Stocks and mutual funds are the two most familiar investment products for ordinary investors. Mutual funds (also known as mutual funds) are issued by fund companies and sold to the public. The funds raised are managed by fund managers and invested in various stocks, bonds, commercial papers or financial derivatives. The income obtained is distributed to fund purchasers after deducting management fees.
The biggest reason why many people buy mutual funds is that they do not have the time and ability to study the stock market or enter the market. Therefore, they buy mutual funds and entrust them to professionals for management for long-term investment, especially for their own retirement funds or education funds for their children’s schooling. Taking into account factors such as tax benefits, transaction costs, employer subsidies and small automatic purchases, the advantages of buying mutual funds do exceed stock investments.
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There are many types of mutual funds. How should we choose?
Most people buy mutual funds by listening to the advice of investment advisors or bank managers and buying the mutual funds they recommend. Because you don’t understand investment and don’t have time to understand it, you just buy whichever fund the “experts” say is good. But there are two problems here: First, many so-called investment advisors are actually brokers, and their income mainly comes from sales commissions. Fund companies give them kickbacks to encourage them to promote the products of a certain fund company, which leads to a conflict of interest. If it is a bank manager, the funds he recommends to you are usually issued and managed by his bank. No matter how high the returns of other companies’ funds are, he will not recommend them to you.
Even if your investment advisor is not restricted and only recommends No-Load Funds (commission-free mutual funds that do not charge transaction fees), the mutual funds he recommends may not necessarily achieve satisfactory returns in the next few years (please do not only look at the return rate of a fund in the past few years, which is a completely wrong selection method). Three professors from Harvard University and the University of Oregon once published a research report. They collected mutual fund industry data from 1996 to 2004 and compared the results obtained by investors who selected funds themselves and those who selected funds through expert advisors. The conclusion of this study is that investors who select funds through professionals pay more than twice the management and service fees than investors who select their own funds, and the long-term returns of the funds they purchase are lower than the returns of funds selected by investors themselves. How low are the returns? If the entire fund industry is counted together, investors who buy mutual funds based on expert advice will receive an average of $9 billion less in returns each year.
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