Mutual funds are not what they used to be. Recently, investors that have retained their faith in mutual funds and how they are run have had that faith shaken. As the mutual funds have not performed as well as investors have hoped, and the charges required by some of these mutual funds are not worth it.
Here are some ways to reduce mutual fund fees and get more out of your investment:
Most mutual funds do not beat the S&P 500
About two thirds of active, large cap mutual funds did not beat the S&P 500 over the last five years. If you are trying to be more conservative or defensive, paying for a mutual fund may not be a bad idea. Reaching for more valuable investments at a time in your life when you really just need to save for retirement may not be a wise move any way. If you are wanting to invest in equities built for growth, you will need to beat the S&P 500, and paying high fees to a mutual fund is not the best move either. You may be better off investing in an ETF or SPY.
Check the protection being offered
This is such a thing as too much diversification. Mutual funds tout their mathematical superiority with extensive diversification. Some investors could have holdings in over a thousand stocks, but they may not be worth the protection they offer. Investors will pay large fees for this and find themselves beyond the point of diminishing returns. At a certain point, diversification can be overkill, and investors can do better than paying for needless mathematical calculation.
Fees add up
It is not uncommon for a mutual fund to charge its investors as much as 2% in a good year. That does not sound like much, but consider if your mutual funds make you about 7%, you will end up paying 28.5% of his investment for management fees that year. At times, mutual funds are not worth the fees.
If a solid, defensive investment is what you want, get a mutual fund; but remember that sometimes the fees are exorbitant.