Shouldn't mutual funds see at least a 3% increase anually?

Question

I've seen a couple family members with an investment of about $3,000 each in a mutual fund... and this original investment was made at least 5 years ago.. (from a grandparent) and I hear now that their funds are only worth about $1,500... I feel this is really really wrong.. am I correct??

Answer 1

Since mutual funds invest in the stock market, there is nothing unusual about a mutual fund losing value. The stock market is inherently risky, and any stock market investor bears the risk that their investment will lose value. The flip side of that risk is that historically, when measured over the long run, the stock market has outperformed less risky investments such as bonds, money market accounts, etc. If you are investing for the long term, it makes sense to have the majority of your money in the stock market.

You should not expect a mutual fund to rise by 3% annually. Due to market fluctuations, it is likely that you'll see years where the value decreases, and years where the value increases.

Although it is not unusual for a mutual fund to lose value, there IS a possibility that your family members own a bad fund. Mutual funds can have different objectives, strategies, and costs. Many funds are not at all suitable for casual investors. If you're interested in learning more about what funds would be suitable investments, I recommend reading a personal finance website such as fool.com.

Answer 2

They chose a bad mutual fund. I am guessing it was internet/tech related and got wiped out. Too bad for them. Grandma should have been more conservative and bought a S&P 500 tracking fund. Returns like that are completely realistic in a risky mutual fund.

Answer 3

Get the name of that fund then go to yahoo/finance and look up the symbol....then get a quote for that and you can find out if you're getting the whole story.
Sounds hinky to me....