On this blog, I try to focus on providing analysis on companies to help people decide what to invest in. I also try to expose people to new companies that are not well known but could be good opportunities. That’s my goal. I have had people ask me if they should be trying to manage their own money and investments or if they should just get a money manager or invest in a mutual fund. I’m not going to answer that question as it depends on the person, but I do want to make known that going that route does have some negatives.
Before I get to the negatives, I do want to start off by saying that going the route of money managers and mutual funds is not necessarily a bad thing. I plan to get into money managing one day as I’d like to own a fund of my own. Some funds do really well. The issue is that most do not. According to Morningstar, only 26% of funds beat the S&P 500 over the decade ending December 2021.
There are several reasons most funds underperform. First, amount of capital. A lot of these funds have Billions of dollars in them which actually limits the kind of investing they can even do. Even if they find a good small company that’ll go up tremendously over the next decade, it’ll be such a small part of their overall portfolio that it’ll barely matter.
Second, fees cut into profit. Obviously, fund managers don’t work for free. They take a fee from the money that they manage. Most funds have a .25%-1% management fee with actively managed funds being highest. These fees cut into profits.
Again, mutual funds can be a good option for people looking to invest their money, but there are negatives people should realize. If one is committed to going the mutual funds route, it’s important to research as much as possible as there are thousands of funds out there and most don’t beat the S&P.
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Finance by CWT 