Mutual Funds – The Mutual Fund Fallacy: Why Mutual Funds Are The WORST Investment PERIOD!

Mutual Funds - The Mutual Fund Fallacy: Why Mutual Funds Are The WORST Investment PERIOD!



hey everybody Michael stead here founder of the abundant society where we teach you how to invest and grow your money the way the rich and the wealthy do so that you can create the financial freedom and prosperity that you deserve and welcome to the video today called the mutual fund fallacy why mutual funds are the worst investments and why you should stay away from them period now before we get to the reasons why they are the worst investments I wanted to start off today's video with a quick story which I call the dilemma because I think it's something you might be able to relate to in your own personal situation so here it goes you're nearly graduated from college and begin making your way into the working world then you begin hearing all this complicated financial terminology and jargon which you know absolutely nothing about you begin hearing words such as mutual funds dollar cost averaging compounding interest RRSP is TFSA is 401ks IRAs so on and so forth diversification contribution matching and needless to say it's enough to make your head hurt not only that but you begin making some decent income from your job and you be able to start accumulating some money and you know that you should be doing something with it but you don't know what you should be doing with it your friends and family seem just as confused as you are and you aren't sure who to turn to in order to get the right advice and the right guidance so you do what most people do in the situation and they go down and talk to their local financial advisor now when you sit down with this individual he seems very intelligent very well educated and he'd been saying things such as you know we need to diversify your money don't put all your eggs in one basket and he starts showing you these fancy pie charts and graphs that he put together which shows you how well allocated you are in all these different investments if you were to pursue business with him not only that but he shows you these charts where he shows you the benefits of investing over the long term and shows you how much your money would have grown over the past 30 or 40 years by simply just putting it in the market and just letting and ride so to speak not only that but you start to get very very excited about your future you start to see the benefits of money and investing and saving for the future and you start to get excited because this individual you're speaking with sounds very smart and sophisticated seems very friendly and seems to have a genuine interest in wanting to help you however because you're unsure of what to ask he doesn't discuss his compensation with you or how he benefits directly by working with you all you know is that he is going to manage your money on your behalf so that in the future you can retire blissfully happy because you're comfortable with this individual and you're confident in their abilities you start to ignore your financial situation because someone else is looking after that for you so therefore you begin to ignore the financial markets because you're just too busy to follow them and quite frankly they're just too hard to understand you focus on what you do and your advisor manages your money and everything seems to be completely fine until one day we experienced a financial meltdown the stock market crashes interest rates tick up violently and your account starts to go down in value you're unsure of what to do because you see the value of your account plummeting day by day and when you contact your advisor he consoles you and says we know don't worry about it now is not the time to sell we're in this for the long haul remember remember the benefits of investing over the long term everything is going to go back to normal everything will be fine and not and even though he says this you're still worried you're scared and you're unsure of what to do because you don't understand what is happening and you don't know how to respond to it now obviously I shared this story just for illustration purposes but it was my hope that you were able to relate to the story somehow with your own personal situation and if this sounds like a similar experience that you had and you're still unsure of what to do and what to make of this entire situation here's you need to have a massive paradigm shift and really look at this whole look at the financial industry through a whole different set of glasses so to speak and where I want to point your attention to first off is I want to show you something quite interesting and as you can see here I'm talking about the Forbes 400 and as you know the Forbes 400 is the 400 wealthiest people in America and in this magazine it basically shows these individuals and shows how they accumulated their fortunes now that we know that I want to show you something that's very telling and very interesting so obviously I'm not going to go through the entire list because that would be a far longer video than you are I personally have time for but on a point on a few key people here so as you can see here the 7th wealthiest person on the planet is George Soros and he has a net worth they're estimating around 22 billion dollars and he made his wealth through hedge funds now I know what you're thinking wait a second I thought we were talking about mutual funds now you're talking about hedge funds what's the difference well a mutual fund and a hedge fund they do have similarities then they also have some differences the similarities that are important for our purposes is that both of these types of funds is where money is being managed on someone else's behalf okay so now that you understand that that we're going to talk about morrible what that means at a moment but this should be very very telling for you and very very very important for our purposes here so he's the seventh wealthiest person on the planet now the next person I want to point you to is an individual named John Paulson who is the 17th wealthiest person on the planet and Forbes estimated his net worth is around fifteen point five billion dollars and again his wealth is made through hedge funds another individual a little bit farther down the list but uh same thing applies his name is Charles Johnson he's a seven seventy second wealthiest person and he isn't net worth around four point four billion dollar and as you can see here he made his wealth through financial services and I wanted to just pull up his profile and just you know get a little bit more information on this individual and as you can see in the bold red underline there his firm has more than ten billion dollars in assets under management and if you're unsure of what that means or the significance of that we're going to talk about what that means here in a moment but here's what you really need to understand about this entire situation and here's the truth of the matter the richest people in the world don't invest in mutual funds they sell them to you oh you see guys the wealthiest people in the world they're not directly investing in these mutual funds they're merely they're merely selling them to you and they're benefiting on your behalf and