The Big Lie of Investing In Mutual Funds

Have you been lied to? If you have listened to the advice of a financial planner or have money invested in mutual funds because you believe that those managers do a better job of investing your money, you most certainly have been lied to and probably more than once.

I realize that the statement above is harsh, especially if you happen to be a financial planner, but the facts and research back up my statement. This is not new information either. A professor by the name of Michael Jensen published the findings of a study in the 1968 issue of Journal of Finance. In that study of mutual funds he found that the average mutual fund managed by professional managers could not beat the market and the pattern of mutual funds' performance, whether outperforming the market or under performing the market could not be predicted.

Studies since 1968 have all come to similar conclusions. What that means is that it does no good to go with a fund that has outperformed the market in the recent past, because recent results are not an accurate gauge of future performance.

Long-term results show that even the best fund managers end up under performing the market by the amount of the fees charged by the fund.

You may be saying to yourself that certain managers have beaten the market, managers like Warren Buffet comes immediately to mind. While it is true that Buffet's Berkshire Hathaway did extremely well during the early years, the last few years have seen results that have not kept up with the S & P 500.

I am not trying to take away anything from Warren Buffet. His record speaks for itself, but most of his success has come from buying good companies at great prices and then holding those companies for the long run. That is a strategy that anyone can use without paying a manager a stiff fee and by not paying management fees, your money grows at a much higher rate.

In fact, if you have no interest in picking stocks a simple strategy of investing in Exchange Traded Funds that mimic the market index will provide a better return than mutual funds over the long haul.

Do not fall for the Big Lie of Investing in Mutual Funds. Take charge of your investments and reap the rewards for yourself instead of lining the pockets of fund managers who are no better at investing than you are.