Blogs & Comment

Are mutual funds rip-offs?

Mutual funds have thrived despite a wave of critical studies and books, one of the latest being The Investor’s Dilemma (2008) by Louis Lowenstein. In my May 22 column, Are mutual funds a rip-off?I offered some possible explanations why the industry has held up, such as the value-added derived from financial-planning services bundled with mutual funds.

Thats not to necessarily say investors ought to buy mutual funds with high annual management expense ratios (MERs). An alternative is passive, indexing solutions like MoneySenses Couch Potatoapproach.

Just spread your savings over several broad-based index funds and/or exchange-traded funds to set up a portfolio that is diversified over stocks, bonds, cash and other assets. The annual MERs are under 0.5% and the time or energy required is practically nothing. Yet, studies show your portfolio will do as well as or better than most people with financial advisers.

But then all those other personal-finance issues remain — like the best way to minimize taxes, save for retirement, arrange ones estate, etc. They will require some time and effort to address properly. You can do it yourself, get advice from a knowledgeable friend/relative, or hire a financial adviser.