Don’t worry about these . . .
If you’ve read some articles or heard some news stories about the downsides of mutual funds, you may have heard of some of the following concerns. However, you shouldn’t let them trouble you:
✓ The investment Goliath:
One of the concerns I still hear about is the one that, because the fund industry is growing, if stock fund investors head for the exits at the same time, they may get stuck or trampled at the door. You could make this argument about any group of investors including institutions. Little evidence suggests that most individual investors are prone to rash moves. Mutual funds have grown in importance simply because they’re a superior alternative for a whole lot of people.
✓ Doing business long distance:
Some people, particularly older folks who grew up doing all their saving through a local bank, feel uncomfortable doing business with a company that they can reach only via a toll-free number, the mail, or a Web site. But please recognize the enormous benefits of mutual funds not having branch offices all over the country. Branch offices cost a lot of money to operate, which is one of the reasons why bank account interest rates are so scrawny.
If you feel better dropping your money off in person to an organization that has local branch offices, invest in mutual funds through one of the firms that I recommend in Chapter 9. Or do business with a fund company that’s headquartered near your abode. (See the Appendix for the main addresses of the fund companies recommended in this book.)
✓ Fund company scandals:
A number of funds (none that were recommended in the previous editions of this book) earned negative publicity due to their involvement in problematic trading practices. In the worst cases, some fund managers placed their own selfish agendas (or that of certain favored investors) ahead of their shareholders’ best interests. Rightfully,
these fund companies have been hammered for such behavior and forced to reimburse shareholders and pay penalties to the government. However, the amount of such damage and reimbursement has been less than 1 percent of the affected fund’s assets, which pales in comparison to the ongoing drag of high expenses discussed in the next section.
The parent company responsible for an individual fund should be an important consideration when deciding which funds to entrust with your money. Avoid fund companies that don’t place their shareholders’ interests first. (I definitely don’t recommend those companies in this book.)
Worry about these (but not too much) . . .
No doubt you hear critics in the investment world state their case for why you should shun funds. Not surprisingly, the most vocal critics are those who compete with fund companies.