Why Mutual Funds are one of the Worst Possible Investments
For many people, investing means choosing what to do with their 401(k) or IRA accounts. When it’s time to make a choice, a would-be adviser chooses some mutual funds to invest in. This is the most common method of investing in America. And it’s also one of the worst.
One of the main reasons that mutual funds do not serve us as investors is because they are designed to make money for the advisor and the company that provides them. For most advisors, it’s their job to sell mutual funds. And that’s what they do. That’s how they make a living. But these mutual funds are quite poor for the people who buy them.
Although the investor takes 100% of the risk in mutual funds, on average, they only receive 20% of the profits. This means that 80% of the profits goes to the financial advisor and the company who sells the mutual fund. This money is taken away from the investor in the form of fees. The fees are described in terms of a few percent. Since a few percent sounds like a small amount of money, most people don’t even realize just how much is being taken away.
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