The Truth About Mutual Funds

When it comes to investing you have a lot of choices. You may have asked yourself, “Are mutual funds a good investment?” Maybe you’re looking for some mutual fund investment advice from someone who isn’t a fund manager.

Always remember your mutual fund manager wants to keep your money, so does your broker, and any other financial services professional who happen to have their hands in your pockets.If you tell them that you want to invest on your own, your fund manager will make the argument:

  1. You don’t know what you’re doing.
  2. You don’t have any experience.
  3. Investing, like brain surgery, is best left to the professionals.
  4. Nobody beats the market anyway.
  5. 15% a year is very unlikely for amateurs, so don’t try.
  6. If the pros can’t do it, you certainly can’t.
  7. If you could do it, everybody would be doing it.
  8. Who is this Rule #1 guy anyway?

Think about it like this:

Centuries ago, little guys like us lived as peasants in villages in Europe. Each village had a guy who read our letters and wrote replies. He was literate. Certainly he was held in awe. He could read and write. If you asked him if you should learn to read and write, he might chuckle and pull a heavy bound book off the shelf and open it and show you the intricate Latin designs on the page that somehow made sense to him, but to you they were no more enlightening than the patterns of stones on a beach.

He might have said, “Certainly, you could learn if you had the time. But it does take teachers and tools like this book—both of which are very expensive. I doubt you could afford it, even with your fine job as associate smith in the stable. Also, the writing is in Latin. Do you understand Latin, tu assimus dumbus? Besides, you don’t need to do it. That’s what I do for you, and I’m happy to do it. If you need something read, just bring it in and I’ll see to it immediately. After all, I’m here for you.”

And off you’d go, putting out of your head any thought of reading and writing, chalking up the idea as a silly fantasy and a waste of time. A few years later, though, Gutenberg would come along and invent a technology for getting books into the hands of many, many more people. And soon enough, the notion that the average citizen should be able to read and write would gain currency.

The Financial Revolution

In much the same way, I think financial literacy is on the way, and you’re already a part of that revolution.

It’s easy, and soon everyone will be doing it. If you continue to learn and practice Rule #1 investing, you’ll benefit by being among the first to go on your own (excluding, of course, the very small group of investors who’ve been practicing Rule #1 for decades).

Are Mutual Funds a Good Investment?

If you own mutual funds that are attempting to beat the market, and you’re hoping your mutual fund manager can give you a nice retirement, you’re highly likely to be the victim of a huge scam.

I can prove it to you…

Download this retirement calculator and see where you’re at in terms of when you can retire.

You’re not alone either —100 million investors are right there with you. Most fund managers fail to beat the market, according to Fortune, they can’t beat Index Funds. In other words, almost no fund managers have done what they’re paid by you to do— beat the market.

Why would you pay someone to do something that you could do better and for free?

That significant fact went unnoticed through the roaring 1980s and 1990s as the stock market surged with double-digit growth, bringing your fund manager along for the joyride. But, now the ride is over, and investors are starting to notice that their fund managers are pretty much useless. This is not a new observation.

Several years ago, Warren Buffett said this about your fund manager:

“Professionals in other fields, like dentists, bring a lot to the layman, but people get nothing for their money from professional money managers.”- Warren Buffett

The key word here is nothing. And yet, what do you do? You give your hard-earned money to one of these guys and hope he can deliver those 15%-or-better returns, like the ones you got in the 1990s.

Why? Because you don’t want to invest your own money, and because you’ve been convinced by the entire financial services industry that you can’t do it yourself.

Come on, get real. From 2000 to 2003, mutual funds lost half their value. You could have lost 50% of your money without the help of a professional. In fact, in 1996 a monkey was hired to compete with the best fund managers in New York. He beat them two years in a row.

In other words, you should be doing this yourself.

But you don’t.

The reason you don’t is that the entire financial services industry perpetuates the myths of investing to keep people investing with them in spite of the industry’s dismal performance over any long period.

You Can Beat the Market

Okay, it’s true that 96% of all mutual fund managers can’t beat the market.

But, you’re not a fund manager and you’re not judged by whether you beat the market. Your financial skill is judged by whether you’re living comfortably when you’re 75.

You shouldn’t care whether you beat the market. If the market goes down 50% but your fund manager loses only 40% of your money, he may have beaten the market, but does that seem good to you?

Rule #1 investors expect a minimum annual compounded rate of return of 15% a year or more. If we can get that, we don’t care what the market did. We’re going to retire rich anyway.

So, what do you think? All you have to do is dig a little deeper into Rule #1 and you can learn to pay yourself, and not your fund manager. Learn other stock market myths that are keeping you poor and your fund managers rich by clicking the button below.


Phil Town is an investment advisor, hedge fund manager, two-time NY Times best-selling author, ex-Grand Canyon river guide and a former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence. You can follow him on google+, facebook, and twitter.
  • Mary Waters

    For many many years….i have been managing my own money…successfully…all your points are very valid….no one cares more about your money..than you do…that is what i also kept in mind …..and if a person can think…do a little research…have specific goals they want to meet….the internet makes it easy today…i had no internet when i was doing it….the library was my friend :-)….i would rather make a mistake than have someone else make one for me…..i made very few errors and i was able to correct things before they became the big errors i was hearing about….the points here in this blog are really critical and valid……to me, what told me i did well …is not the money made…but, the money i did not lose during the problem times..I am grateful I did it my way ..and not someone else’s…

    • Yes Mary.
      Your post is right out of my memoirs and the library is still my friend. I prefer to read books with my library card or through the inter-library loan program. Afterwards, I buy the ones that I want to catalogue and add to my multi-disciplinary collection. Of course, I do research online and thrive on the interaction with others during conference calls, annual meetings, workshops, even at the local grocery shop. This is always an individual choice and Integrity is a large part of this choice.

      • Mary Waters

        Yes…I, for sure, could have written your comment:-)…you obviously have always thought for yourself….as I have ….yes, you are correct on the integrity issue…very hard to find :-)….Best wishes to you, Mr. Bradlewski…

  • TzuZen

    While I’m bummed it took me so long to finally do this – really start on the Rule One path – I’m glad I am rolling. The three day seminar in Atlanta was as advertised (zero selling with loads of quality work time with coaches) and it cemented what I’ve studied in the books. The post-workshop homework has got me rolling.

    The InvestED podcast with Danielle Town and Phil is also excellent as the messages from the financial services industry has done its job of sowing fear quite well. I like the fact that Danielle asks the kinds of questions many of us have who have sat on the fence about investing our own money.

    One upside of saving is that I’ve got money to work with and no debt. It’s hard to be patient now since I’m excited.


    • Hi TzuZen
      “One upside of saving is that I’ve got money to work with and no debt. It’s hard to be patient now since I’m excited.’

      That’s one big upside. This is your edge. Be exited and never lose your edge