5 Reasons Why Mutual Funds Will Outperform Stocks

For most investors, the magic number before stepping away from mutual funds should be roughly 1/2 of a million dollars. This is because at that level, dedicated investment managers will take and spend the time to manage your portfolio for a decent chunk of change, which in many case is tax-free. So where should you invest while you build that nice little half-mill? Why, funds of course (including ETFs). Here are five reasons why funds and ETFs are the way to invest:

1. Mutual funds offer professional investment management for a marginal fee. While most dedicated investment managers will argue that their slightly higher fees (often) are tax-free, they are often higher than what most mutual funds will charge. Ultimately, the quality of mutual fund investment management is either greater than or equal to that of dedicated investment manages (in fact, many investment managers are the same if you are dealing with a large money manager anyway).
2. Funds provide a great deal of diversification. While there is a risk of "over" diversification, mutual funds aim to return the highest return with the minimal risk. This means no single security should cripple the fund.
3. Funds are extremely transparent, highly regulated and easy to understand. The quality of information about specific funds is quite high. Finding out information about potential investments is simple.
4. Fund offerings are diverse enough to fill whatever gap an investor needs to fill. Whether an investor is looking to round out their portfolio with bonds, small cap value securities or even steady, large cap dividend-paying securities, there are numerous funds and fund companies that exist to meet that specific need.
5. Funds are easily accessible often at no cost. Depending on how you invest, there are often ways to purchase mutual funds without paying a Load (think of it as an administrative charge for making the purchase) or a transaction fee (this is similar to a trade commission).

As demonstrated above, there are few reasons why funds cannot meet an individual's specific investment needs. Of course, this argument can be invalidated by the fact that many funds do hold a lot of securities. So much to the point that all but system risk is diversified out of the investment. And this is, of course a valid argument... provided that the investor has the knowledge and resources to outperform the fund to begin with.

--> Reverse-engineer your Investment Management Decisions... Watch the video on Rogue Investment Tactic #1!

Chris has more than 16 years of experience with Investments. He is the Fund Advisor for the MutualFundSite.org, a website that suggests that people who want to know Where To Invest are best purchasing Mutual Funds in their portfolio(s).

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Rogue Mutual Fund Investing

One of the most common amateur techniques for stock picking involves standing around the water cooler (or online message boards) and picking up on cues given by people who know someone who know someone else who knows yet another person who said this or that and, get this, Stock XYZ is where you want to be. In some cases, these tips work out to the advantage of all those who risked their grocery money or mortgage payments. In many more cases, however, those types of tips do not work out.

See, investing is a lot like the game of poker. While skill and knowledge are clearly valuable, there is always an element of luck. Even the greatest companies with the greatest results can see their stock price plummet... based simply on an outlook that was moderately lower than what investors had hoped for.

This further reinforces the power of mutual funds as an intelligent investment option for every investor. But many defiant investors will argue until they turn red in the face (or suffer a stroke) that there is too much "garbage" in a fund. They will argue that most people should pick the winners instead of taking the whole basket.

The question becomes: which are the winners? So many companies publish great quarterly or annual results only to see their stock price drop. So, how do you pick those winners and what makes those "losers" unqualified?

To make the process easier for investors, consider reverse engineering your investment decisions. Have a handful of stocks that are "guaranteed" to double or triple over the course of the year? Perfect. Buy them... within a mutual fund. Here is how you can enjoy those great returns while protecting yourself against the downside (take note: if you have 5 "sure bets," at least 2 of them will tank).

1. Search for the Major Mutual Fund owners of the stock(s) in question. For example, let's look at Apple Inc. Its largest Mutual Fund owner is the Fidelity Contrafund.

2. Investigate the Mutual Fund instead of the stock as it is much easier to do. In keeping with the example above, the Fidelity Contrafund is a highly ranked fund (and has been for the past 10 years). It is considered to have average risk for above average returns compared to other funds in its peer group (unlike Apple alone which would be higher risk on diversification reasons alone).

3. Purchase the mutual fund if it meets your risk and objectives rather than the stock. In keeping with the example above, let's assume that the talk around the water cooler was wrong and Apple tanks the the same week that Google skyrockets... good thing you bought the fund instead; the Fidelity Contrafund used in this example also owns Google.

Ultimately, owning a mutual fund, even if you are reverse engineering your investment decisions, allows you to enjoy a greater deal of diversification, which is a fundamental of proper asset allocation.

Free Video On How to Use This Rogue Investment Management Technique at the Mutual Fund Site. Chris has more than 16 years of experience in the Mutual Funds industry. He is the Fund Advisor for the Mutual Fund Site at MutualFundSite.org.

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The Top Mutual Funds & Your Best Investment

The top mutual funds are funds from mutual funds companies that are investor friendly. These top mutual funds are actually easy to find, and are probably the best investment for most people. Here's how to find funds that work for you and give you a performance advantage year after year.

The top mutual funds offer you an investment advantage year after year and they can prove it. These are your best investment if, like most people, you need help managing your investment assets. I call them investor friendly simply because they do not charge you an arm and a leg when you invest money with them; plus they offer good service and a broad array of investment options.

Mutual funds are sold to investors and managed for them by mutual fund companies or families. Some market their funds through middlemen and pay professional money managers big bucks to actively manage their funds in an attempt to outperform their competitors and/or benchmarks. Then they pay big bucks to advertise. Who pays for all of this? Put another way, do you always get what you pay for?

Since NO mutual fund can prove that it consistently outperforms its competition, it makes no sense to look for the top mutual funds based on past investment performance. Middle- men can cost YOU sales charges of 5% or more off the top when you invest money. Active professional management and high marketing expenses and other services can cost you 2% or more a year to just hold your investment. I don't call that investor friendly. No, you do not always get what you pay for.

The top mutual funds, in my opinion, work with you and not against you by operating efficiently and honestly while passing the savings on to you. Some of the largest fund companies in America work directly with investors and offer good service at low cost. In my opinion this represents the average investor's best investment. Simply put, all costs associated with investing work to eat away at your investment earnings. For example, if you can get 2% interest a year at the bank, why pay 3% off the top and more than 1% a year to earn 5% or 6% in a bond fund?

Here's how to find the top mutual funds that are investor friendly with low costs. Start by going to the internet and searching "no-load funds". These funds have NO SALES CHARGES or commissions when you invest directly with the fund company. Then go to a couple of the sponsor sites at the top of the page. For example, Vanguard, Fidelity and T Rowe Price will likely be there. They are large mutual fund companies.

Then go to one of these sites and search for INDEX FUNDS. These funds do not actively try to beat their competition or benchmark (which is an index). They simply invest in line with the index to duplicate its performance. By doing this they save on management costs and pass the savings on to you. Since few funds consistently beat their benchmark, and many perform worse, why take a chance and pay extra for active management?

Check out the EXPENSE RATIO of the various index funds a company offers. Since these are no-load funds there are no sales charges, but all funds charge for yearly expenses. For example, you can find stock and bond index funds with expense ratios of less than ½% a year. Basically, that's your total cost of holding that investment for a year. A low cost of investing gives you higher net profits, and works to your advantage year after year.

A retired financial planner, James Leitz has an MBA (finance) and 35 years of investing experience. For 20 years he advised individual investors, working directly with them helping them to reach their financial goals.

Jim is the author of a complete investor guide, Invest Informed, designed for average investors or would-be investors of all levels of financial background and experience. To learn more about investments and investing and his new financial guide go to http://www.investinformed.com.

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