My friend and ace market strategist Tony Dwyer at FTN Midwest Securities likes to incorporate the MythBuster theme into some of his articles. MythBusters is a cable TV show on the Discovery Channel that we both enjoy watching with our sons. Several years ago, independent of Dwyer's articles (which I avidly read), I developed a lecture for my undergraduate class at Seton Hall titled "The Mutual Fund Myth."
- Low cost due to economies of scale.
- Professional management with performance as an
- Don't assume that just because a fund is big, your costs will be less than a smaller fund.
- Don't be ensnared by the trappings of diversification. A fund's objectives, risk metrics and portfolio weightings can make or break your portfolio.
- While you're often warned that past performance is not indicative of future returns, there is still a reason for a fund's past performance. Comparison shopping and homework are required.
- Index funds or ETFs can offer competitive alternatives to large mutual funds.
- Before you invest in a mutual fund (regardless of its size), check the fund's cost structure.
- Analyze each fund's objectives, risk metrics and portfolio weightings. To review this data, go to publicly available sources, such as the fund sponsor, Yahoo! Finance, Bloomberg or Morningstar.
- Compare the performance rates of a wide-range of funds (and understand what really drives those rates).
- Consider shifting assets out of large-sized mutual funds into index funds or ETFs.