The Big Bad Mutual Funds

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History

The history of the mutual fund can be traced back, actually as far as the 18th and 19th century.  The idea that we know today was really formalized in the 30s and 40s and became prominent in the 1950s.  Rapid growth in the stock market through the 80s and 90s drove even more money into mutual funds.  To the average investor, they were a gateway to an unknown playground.

Looking at Wall Street can be an intimidating prospect for the average investor.  A picture comes to mind of the Monopoly man in his three-piece suit counting his money that he made from information that we, the common investor, doesn’t have and may not even understand.  Mutual funds gave these investors an easy way to put their money in the market and quickly diversify smaller amounts.  Over time these mutual funds have grown into monsters.

What’s the problem?

There are several issues with investing in mutual funds.  One is that the sheer size of a mutual fund can move the underlying investment that they’ve made.  More importantly are the hidden costs and fees that the average investor doesn’t even know they’re paying.  These fees can be upfront loads, they can be back end loads.  There’s management fees.  There’s marketing fees, 12B-1 fees and the list goes on.  Services like Morningside have helped the average investor immensely by bringing these numbers to light.  There are good mutual funds out there.  There are bad mutual funds out there.  This article does not serve and should not serve as a recommendation to buy or not to buy mutual funds, but simply to make sure you know what you’re getting into.

What are my options?

There are several options available for the average investor.  The much newer idea of the exchange traded fund or ETF is often a lower cost and more liquid investment for the investor.  Our new connected world has also changed the financial landscape.  Advisors are more efficient.  Often advisors now do not have the minimum that people are used to seeing.  At one time, it was common to hear an advisor turn away investors with less than a million dollars.  Today, top level advisors can be found for any investment.  This is great news for the “little guy.”  There are options available and advisors ready to help to give you a portfolio that matches your risk tolerance, your time horizon and your financial needs without having to sacrifice your funds to a faceless, nameless manager of a large obfuscated fund.