if you were to go through the entire Forbes 400 list you wouldn't find one individual not one and I'll post the link below this video so you can check it out for yourself there's not one individual on the list that has made their fortune by investing in mutual funds and just to show you something kind of interesting this is actually the Standard and Poor's 500 the S&P 500 it's basically just a collection of the 500 largest blue chip stocks and over the last 10 years this index fund has done around 46% now if you invested 10 years ago that means your account would be up 46% now a lot of people think you know that's partly well that's pretty good but here's the thing if you average that out that's only around four point six percent per year and while you may have your account may be up in nominal terms the dollar the US dollar has lost more than thirty percent of its value over the past decade so while you may have made nominal gains in your account might be up you haven't gained in purchasing power which means that you have actually lost a substantial amount of money even though you've invested over the long term like your advisor had advised you to do not only that but this doesn't take into consideration you know the taxes that you may have had to pay on that money or the fees that have been extracted from your account by your advisor managing your money on your behalf and know what's really quite disturbing about this was that you know over the past ten years it's done around forty six percent the SP has over 80 percent of the mutual funds out there that are sold they underperform this market benchmark so in other words even though that fund has returned around four point six percent per year many of the fund over 80 percent of the funds out there today they underperform this which means you're they're losing even more money and what do you really begin to understand this information you begin to realize that the real business that financial solutions are in is really only one of two things number one it's asset accumulation vit and if you're not sure what that means it basically their main job and objective and chief aim is to collect as much money as they possibly can so that they can extract fees and commissions from you so and then the second business is the marketing and selling of financial products I mean obviously their business and they're in it to make money now just as an example just to show you the significance behind this and what this really means for you if a mutual fund has a billion dollars under manager and they charge a two percent M er on that fund and if you're not sure what m ER means it just it's an acronym it stands for management expense ratio so if they're collecting 2% on a billion dollars think about this for a moment guys 2% on a billion dollars well that means that the fund managers are collecting more than 20 million dollars per year regardless of how the market performs so even though you may have lost money one year and you know if it was a another event such as 2008 where you may have lost thirty to forty percent the fund managers are still collecting that fee no matter what happens in the market so just think about that for one moment think about what that really means and here's some questions for you to consider you know how much are you really paying in management fees and I'm you know these questions are directed if you're still invested in mutual funds right now I want you to reflect upon and what this really means so question number one how much are you really paying in management fees do you know the actual number you know what is the management expense ratio that you are paying do you know what this number is what is the load aka the commission that you are paying to the advisor do you know what that number is do you know what the administrative costs are that you are paying to this fun do you know what that is not only that but do you know we do you even know what the names of the funds that you're invested in are called right now and if so do you know what companies are invested in the funds do you know what the company's track records are who their management teams are and what their competitive advantages in is in the market place and the last question and this is probably the most telling as your advisor ever given you a hard time because you told him or her that you wanted to sell her withdraw funds from their firm now if you have and based on what you just learned this isn't too hard to understand why they may have done that because obviously their main aim is to get as many assets under management as possible and when you withdraw money from their account there are fees that they're able to extract goes down so by having you invested over the long term that way they're able to make as much fees and commissions off you as possible now I know this was a little bit longer video than I normally do but – thank you I have a free gift for you if you like this video and you want to learn more about how money in the financial system works I have created a 90 minute free webinar presentation which you can attend for free and you're going to learn things on this presentation such as what the real cause of the financial crisis has been and how has been quietly lurking over the past 100 years you're going to learn should the US tax the rich or cut spending and to balance the budget or does it even really matter at this point in time you're going to learn is your retirement account and job safe from the coming economic collapse and mark my words it is fast fastly approaching our way you're going to learn is the u.s. the next Zimbabwe and if you're not sure what the reference means we're going to cover that on the presentation we're going to do a case study which I'm going to show you how you could have taken a one-time investment of $10,000 and literally transformed it into more than 100 million dollars and I'm not kidding when I say that this is a very very powerful concept I'm going to show you and lastly I'm going to show you how to position your assets correctly to be on the winning side of the wealth transfer the way and the rich and the wealthy are preparing right now so that you can do the same yourself so if you want to get access to this free webinar presentation all you have to do is click the button below this presentation just click the link below this video to get instant access right now so once again thank you so much for watching this video as I mentioned my name is Michael stead I'm the founder of the abundant society if you like this video just click on the link below to get access to the webinar questions comments let me know leave them in the box below let me know what you thought and if you liked this video make sure you subscribe to this channel because we're going to do our very best to create even more videos like this to educate the public on exactly how the financial industry works and how you can take control of your financial future so with that being said thank you so much again if you want to get access to the webinar just click on the link below and we'll see you on the other side take care and have a great day

42 Comments

  • Warrior Reed says:

    Guess I was too late. Do you have a recorded video of the webinar for people who've missed it?

