Wealth-Coaching

Stock Market Investing sometimes has its pitfalls.

And if you make the wrong choices, or go into it with blind optimism, those pitfalls can include investing in the wrong mutual funds- and with the wrong expectations to boot.

The Motley Fool website is one of the leading investor resources. While one of their central purposes (which they do very well) is to teach you how to be a good investor, part of that very mission is to communicate reality checks when that’s necessary.

That said, the site has some cautionary advice for investing in mutual funds.

“The sad fact is that the vast majority of mutual funds underperform the average return of the stock market,” they write. “And they are multiplying as fast as Tribbles on the Enterprise. It’s not that they pick bad stocks; it’s that they don’t pick stocks well enough to compensate for the costs of the fund.

“The stock market’s historical returns are roughly 11% per year, but managed mutual fund shareholders as a group can expect to see any return reduced by the costs imposed by the funds.”

For more on what’s wrong with mutual funds, Fool.com has a link to their article: What’s Wrong With Mutual Funds?

Next, Fool.com mentions four other pitfalls mutual fund investors should watch out for. 

They are:

• The Wisdom of Professional Management. This is not necessarily an advantage. Many mutual fund managers have proven no better at picking stocks than the average nonprofessional, but charge fees as though they are.
• No control. Unlike picking your own individual stocks, a mutual fund puts you in the passenger seat of somebody else’s car.
• Dilution. Mutual funds generally have so many holdings by necessity that insanely great performance by a fund’s best ideas doesn’t make much of a difference in a mutual fund’s total performance.
• Buried costs. Many mutual funds specialize in burying their costs and in hiring salespeople who do not make those costs clear to their clients.

(Fool.com)