5 Reasons NOT to Invest In Mutual Funds

I’m convinced the path Americans are traveling is extremely dangerous, and we are missing the big red signs screaming “Turn Back Now!”

There’s this thing called a mutual fund. I know you’ve heard of it. Most of you probably have money invested in some. I know people that have lost huge amounts of money, have had to completely revise their retirement goals, and continue to pack money into these funds (I used to be one of them). You may be making the biggest mistake of your life, and the worst part is your passive about it. Most of you that invest in mutual funds can’t even accurately tell me any details. You simply look away… like that will help you sleep at night. America doesn’t seem to care that the road their on is treacherous, and could bring them great harm.

A mutual fund is basically a compilation of a lot of stocks and other investments into one fund. Why? So you can “diversify” and “hedge your risk.” Its true that if you throw all your eggs in one basket, you might lose it all, right? Ya, if the place you are investing is like playing Roulette. More on that later.

I believe the mutual fund market is a sham. A place for the savvy to take advantage of those whose lives involve working everyday, coming to a messy home and busy spouse, running to soccer games, and a list of a million other things that don’t allow them to track every move their investment advisor makes. Let me share with you why mutual funds do not work.

First and foremost. How did we fall into this idea that if you can’t pick winners, you just pick a bunch of hopefuls, knowing some will lose money and some will gain money. Not only does it help prevent losses, but it prevents the gains as well! How do you assume that if you have some winners, and some losers, you’ll come out all that far ahead?

Second. Mutual funds have been involved in so many scams its sick. Just read the book “The Pirates of Manhattan.” You wanna talk about corrupt? That book has all you can handle. Its now illegal (even though it still happens), but big fund managers used to buy shares in certain stocks, then throw their fund money into it- causing it to boom, then dump it, making a bunch of money for themselves, and leaving every one else to hang dry. Not only that, but the fees, kickbacks, and money exchanges that go on in that world are unfathomable. Believe me, there are a lot of people making money on mutual funds, but the investor isn’t one of them.

There are a lot of people making money on mutual funds, but the investor isn’t one of them. – Click to Tweet

Third. How long does it take to realize it doesn’t work? Mutual funds have averaged less than 2% a year over the last few decades (read this Dalbar study at Investorsinsight.com), and yet I still hear people say they can get 12%. Keyword is “can.” No one ever says they “have”. You might have one good year, but its certain to follow with the bad. Just ask all the people around you that have been devastated in the past few years.

Fourth. The Mutual Fund Millionaire. Have you ever heard of someone that made millions by investing in mutual funds? Of course not. I’ve been in the financial planning world for 5 years now, and not one person I know of has made their millions in mutual funds. Here’s the thing though… Almost every single one of you has seen projections that would promise otherwise. They look something like this:

12 percent return

1% a month is 12% a year. 270 months is 22.5 years.

I pulled this from CalculatorSoup.com. If you save $800 dollars a month and earn 12% a year, you would be a millionaire in 22.5 years. Now $800 a month is not a lot for the average saver, especially those getting a match in there 401k. So how many millionaires do you know?  If all I had to do was save $800 every month to be a millionaire, wouldn’t we all be millionaires? Needless to say I know a lot of people that save $800 a month (easily), and I know few that are millionaires. Riddle me that….

Fifth and final. Roulette. Of course you want to diversify. I would too. The fluctuations in stocks are as much of a gamble as the slot machines in Vegas. If a company goes under, you’ll have nothing to show for it. Businesses die every day, and new ones start. Its the circle of life.

Do you know how stocks go up  or down in value? Few do. If you said company growth and profits, I’m sorry to be the one tell you that you are wrong. Stock value is based on simple supply and demand. Lots of people buy, stock goes up, lots of people sell, stock goes down. Now who has a formula or software that predicts when people will buy or sell? I’d be interested….

I prefer much more intelligent ways to invest my money. Mutual funds…. no thank you.

Now tell me what you think in the comments below. Am I totally off, or do you agree?

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By Jake | Follow Jake on Twitter