Investing is undertaken by millions of Americans every year. The vehicles most often used to invest in the stock market are mutual funds and retirement plans. But so often investment strategies are riddled with mistakes.
One of the most common mistakes? Paying extra but not getting extra. Even if you don’t pay for a financial advisor, you are always paying some sort of fee built into each fund that you purchase.
There are two main types of mutual funds: professionally managed funds and index funds. Professionally managed funds charge a management fee, and the unmanaged index funds charge very little to simply cover administrative costs.
The fee difference between the two types is usually just a percentage or two, but that is no small chunk of change when you really examine things. Some investors can pay over $100,000 in management fees during their investing years, yet there is little proof they are getting anything in return.
The fact is, studies have shown over and over again that fund managers rarely beat market indexes, and if they do, the gains are often swallowed up in management fees, making it a wash at best.
An important lesson to learn is that it is almost impossible to consistently beat the market. So instead of paying someone to attempt this, simply invest in the market itself by diversifying your money in various index funds. You will gain similar returns at a fraction of the cost.