Is this true? I know mutual funds are relatively safe[r] but since a huge chunk of the profits will go to fund managers wouldn't that mean you make very low returns on your investment? Or are mutual good for all investors because the odds of [investors] losing their money is close to zero?
If you're going to invest in mutual funds, I'd recommend doing so via "institutional" or "investor" shares or whatnot, in a managed money platform that waives at least some of the fees and generally only charges you a small annual fee rather than a large upfront or back-end fee (5-6% or greater) that you often get stuck with in a "transactional" platform.
Mutual funds are good way to get started in investing. One can start socking away funds and growing your wealth with them and, when ready, branching out into other areas. I've had good results with Vanguard and their offerings and recommend them. Cheers.
The stock market involves plenty of risk if you want great returns. In that regard, mutual funds aren't as risky, and they certainly can yield positive outcomes, but it won't be as drastic as other investing options. It's a less aggressive way for a person to put away money and see steady growth over the long term. If you're interested in investing, a financial adviser at your bank can push you in the right direction.
Most Mutual funds are proven to underperform the markets by a wide margin year after year. If you want lower risk investing - go for an index fund or index etf. Actually recent money flows show money towards towards efts versus mutual funds, so hopefully investors are finally getting the math.
Mutual funds are only generally safer than going with an individual investment because they have some built-in diversification due to being a pool of individual investments bunched together for you. That doesn't mean a particular fund can't be riskier than another or riskier than a lot of individual investments. It just means if you want to have money in rated BBB corporate bonds for example, you are relatively safer buying $20k worth of a fund made up of many BBB corporate bonds from different industries than putting all your money into one basket (one individual BBB corporate bond). Consider low-fee indexed funds instead of managed funds, the lower the cost for the same basic exposure = less risk. Finally, do your homework and see how the mutual fund you are considering stacks against its indexed benchmark. You can use the Morningstar website for that. Good luck!
I think, for the most part, mutual funds offer an alternative for folks who do not want to actively manage their own portfolio, but the returns do seem to be overall anemic compared to what is possible by picking your own individual stocks. The safety in mutual funds comes from the built in diversification, but the lower returns may be a result of the funds being overly diversified. Most funds have 200-400 stocks in them and with that much diversification comes lower returns overall. I tend to believe that picking around 20-30 high quality dividend paying stocks can really benefit you more over the long term than settling for mutual funds. There are a couple of things I am looking for in my picks, the first of which is a long history of not missing a dividend payment, combined with periodic increases in the dividend. The other key component is good basic fundamentals for the company, but this usually goes hand in hand with the dividend component. Finally, if you can get an entry point below fair market value, you are starting out ahead of the game, but if you can't, then just buy more on the dips to lower your average cost.
Good luck demonstrating or making a convincing argument that you can pick 20-30 that do better over some, let's say, 15 year period than a low-fee index fund comprised of the top 50 or 100 dividend paying stocks. I am not saying your picks can't be better, I am saying that you take on more risk without even knowing you will do better. There may be more potential for profit but that is only because you took on more risk - more eggs in fewer baskets. If your 30 stock mix gives you 5% average dividend and the index fund does the same thing, please explain how you are better off without the extra diversification.
There are certainly some fund managers who are pretty concentrated and often pretty aggressive, and some of whom have made great returns overall over many years. Of course the volatility is higher with the gunslingers.
