Mutual funds are sold as a great investment for retirement and for medium-term savings. However, I’m personally very much of the opinion that mutual funds are among one of the worst investments one can make. To start with, they’re overly diversified, which results in diluted profits. A good friend of mine is a mutual fund investor, and I told him the other day that there were better ways to make his money work for him. After telling me that I should invest in them before telling him what to do, he added “though in your defence, my almost 10k in mutual funds netted me around $10 last year.” Here is a sampling of some RBC mutual funds, and their performance in 2007, 2005 and 2003.

There were some funds that did beat out the market, but these are some of the funds with low and medium risk that RBC carries. Now how did the TSX fare? In 2007, the TSX increased 7.1%, in 2005 it increased 21.9% and in 2003 it increased 24%. Mutual funds rarely beat the market. You’re much better off investing in index funds or in more secure GICs or CDs, depending on your country.

Plus the fees you’ll pay are absolutely awful. There are hidden fees everywhere with mutual funds, just so someone else can be paid enormous sums of money to not beat the market.

There are many better things to do with your money than investing in mutual funds. Even if you don’t have the time, ability, money or will to learn about investing in individual stocks, invest in index funds or just stick the money in a high yield savings account. With a savings account you’ll likely make around 2% less than you would with mutual funds, but your money is guaranteed. With the economy looking the way it is, you want every guarantee you can get when it comes to money.

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