Wednesday, February 21, 2007

Mutual Funds

Ok I’ve received a few emails about mutual funds so I just thought that I’d share my general thoughts on them. Ok investment advisors plug your ears. In general I think mutual funds are a total waste of money (2% to 3% MER makes a huge difference in the long run) additionally I don’t think that 95% of the fund managers out there are any better than a savvy amateur (because of the amount of money they have to move). I can’t remember the exact stat (and I’m too lazy to look it up) but I seem to remember that it was something like 80% of fund managers don’t beat the market.

That being said there are a few situations that I personally would buy a mutual fund.

1. If I think the fund manager is smarter than me.
2. If I want exposure to a very risky area (ie- biotech)
3. If I want exposure to a market that I don’t follow (ie-outside of North America)

Two of my favorite managers are Francis Chou and James O'Shaughnessy. I’m currently taking a hard look at O'Shaughnessy’s global fund and will probably make a purchase in the near future.


George said...

It sounds like you're lumping all mutual funds into the same boat.

Not all mutual funds have high MERs, and not all mutual funds are actively managed. Many people invest in index funds because of their low MERs; an example is the "Couch Potato Portfolio" suggested by Moneysense magazine.

Middle Class Millionaire said...

I agree not all mutual funds have high MERs. However, I think that in general mutual funds are not a good value (except in the cases I outlined in my post) but perhaps I should have been more specific. I agree with you that the MER on ETFs is quite reasonable. I don't have a problem with the MER on ETFs, I have a problem with funds that charge 2 to 3% to underperform the market (which is the majority of them).


advantage said...

I agree with you on this MCM. I feel the same way regarding Mutual Funds.


Exchange traded funds are a great way to play the market