Why I’m Not a Fan of Mutual Funds

Beware the long-term cost of underperformance + fees

Todd Lincoln, MBA
Investor’s Handbook

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Photo by Markus Winkler on Unsplash

Some mutual funds prey upon the uninformed investor.

They consistently offer poor performance (spoiler: it’s on purpose) and participate in practices designed to mislead investors.

Before we dig into why many smart investors dislike mutual funds and what you should buy instead, let’s start with a simple definition.

What Is a Mutual Fund?

A mutual fund is an investment product offered by a financial institution such as Vanguard, Fidelity, Charles Schwab, and many more.

Mutual funds pool together money from many investors and invest it in stocks, bonds, or other securities. Mutual funds typically have a style or objective, such as following the S&P 500, buying undervalued stocks, or tracking the health care sector.

Investors pay a management fee, called an expense ratio, which typically ranges from 0% — 2% (or more) of their total investment, depending on the fund manager, goals, and past performance.

Originally, the purpose of a mutual fund was to help small individual investors who didn’t have much money invest in large areas of the stock market.

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Todd Lincoln, MBA
Investor’s Handbook

Stock-market investor, battle-scarred entrepreneur, and fireside philosopher. Creator of Investor’s Handbook: https://medium.com/the-investors-handbook