Comments on: 5 Problems With Mutual Funds That You Should Know About

By: mary

mary — Fri, 21 May 2010 09:48:16 +0000

Your article on mutual fund is very educative. Please I need update on the current situation on mutual fund and update on ETF products for a developing market.

What are the risks associated with ETF?

By: Daddy Paul

Daddy Paul — Wed, 06 Jan 2010 02:57:38 +0000

ETF’s are wonderful investments but many are tempted to over trade them.

By: Pinyo

Pinyo — Sun, 09 Nov 2008 15:04:51 +0000

@Nicole — Sorry I didn’t answer your question sooner. I think “any time” is a good time for long-term investing. Just set up a pace — i.e., invest $500 a month — and keep going. You’ll buy more when the prices are low and less when the prices are high — and it will average out in the end.

Regarding where, you should look at tax-sheltered accounts like Traditional and Roth IRA first. If you are able to max out the contribution, then look at 401k or other retirement plan. Mutual funds work well in these tax-sheltered accounts where the annual distributions will not hurt your performance and it’s cheaper to buy more shares (usually free if you have no-load, no-transaction fee funds).

By: Jonathan

Jonathan — Fri, 07 Nov 2008 11:05:41 +0000

The tax implications of these funds are rarely considered and yet as you rightly point out you could end up paying tax on a dwindling investment. An excellent review Pinyo, thanks for this.

By: Nicole

Nicole — Sat, 18 Oct 2008 01:13:43 +0000

I am new to the mutual fund business, I would just like to know if right now is a good time to buy long term investments because the market is low right now?

Can someone give me a little educated advice on if I should put some money into mutual right now, or if I should wait because the market is unsecure?

Thank you.

By: Pinyo

Pinyo — Thu, 09 Oct 2008 02:11:14 +0000

@Adam – Thank you for your comment. Let me rephrase that. Let say in the universe of small cap stocks (which is what you want your fund to focus on), you can roughly divide stocks into 5 buying grades — excellent, good, fair, poor, and bad. Some funds are so large that they can’t just buy excellent stocks, but are forced to also buy good and fair stocks. I think this is a better explanation of what I am trying to convey.

By: Adam

Adam — Thu, 09 Oct 2008 01:57:33 +0000

I’m not sure that I would call sub-optimal purchases a disadvantage. If I am paying a mutual fund manager to invest in small cap value stocks, then that is what I want them to invest in. I invest in the fund because it is in the area that I want. They should not deviate away from that, even if something like large cap is more favorable.

By: Pinyo

Pinyo — Tue, 07 Oct 2008 23:54:31 +0000

@Fathersez — Wow. Thank you for sharing that info about Malaysian Funds. I am not sure if this type of thing happens in US funds, but I am sure there’s a lot of “you do this and I’ll do that” at many levels. A more common problem that I have read about is called “window dressing” where the fund manager will trade out of and into certain stocks to make the prospectus looks good.

@DGI — In this case, ETFs will give you more control since the mix is predefined, but still not as much control as building your portfolio of individual stocks — assuming you have enough money to invest, this could be cheaper too.

Regarding most mutual funds are invested in tax deferred accounts, I supposed this is true given the amount of 401k, 529, and other tax-deferred accounts available today.

By: Dividend Growth Investor

Dividend Growth Investor — Tue, 07 Oct 2008 18:47:01 +0000

My only problem with mutual funds is that I don’t have a say about the weights of different positions ( I prefer equal weighted portfolios).

Since most people own mutual funds in their tax deffered accounts, i doubt that the tax issues are relevant for most of them..

By: fathersez

fathersez — Tue, 07 Oct 2008 09:20:56 +0000

There is another problem if you may call it. A lack of integrity on the part of the fund managers where they buy a busload of not so good stocks from someone who wants to unload. Most probably there is some sort of a cut for these managers.

When the stocks tank, the fund holders are left holding the baby.

We have had cases in Malaysia where funds (especially some State sponsored funds) have become worthless.