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9 Reasons Not To Own Mutual Funds

We all know the figures. Sure during the 1980's and 1990's people made money by selectively investing in mutual funds. Even today, it's still done. But remember that more than 90 percent of mutual funds have underperformed the stock market for at least the last decade.

Let's face it-if you're the average investor, you can get better odds at the horse track.

Still not sold? Here are some more reasons you as the average investor should avoid these investment traps like the plague.

  • The estimated taxes paid by taxable mutual fund investors increased 42 percent from those paid in 2006. Buy-and-hold taxable mutual fund holders surrendered a record setting $33.8 billion in taxes to the government.

  • Over the past two decades, the average investor in a taxable stock fund gave up the equivalent of between 17 percent and 44 percent of their returns in taxes. In 2006, the tax amounted to a hefty 1.3 percent of assets, which surpasses the average stock fund expense ratio of 1.2 percent.

  • If you were to subtract 50 percent-93 million plus investors-of mutual fund holders who hold stock fund assets in tax-free accounts, like 401K plans and IRA's and a small number of institutional trust funds that make a few investors tax-exempt, this would leave around 48 percent of the nation's mutual fund investors in taxable funds.

  • With mutual funds there is no control over which securities fund managers buy and sell. Investors are left with nothing to balancer out a portfolio, and no opt-out of particular asset class or company.

  • Many investors are never made aware that with mutual funds you don't own the stocks in your portfolio, but merely have shares of stocks along with a large pool of people. So what do you give up when investing in mutual funds? Control.

  • You are tied with the whims of the fund manager. These managers are known to depend on style drift (buying securities that have no relationship to fund objectives), excessive trading (to pump up a fund's value as a means of boosting commissions), and other unethical actions.

  • Mutual fund companies are masters at hiding information and spinning their marketing pitches to prevent investors from figuring out exactly what they are paying to own a mutual fund.

  • Space limits me from expanding on all the fees you pay for the privilege of owning mutual funds, but management fees, 12-b 1 fees, expense ratios, trading costs, commissions, purchase fees, exchange fees, load changes, account feed, and so on. These are all part of the mix that mutual fund companies use to nickel-and-dime the investor to death without most of them ever knowing the billing score.

  • Mutual fund companies are notorious for slow reporting to their investors. A mutual fund will give you data twice a year - sometimes quarterly - so the data is out-of-date long before you get it. Most investors don't even read their prospectus reports and fund companies' bank on this fact. Even with the Internet, the major mutual fund management companies have been painfully slow in keeping their investors current as to what stocks investors hold, and if and when these stocks are being traded.

As I say in my book (Phil Cannella, Crash Proof Retirement) the mutual fund industry is nothing more than smoke and mirrors. It is merely a complex illusion that tricks older investors into committing their hard-earned money to unreliable investment vehicles like mutual funds.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.