Are Mutual Funds Relevant for College Students?

Investors are constantly looking for new ways to earn larger returns on their investments. Because of this, many old options have become obsolete (or at least undesirable). Here is a look at how mutual funds are viewed by today’s smartest investors.
History & Heyday of Mutual Funds

History & Heyday of Mutual Funds

Mutual funds evolved from a plan by King William I of Netherlands in 1822. Some people believe that King William got the idea from an even earlier economist, Adriaan van Ketwich. The mutual fund belief was that unity created strength for those with little money to invest. Spreading the risk to many small investors was supposedly a great way to allow smaller players into the industry.

The heyday of mutual funds was in the 1980s in the United States: it lasted through the 1990s. Little-known investors became household names as they earned shocking returns for their pool of investors. People like Peter Lynch made a lasting name for themselves because of this success. However, a few shady players turned mutual funds into a sour choice for investors in 2003. That scandal, coupled with the recession of 2008-2009, crippled the market for investors.

Mutual Funds of Today

Mutual funds have a lot of pros and cons to consider. Here’s a look at some of the disadvantages:

  • No Insurance – The FDIC will not get involved to help investors.
  • Poor Performance – 75% of mutual funds under-perform against major market indexes.
  • Fees & Expenses – 1% or more is charged in management and operating fees.
  • Dilution – A major taboo seems small in a fund that’s composed of many gambles.
  • Loss of Control – Investors have no voice.

Here are some of the advantages to mutual fund investments:

  • Diversification – Asset diversification means that many gambles are being made rather than one large bet.
  • Liquidity – It’s easy to come and go from mutual funds.
  • Divisibility – Small investments are welcome: even as low as $100 buys-in.
  • Economies of Scale – Like volume discounts you’d see in a Costco, mutual funds enjoy a bulk transaction cost reduction.
  • Professional Involvement – These funds are operated by sagacious experts.

Comparable Choices to Consider

If you aren’t sure about mutual funds, here are some similar options that you might want to consider:

  • Growth Funds – Investments in new companies.
  • Sector Funds – Investments in one sector exclusively.
  • Index Funds – Investing in shares of every single stock in a particular index.

How to Make a Smart Investment

Smart investments require forethought and planning. The smartest investors, such as Ken Fisher, Fisher Investments guru, always know what they’re going to do several moves ahead. Before you make any kind of investment you must consider all of the options and possibilities.

Being a great investor means a lot of research, analysis, and planning. No one makes money from investments that are badly planned. However, with a lot of planning and careful research, you can make a lot of money.

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