Investing in mutual funds – a terrible idea

Welcome to MoneyMechanics.net! We are a team of consultants who offer effective financial services that your typical financial planner cannot. Click here to learn more About Us and our Consulting Services. One of our most unique and most effective services is our ability to save our clients as much as 100% of their yearly income tax – click here to learn more about it.

Saying that the key to wealth lies in mutual funds is the same thing as saying that smoking is the key to healthy lungs – it just doesn’t make any sense.

Mutual funds are typically sold by financial advisers on the premise that they give small investors access to professionally managed, expertly diversified portfolios of equities, bonds and other securities. At first glance that premise sounds quite enticing, a professionally managed and diversified portfolio of equities?   Giving small investors a chance to invest like the big fish out there? Who wouldn’t want to be a part of this magic!

That’s until you actually invest in said mutual funds and learn of the myriad of hidden (and not-so hidden) fees, the lack of transparency and the fact that the mutual fund companies make more money off of your investments than you do. And I’m not even going to go into the extreme bouts of volatility that mutual funds and any other market-based investments  (such as stocks or ETFs) are prone to, but simply the unique detriments of mutual funds.

Here are a few reasons why you should toss your financial adviser off a cliff for selling you mutual funds:

Fees, fees and more fees

The longer you invest in a mutual fund, the more you pay in fees. Mutual funds aren’t like stocks or real estate where you simply pay sales commission once; you pay every single year (called a management fee). This is one of the main reasons why financial planners recommend you invest for the long term – because the longer you keep your money invested, the more money they make.

Here are some more fees you can generally expect to pay with mutual funds:

-          Management fees (roughly 2% per year)

-          Front load fees (which is payment for simply giving them the money)

-          Back end fees (payment for taking your money back)

So, next time your financial advisor shows you a nice big chart of what your money is going to look like in 20, 30 or 40 years if invested in mutual funds – don’t believe them.

Lack of transparency

There is absolutely no way you can possibly know what the “professional” fund managers are doing with your money. Your monthly statement may show what securities your mutual fund has in its arsenal, but you have absolutely no idea (nor control) as to how they were chosen.

A message from our friendly neighbourhood mutual fund founder

In an interview on the TV show “Frontline” John Bogle, founder of Vanguard Group (one of the biggest mutual fund companies in the world) had this to share about the running of mutual funds:

The financial system put up zero percent of the capital and took zero percent of the risk and got almost 80 percent of the return. And you, the investor in this long time period, an investment lifetime, put up 100 percent of the capital, took 100 percent of the risk, and got only a little bit over 20 percent of the return. That’s a financial system that’s failing investors because of those costs of financial advice and brokerage, some hidden, some out in plain sight, that investors face today. So the system has to be fixed.

So after reading all that, do you still want to have your money invested in mutual funds?

If you answered a resounding “NO” to the preceding question or simply want to find out more, let’s meet up and discuss your options.