Two of the biggest arguments against mutual funds are high costs and poor performance. When your mutual fund starts under performing and increasing costs, instead of finding another mutual fund money sink, build your own.
When a mutual fund is started, it’s built around a goal. Something that easily explains to investors how all that money will be invested. There’s a hitch, though. With an active manager you just never know how much they veer off course from that goal. And when they fail, it only costs you more. Which is just one of many limitations.
Costs limit your investment performance. There is no way to cut costs entirely. So we have to focus on keeping it to a minimum. This keeps more money invested and growing over the years.
Then there is the performance issues. Your money has a goal (at least it should have a goal). So you search through all the possible funds to, hopefully, find a few that sync up with your goal and don’t eat away too much of your profits.
It all works out for a while until the cost and performance of those mutual funds don’t live up to expectations. So you look for another fund to put your money in and the cycle starts all over, compounding the costs.
Of course, there is another, cheaper option. Continue Reading…