Why I Hate Mutual Funds

As I am on the subject of stock investing and personal investment performance, I just want to vent it out and tell why I have hate mutual funds so much.

Given the options of investing in mutual funds, index funds, and individual stocks, I have made my choice.

As of now, my entire portfolio has less than $1,300 in mutual fund.  That is in a college saving plan, and the only thing available in the plan are mutual funds.

The number one reason I have mutual fund is that the performances sucks.

Thanks to my brokerage, I review the number very easily.  Back in February 2006, I invested $1,000 in the plan and the performance is as  it follows.


The performance for the past 1, 3, 5 years and since inception (2/28/2006) are 16.90%, 10.82%, 3.84%, and 2.47%, respectively.

It has been more than 7 years since I invested the money, and the annualized return has been merely 2.47%.  If you read about my personal investment performances in accounts that I manage by myself, you will understand why I regret I put money in the mutual funds.  My personal investment performance during the past 1, 3, 5, and 10 years has been 28.52, 35.51, 19.12, and 13.69%, respectively.

I could have done better by throwing money in and S&P 500 index fund. The index returned 16.89, 12.80, 5.21, and 7.88% during the past 1, 3, 5, and 10 years.

And my observation is confirmed by a report entitled S&P Indices Versus Active Funds (SPIVA) Scorecard done by Standard & Poor, publisher of S&P indices.  According to the report, 66.08% of all domestic USA Equity Funds failed to beat their benchmarks during the year of 2012.  Longer term, 74.35% of the funds failed to beat benchmarks in three years and 68.56% failed to beat for the past five year.

The odd to select a fund that will beat the market is against individuals. As in my case, the situation is worse as one really do not have a choice when it comes to invest in this college saving plans . For this reason, I avoid mutual fund as much as I can. In situations such as College Tuition Plans when mutual funds are the only choices, I have been avoiding  in these plans and choose instead max out my Roth IRA, which allows me to invest in individual stocks and ETFs.

More on this last point in the future.

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