The Bad Things About Mutual Funds

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While mutual fund investing has exploded over the past 50 years to become one of the most popular forms of investing anywhere, there are still possible pitfalls that you can fall into if you're not careful. Investing is still a risky business, even if everyone is doing it. Here are some tips to help you through any problems you might have.

One common criticism of mutual fund investing is that they don't have a high enough return on their investment and that index funds, which aren't as popular have historically returned a higher investment than the much more popular actively managed funds.

A second common problem - is the use of load funds. You have probably seen the phrase "no-load mutual fund" in the newspaper or on television. The reason the no-load type of fund is preferred is because load funds come loaded with fees. These fees can run anywhere between half a percent, all the way up to 8.5 percent of however much you chose to invest. It's thought that these fees are a clear conflict of interest as they clearly benefit the people making the sale and hurt the person making the investment. Load mutual funds are also thought to make your broker recommend funds that will maximize his fee, and not your investment portfolio.

 

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Firstly, it is important to do your own research before investing in any mutual fund. This includes understanding the fund's investment objective, performance history, fees, and any other relevant information. You can find this information in the fund's prospectus, which is available on the fund company's website or can be obtained from your broker.

Secondly, it is important to be aware of the fees associated with mutual funds. As you mentioned, load funds can come with high fees that can eat into your investment returns. It's important to consider the total cost of investing in a fund, including any front-end loads, back-end loads, and ongoing management fees.