Automated Trading Compared to Mutual Funds
At this time, mutual funds are the default investment vehicle for most Americans. This is because the mutual fund industry relies on the concept that you need to be an expert to buy and sell stocks. What most people don’t realize is that virtually all mutual funds underperform the market over the long term (20+ years).
We expect that in the next few years, Automated Trading will replace mutual funds as the most common investment vehicle. Most people have never heard of Automated Trading, and would not trust a computer to manage their investments. This is because Automated Trading is largely unknown, and is a new and unproven technology.
Automated Trading has many advantages over mutual funds. In some ways, it has less risk. With a mutual fund, you turn your money over to another company to manage it. The problem is that some of these companies are nothing more than Ponzi schemes. Bernie Madoff has made this abundantly clear in the last few months.
In contrast, an Automated Trading system can trade your account, but you are still in control of it. The Automated Trading system does not have the authority to take money out of the account. So, at least in this way, users of Automated Trading systems are protected from fraud.
Mutual funds tend to move up and down with the market. Since a mutual fund holds a position for months or years, when the market goes down the mutual fund goes down as well. People who have invested in these funds see their accounts go up and down with the market.
Automated Trading systems can have much shorter holding periods. And, some of them sell stocks short as well. Therefore, the direction of the market movement does not necessarily affect the accounts of people who use Automated Trading systems. It seems a bit silly to tie my wealth to the ups and downs of the general market.
These are just a few of the differences between Automated Trading systems and mutual funds. We believe that Automated Trading systems will ultimately largely replace the well established mutual fund. It will be interesting to watch and see how this new technology works out.
Related posts:
- Automated Trading and Index Funds
- Automated Trading Destined To Beat Mutual Funds
- Automated Trading and Passive Income
- Why Mutual Funds are one of the Worst Possible Investments
- Automated Trading and the Internet
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