Is Mutual Fund for us?

New Year 2006 is approaching. Happy New Year to all of my friends and blog readers who has supported me and encourage me to write more blog. Perhaps, by contributing more in my blog, the more i learn about life.

During the weekend, I read some finance news about mutual funds return for the year 2005. Out of 20 mutual funds only 1 fund is generating positive return. I feel glad that I'm not a mutual fund investor, however i do have a few thousands invested in the Saving Fund.

Few years ago, I read a book on financial freedom, the author has encouraged me to look for the stock itself instead of investing in mutual fund as 95% of the mutual fund is losing money. We can easily get strip off by the upfront fee of 6%, and annual fee of 2% charged by most Mutual Funds in Malaysia. Regardless of whether the mutual fund performance, we are charged 2% of our total capital for the management fee. Therefore, the breakeven for us is 2% growth excluding the inflation rate.

In Malaysia, our inflation rate is around 4% (some said the actual figure maybe higher). In other words, if our money grow less than 4% a year, they are losing the value every year. By investing into mutual funds, we will be paying the professional to loss money for us. Perhaps, it might sound illogical to do this, but this is the fact most of us do thinking this is the easy way to earn extra money, and mutual funds sales personnel has pretty good sales pitch. Yes, it's sales pitch and not financial advice.

For me, I do my due dilligence on strong fundamental stock and strong growth stock with 3 to 5 year track record. Most importantly, what i found out that is, the company should take care of shareholder value, besides company management. I can't illustrate everything here, however, my return every year is more than 10%. Therefore, after inflation, perhaps 6% or more for the past 3 years.

Perhaps, you think investing stock is very risky. But, the mutual fund is investing stock anyway, you better do your homework and invest on your own. If you lose, at least u can learn for the experience, and what's better is u will not be charge extra for losing money. As Rich dad always said, "Driving is not risky when u have learnt how to drive... investing in stock market is the same."

Happy New Year