Lesson 5. Mutual Fund Picking
Good News: Managed mutual funds are a great way to diversify and have a professional money manager working for you.
Bad News: Compared to their benchmark, the average managed mutual fund does, well, average.
Worse News: After you pay the management fee, the average managed fund does worse then it’s benchmark by exactly what you have to pay in fees. And, on top of that, the average investor only makes about half of what the market returns.  (See Dalbar.) So, you might say, why not pick only funds that are above average? The problem is, you don’t know ahead of time which funds these are, and above average funds have a nasty habit of not staying there (regression to the mean).
The solution is, pick funds which have no active manager and thus nearly zero management fees. (They’re called Index Funds, Passive Funds and Exchange Traded Funds.) Comments? Go to Web Comments or Facebook Comments. Wanna skip the lessons? Go to Recipe. Wanna stay informed? Click Join Clay’s Email List.