No. of Recommendations: 1
I am thinking of investing in the equity portion of one of the mutual fund portfolios offered by Rule Your Retirement. Right now, I am invested in a portfolio of 10 stocks that have done wonderfully this year, but this small number of stocks, in only three sectors, is too risky for someone my age.
However, I hesitate to invest in even well chosen mutual funds because mutual funds tend to water down returns because they hold so many stocks and because a new investor will be liable for the capital gains generated by the fund in the past.
Does anyone have an opinion as to whether mutual funds really do generate smaller returns than a portfolio of stocks and if so, if their safety worth it?
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No. of Recommendations: 3
There is no free lunch. With very few exceptions, higher returns mean higher risk. A great many people held the idea bank stocks were conservative, high dividend paying investments i.e. great for widows and orphans. As you may have noticed, many banks have gone broke and any bank that took TARP money was forced to reduce or eliminate their dividends.

Generally a mutual fund is designed to reduce risk by investing in several companies. Some funds invest in several banks to continue with that sector. Some funds invest in a singe country or region. Some investment very broadly with the idea of returning the average of all stocks.

During the last 24 months it has required effort not to obtain good returns. The S&P 500 is up 58% plus what ever the dividends have been. So have your 10 stocks done better than 60%? If not, you have failed to equal the market and done so with greater risk. (Consider if one of you stocks had tanked.)

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