Investing In Mutual Funds May Not Be The Best Idea

Conventional wisdom has often taught that mutual funds are the best place for investors to put their money. It doesn't matter whether you are a beginner just getting started or someone who has been investing for years, the thinking is that you will do better when a "professional" manages your money.  This is because mutual fund managers study the stocks for a living and you, the common investor, surely don't have the time or the knowledge to do that.

But new research shows that fund managers aren't that great after all. Many, if not most of them can't even beat the market averages and when you add to that the fees they charge, it becomes clear that mutual funds should be bought with extreme caution. Perhaps, if individual stock picking isn't your thing, you should dollar cost average into an ETF that mirrors one of the major averages.

I have long avoided mutual funds because to me they seem as hard to pick as individual stocks. The proliferation of funds, all holding 20 or more stocks within them, make differentiating the good ones from the bad ones extremely difficult. At least for me.

Exchange traded funds have boomed in recent years and replaced the popularity of mutual funds for many investors who like the lower fees and the fact that you can trade them just like stocks. Additionally, in many cases it is easier to understand exactly what you are investing in because you can pick ETF's that encompass just certain industries, averages, or other things like high paying dividend stocks. If you want to invest in one specific area of the market, there is probably an ETF for that.

Mutual funds will probably be around for many years and the industry itself will fight tooth and nail to keep them alive. Wall Street will always try to convince you that the professionals know more than you do and that you should trust your saving with them. Commissions are what fund managers feast on and they don't want to lose your money.

But maybe you should think seriously about whether mutual funds are the right place to put your money. Those fees add up quickly and you should closely monitor the performance of your fund(s). Warren Buffet has said many times that just putting your money in an ETF that tracks the market is the best place for most investors. Whether young or old, beginner or experienced, rich or poor, it might be time to reevaluate your investment strategies.