Mathematically speaking, with thousands of mutual funds now available, it is just as likely that you'll pick a bad fund as you will a bad stock. As a matter of fact, if you pick a fund that starts losing you money, you have de facto picked a whole bunch of bad stocks. Also, the benefit of mutuals is that they are, theoretically, diversified, and thus more safe. But, funds are allowed to have up to 35% of their holdings in one stock. This doesn't strike me much different than any of us buying a stock and hoping for the best, since obviously the fund manager expects that one equity to be the drafthorse for the rest. And, many high performing funds are nothing more than bets on a particular sector. Again it strikes me the benifits of diversifying are mitigated. My belief is that generally, mutual funds are just a way to make investors like you more comfortable in parting with your money, yet without any real benefit to compensate you. I think I'll stick with buying a few stocks of strong, healthy concerns, and monitoring appropriately.
Return to the Rate of Return Index.