Mutual Funds are a Scam
Mutual funds, for years considered the obvious, sensible, go-to choice for the everyman investor, are now widely recognized to be a pretty bad option.
Consider that in 2011, 90 percent of all actively managed US mutual funds underperformed their benchmark index. Ninety percent! This means that the vast majority of people who were invested in mutual funds would have been better off investing in a low-cost index fund which simply attempts to match, rather than beat, the performance of the market as a whole.
And 2011 was not much of a fluke. Even in their "best" years, "only" 80 percent of actively managed funds underperform their benchmarks.
In other words, even the supposed "expert" managers who run these funds are considerably worse at picking stocks than darts thrown at a dartboard, which would have a success rate of 50-50 for beating the overall market, rather than 10-90.
A charitable explanation of this gross underperformance is that active trading and associated commissions and bid-ask spreads along with "reasonable" management fees tend to erode the performance even of relatively good managers.
A less charitable and probably more accurate description is that actively managed mutual funds are scams designed to enrich managers and issuers at the expense of gullible investors by lining their pockets with fees and commissions every year, regardless of actual performance.
So the lesson of all of this is you should just go ahead and buy a passively managed index mutual fund, right?
Wrong! While index mutual funds outperform actively managed mutual funds, they still have fees that are at least double those of the ETFs ("exchange traded funds") that track the exact same indexes. Not to mention that ETFs have other advantages such as the fact that they can be bought and sold at any time rather than only at the end of the day like mutual funds, and generally are more tax friendly than mutual funds because shares can be created or destroyed to meet changes in demand without generating taxable capital gains.
And while I highly recommend a portfolio of only index funds and perhaps a few carefully selected individual stocks for the average investor, even if you insist upon active management of your investments, the fees for actively managed ETFs are significantly lower than those for actively managed mutual funds.
So basically there is no reason to ever buy a mutual fund. Seriously, don't buy these things.