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Mutal Fund Myths

Mutal Fund Myths

Previous to being a broker, I had dealt with a number of brokers, including ones at Merrill Lynch, Wheat First, and Smith Barney. I can honestly say that I know how it feels when it is time to meet with anyone from the financial services, and I found I looked forward to such events about as much as a dental visit. At least the dentist offered novocaine. It came to a point where I felt like I was being milked, rather bled, by a man wearing shoes made from the skin of some unfortunate reptile. This hysteria, found in many investors, has led to the explosion of the bank CD and mutual fund industries. They just seem so attractive, yet harmless, like a newborn lamb looking for a place to rest, right in your portfolio. Just say no; it's a wolf in sheeps' clothing.

Mathematically speaking, with thousands of mutual funds now available, it is just as likely that you'll pick a bad fund as you will a bad stock. As a matter of fact, if you pick a fund that starts losing you money, you have de facto picked a whole bunch of bad stocks. Also, the benefit of mutuals is that they are, theoretically, diversified, and thus more safe. But, funds are allowed to have up to 35% of their holdings in one stock. This doesn't strike me much different than any of us buying a stock and hoping for the best, since obviously the fund manager expects that one equity to be the drafthorse for the rest. And, many high performing funds are nothing more than bets on a particular sector. Again it strikes me the benifits of diversifying are mitigated. My belief is that generally, mutual funds are just a way to make investors like you more comfortable in parting with your money, yet without any real benefit to compensate you. I think I'll stick with buying a few stocks of strong, healthy concerns, and monitoring appropriately.

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