Well. I hate mutual funds. I really do. I feel lucky that I found out how awful mutual funds are not so long after I graduated university. Let me be clear that I don’t have any mutual funds and probably will never go back. The reasons are simple.
- High fee, high fee, high fee- The Management Expense Ratio(MER) is 5- 30 times or even higher than ETFs.
- Overall performance- Because of the tremendously higher fee, mutual fund guarantees inferior performance than ETFs. Average equity mutual fund investors earn 2-3% annually (So breaking even when considering inflation of 3%). S&P 500 investors earned 11-12% annually for the last 25 years. So ETFs that tracks S&P is a great idea. 42% of the mutual funds that were around in 1990 still exist today. A lot of disappeared mutual funds were merged into other mutual funds to hide their poor track records (MoneySense-March 2011)
- Biased financial advice- I have several university friends that are working as personal finance advisers from major banks so I know very well that all they really care about is pushing for certain mutual fund products that pay them higher commissions and bonuses not your financial future. Remember it is your own money not theirs. Click the following link if you want to know the truth in more detail. http://www.cbc.ca/news/canada/banks-misleading-clients-on-mutual-funds-1.1415027
I gotta admit I wasted about 3 years of purchasing mutual funds. I had poured money into mutual funds from the end of my student life in university to the early stage of my career until I started researching on my own and decided to be more responsible for my own financial future. Take charge of your own future. Check out my next posting which will help you get there.
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You bring up many great points and quite frankly I still cannot believe that mutual funds still exist as they do in a day when ETFs have cropped up offering many of the same advantages as mutual funds without the hefty fees. They offer just as much diversity and various sectors too. Thanks for sharing.
Thanks for stopping by DivHut. The problem is no one at banks would tell the customers other options other than high commissioned mutual funds or saving accounts. They are too biased to give honest advice to the customers who would have a tendency to make safe investment choices (ironically, they are risky either due to inflation and fees). I am quite certain if enough information was given to the customers, they would make a solid investment choices such as ETFs, high interest rate bonds and good quality dividend stocks.
Good points. They are expensive and should be avoided at all cost. People shouldn’t take convenience over their financial future.
Exactly. I feel glad that I got out of investing in mutual funds.