maintain an account of any MF company. All that being said, depending on your situation ICA may or may not be good for you. You need a competent advisor to help you with that.

3.I would be cautious with ICA as it is one of the largest MF in the world. They may seem like a good thing but it actually can be bad. It means it has much less flexibility to move its money around when conditions warrant it.

4.As far as EJ goes, they hire people on average who have very little experience in the industry, so at a minimum make sure your rep has a lot of experience and didn't just start last month at this. They also have agreements with companies like American Funds where their reps get a bigger commission to them then they do with other products. The concern being your advice from EJ might be tainted by the reps desire to get more commission. You need to work with an independent rep to assist you with you decisions; one who will give you all the information and doesn't have a hidden agenda.

Now let's look at MF's, in general, or the decision to use one at all.

If you invest in a MF, you have turned that responsibility over to someone else. To me, they are mostly the same, in general, in terms of results. Fewer than 10% can beat the Dow or other index it follows because of their fees. Why would you pay someone you don't know, whom will almost certainly underperform the market, an annual fee of 2.5% to do something you can do yourself, and do it better by buying an ETF, without any input from you after the initial purchase? An ETF is a publicly traded “Exchange Traded Fund, that trades just like a stock). Just buy the Diamonds (the DJIA ETF) if you want to let it ride on the Dow, or the Spyders (SPY - the S&P 500 ETF), or the Nasdaq (QQQQ), or diversify across the entire market by buying all three. The ETF's trade just like a stock or MF. If you want to diversify, and you want to Buy and Hold, buy an ETF.

A MF is always "in" the market, so you are at the mercy of the ups and downs of the Dow. Since you don't manage your risk, you can't put a Protective Stop on a MF, at say 10%, to lock in your profits when the market goes down. Since you spend more time watching TV, or more time deciding the color of your new car, than you do on learning how to manage money, you don't have a clue what's going to happen. That is not my idea of investing.

Actually, if done properly, it is more work to investigate all of the MF's and their advisors and their traders and their fees and their methods, than it is to investigate all the similar applicable info about stocks. You shouldn't choose to be ignorant, regardless of your investment vehicle, and just blindly turn your money over to a stranger because they are "listed," like you do at a bank. Some MF's are downright reckless and go out of business. Stocks are "listed," as are commodities and ETF's and everything else. With a mutual fund, you've just added a whole new set of unknowns to the equation, simply because you don't want to know anything about it.

The market is a living thing that does what it wants, and will go where it wants, when it wants. Nobody knows these things. Your question seems to interject that somebody has "The Answer." The best you can do in any investment is try to increase your odds of success and reduce your risk. You can do these things yourself, but not in a mutual fund.

MF's are so 20th Century. Relics of the past. Unneccessary. Buy an ETF. Or sell an ETF short and bet on the downside. There are two sides to every market, not just the upside.

Answer 2

I cant see what is all the hype is about mutual funds, I had some in the 90's and they were my worst investments. Take the time a learn about the stock market. Some of my stocks have a yield of over 4.5% and have had over 100% return. This yield and return is something ou would not see in any mutual fund. Also what makes it bad is some ofthe fund is invested in some of the same stock I am. You also can place buy and sell orders, something you cant do with a fund. There is some on-line brokers, such as shairbuilders that will allow you to buy stocks weekly, where you are doing the same as your fund. The only thing is you pick the stocks and decide if you want to keep investing if the market or stocks run up .

Answer 3

It can be, if you're prepared to invest in the market at all. Other items to think about BEFORE you invest: 1) Do you have an emergency fund? How long will it last you if you lose your current income? Access to your cash (liquidity) is important in case of an emergency. Enough to cover 3-6 months' living expenses is considered prudent. 2) Are you insured enough? Life insurance, disability insurance, medial insurance -- these should be part of your financial package. 3) Are you in debt? Are you paying interest on that debt? Would you make more by paying off the debt than you'll earn on a mutual fund?

A mutual fund spreads the risk of investing in the stock market, but it is still a risk. You have to be prepared to lose money. Finding the right mutual fund is important, and there's a lot of information out there. Do your research first.

Answer 4

I congratulate on your decision to begin investing. I think the sooner you start the better it is. However, I am not a big fan of mutual funds. For once, most of the mutual funds will lag behind an index fund after factoring in for management expenses. Second, I think you could do a much better job investing for your self directly in the stock market provided you have done enough research. So I would say, index funds are the best way to go since they offer better returns than mutual funds. In the mean time, read read read to find out more about the stock market. Remember, the stock market is the ONLY market where buyers run for the exits when there is a sale (refering to the corrections, drops, etc). So being a contrarian would benefit you.

Answer 5

Mutual funds are a group of stock from different companies. A fund manager buys and sells stock for the fund as per the funds objectives(ie. large cap growth, small cap value, etc...)
What a mutual fund does for you is lessen the risk of investing by spreading the investment over dozens of different compaies. If you buy stock from a single company you are betting that that 1 company does well. Your growth potential is more with a single company stock yet your risk is also higher.
Go with a diversified mutual fund with your invest,ment timeframe in mind. If you plan on having the money invested for 10 or more years before needing it than go with a little riskier funds like a small cap growth fund. For shorter periods of time go with large cap funds with some bonds mixed in.

Answer 6

dredude52 gave you a very good answer and well explained.

I would like to add a few things.

70% of mutual funds underperform the market in general. There are several of reasons for this.

1. They tend to churn their holdings which results in several problems. They incur higher brokerage fees which eat into their returns and they have to report higher captial gains at year end which means your after tax return is lower.

2. many mutual funds purchase large cap stocks which are the stock market and after their expenses they can not beat the averages.

There are some notable exceptions to the 70%. In general they are funds that specialize in market nitches. Among these are the funds that specialize in small cap stocks including Royce Funds, Bruce Fund, and others of that type. Other specialized funds concentrate on stocks of certain countries such as China and India and Japan for example.

These types of funds offer the investor certain advantages that they can not easily have otherwise due to the specialized research required and access to the markets.

In summary buying mutual funds requires as much care as buying stocks. One must be selective in separating the wheat from the chaff.

Answer 7

Not in my opinion. When investing in stock, you need to invest for the long term--20 or 30 years. The average length a mutual fund holds onto a stock is only a few months. They don't buy stocks. They rent them. If you are going to buy stocks, I suggest you read Benjamin Graham's book, The Intelligent Investor. To see his philosophy in practice, look at what Warren Buffet has done in the past 40 years.

Answer 8

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Answer 9

Yes. However, you must
1) Be very selective, and
2)Invest gradually, over many years. That way, you will get the benefit of "Dollar Averaging" and Compounding
3) Invest in No-Load Funds.
4)Diversify, over the years. This means investing in large cap, mid cap, and small cap funds, as well as Growth funds, value funds, and international funds. That wat, you won't get hurt as bad if one of these segments of the market goes down.
Read up on the subject, and set some goals. Good Luck.

Answer 10

I think mutual funds are best when used to invest in index funds. Meaning , they mirror the S&P 500, the dow, etc... Stick to the big names and look at the fees...don't ever pay more than 1% for total fees.