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Mini Series on basic investments Part 5

Пятница, 9 Апрель 2021 r. 07:00

Mutual funds

If ETFs, that I described in the previous part, are a passive form of investment where managers simply mimic the index, mutual funds are just the opposite.

It sounds all good on the paper, but mutual funds have had worse results than passive ETFs.

One reason why Mutual Funds have underperformed ETFs is that Mutual Funds charge a higher buying and selling fees and also have often around 1 percent management fees. That means that whether the investment manager makes or loses money for the investor, he or she gets paid first. That is a great deal.

The second reason why active managers do not ˇbeatˇ the market is that when the market is doing great people put in more and more money and when the market is down people will take money from the fund. The investment manager is then stuck with unfavorable position because he or she shoul buy low and sell high, but the investors inject and take out money in just the opposite pattern.

Therefore, because of high fees and incorrect inflows/outflows of money, the mutual funds are the most suitable investments. 

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