Understanding Mutual Funds Guide – Avoid Mistakes in Selecting Mutual Funds

• What’s the mutual fund risk to reward potential? (page 5)
• What’s your mutual fund options and is it suitable? (page 7)
• What does turnover mean and how does that effect your mutual funds? (page 9)
• Free Resource Directory (page 10)

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One of my favorite stations on the radio while I’m driving or commuting for work is to listen to Biz Radio AM.  If you haven’t ever had a chance to listen to Phil Grande; you definitely should.  He’s got a great personality and a lot of what he says I agree with 100%.  I really like the guy.

One thing he says that I agree with is that “Mutual Funds are set to fail!”  One reason for that is because you can not  short the mutual funds.  You can short stocks just as long as it’s not in any individual retirement accounts.  Who really makes up all these rules?  I don’t know.

I can understand that shorting stocks may seem to be the Non-American thing to do, because if you’re an American; wouldn’t you want all US equities to go up in value over time, right?  Then again… is it fair or is it a double standard when huge U.S. institutions, banks, and so called sophisticated investors get to short the market and profit from the downside movement while the 52 million+ employees with their mutual funds in their 401k are hit with growing losses because they aren’t allowed to bet on the downside?

This is also significantly more mutual funds than there are stocks in the S&P500, which makes doing your research harder than it really has to be.  A majority of mutual fund managers can’t even get the average return rate of the S&P500 index.  If they are able to beat it, they can’t do it consistently over a long period of let’s say 10 yrs.  You can argue with me here, but I’ll get some solid figures together here one of these days.  I’ve just been a little busy with work recently.

It might seem like I’m going on a tangent here; however the point I’m trying to make is that they should allow you to short mutual funds and also short stocks in your IRA’s.  It’s just ridiculous in my opinion to limit an employees ability to be profitable as an investor when you don’t allow them to bet on the downside of mutual fund or a stock in their IRA.  I really feel sorry for those that bought BP at $60 a share in their 401k’s within the last 3 months and are still holding on.

I’m not saying to completely stop investing in the stock market.  I’m only suggesting that you further your financial education if you are to invest directly in the markets.  Also you should be open to learning about the advantages and disadvantages of all different asset classes.  That way you aren’t stuck with going long on mutual funds and stocks in your 401k or ira’s.

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