Why I Don't Invest in Mutual Funds

I know I'm going against the trend here, but I no longer invest in mutual funds. When I first started investing, I held shares in 7 or 8 different mutual funds, thinking, like so many others, that this would provide great diversity and lower my risk of losses. Well I did lower my risk of losing money, however, in the years that I held these funds I made practically no money! I would have been better off at the time to simply have kept my money in a regular passbook savings account. It wasn't that the share prices did not go up, it was the expenses associated with the funds. The fees charged by mutual funds eat up a great deal of money that, to my way of thinking, should go to the investors. Yeah, there are a lot of people getting rich off mutual funds, but they are mostly the people who manage the funds and the company's they work for.

The real turning point for me was when I purchased shares in Mobil Oil six months prior to their announcement of a merger with Exxon. In those six months my investment doubled in value and I sold my shares for a nice tidy profit. The only costs associated with this transaction were my broker fees for purchasing and selling the stock. Of course I did have to pay capital gains taxes, but you have to pay those on mutual funds too. What I didn't have to pay were exorbitant management fees for lackluster performance. Like Peter Lynch says in one of his books, you only need a few investments in stocks like this to make a lot of money. So I sold all my mutual fund shares and invested entirely in individual stocks. I've had several more great investments since then and some misses too, but I sure don't miss the fees.