  • M Baer says:

    This logic reminds me of the XKCD on survivorship bias: https://xkcd.com/1827/

    Yes, the wealthiest didn't get that way via mutual funds. They took bigger risks – and were smart and lucky – which can lead to record-breaking net worths or losing everything. Most people would rather be worth, say, $10 million, than have a 1% chance of being worth a billion and 99% chance of being worth nothing at all. That's not a theoretical; many people have lost billions, some temporarily, some permanently. You don't want to be the guy who gambled on a big payday… and lost.

    And it's weird to point to billionaires (risk-takers) as the ideal in a video that advertises keeping your money safe (i.e., reducing risk) and the "fast approaching" economic collapse. About that collapse – if you'd invested money in the S&P 500 (or an equivalent mutual fund) the day this video came out, it'd now be worth more than DOUBLE, even if you threw away all money earned from dividends!

    Also, I've never seen a fund nowadays that charges 2%. Those rates may have flown in the 80s, but these days even actively managed funds charge less, the biggest charging around 0.7% (Contrafund, Growth Fund of America, Magellan). And those S&P-500-equivalent mutual funds I mentioned have fee structures that make about a hundredth of that 2%, a bit more if you have the money in an individual plan, a bit less in the best employer-sponsored plans.

    Still not sure what he's selling, but I'm not buying it.

  • Pragnan Lakhia says:

    I don't know about usa stock market but indian stock market has never given negative return in time horizon of 5 years

  • Yusof Jaafar says:

    This is stupid video… He is missing the point of Mutual Fund objectives. MF is also known as a collective investment scheme. Its a product for working people who has little money and little knowledge about investment to invest in a capital market. Through MF investment they little money has exposures to many expansive stocks and bonds, of cause Fund managers makes money if they have numbers, but they dont overcharge their service. MF is full regulated and investors interest were protected by financial services acts. Managers get rich for the good service that is their rights. People lose money in Mutual fund, is because they get panic for listening to you. They re selling when they suppose to buy, and buying when they re suppose to sell.
    This video is full with hated to the rich people who are special and talented. Many Super rich people like warren buffet, bill gates, and many others are nice people. They have somthing to give for the mankind and that make them rich. Why should we hate them for being rich?…

  • cartoon junkie says:

    I am just plain finding this patronizing

  • Robert Lewkowitz says:

    I trust that you don't use a computer, then since Bill Gates, Larry Ellison, and Michael Dell are on that list. Also, you must not use FaceBook – Mark Zuckerberg is on the list. Please don't ever buy anything on Amazon – Jeff Bezos is also on the list. And so on for the rest of the list! Only an extreme leftist could possibly imagine that people can't create tremendous wealth by providing something of tremendous value to others. Noooo, if someone achieved success, their products must be bad! That's why everyone buys them – because the whole world, except for you, Michael Stead, must be a bunch of idiots!

  • C C says:

    This guys a fucking phony a big fat phony!

  • Sulpicio Jr Ponsica says:

    Same scamming strategy this guy promise to make your 10,000 to 100,000,000 sucks even the government won't guaranty that. may be your right in some way if the US economy become like Zimbabwe

  • Bob Davis says:

    Hahahhaha

  • bollagi says:

    So true. ETFs are the way to go and have a lower exspense ratio.

  • Assad el burai says:

    have you take a look of the list of the investments of warren buffet? they look like a mutual…

  • D LG says:

    This is utter nonsense. A diverse grouping of mutual funds is clearly the most effective investment medium for the vast majority of investors. Of course, not all funds are created equal, so some research, particularly into the fund's fees, is crucial, but there is no doubt that mutual funds are the perfect saving vehicles for most people. This guy is talking nonsense.

  • Adesh says:

    Myopic view on Mutual funds !!

  • Matthew Vovk says:

    Have you ever seen an Excel spreadsheet that takes the mutual fund's expense, tax cost ratio, returns and tax bracket which can show the after tax amount during accumulation period and the after tax amount from systematic withdrawals?

  • Ali Ismail says:

    I have put money into investment trusts (UK) for years and understand that there are 'management fees' for expert management while I attend to pleasing my Editor and Readership (I am a journalist). I am happy with the results and do NOT think I am getting ripped off. Why does this man publish a video like this?

  • tomcat172002 says:

    Bottom line expenses don't drive performance of a mutual fund.   You can find plenty of active managed funds that out perform and index fund.   The expense ratio is just one small factor when considering which mutual fund to invest in.   This video is misleading and wrong.   When it comes to performance of a mutual fund there are a lot factors to consider.   Asset allocation drives the performance of a mutual fund.   Active managed funds do outperform index funds.   Looking only at the expenses is very misleading.

  • Oscar Arce says:

    So, the point of this video is???? Not invest or invest? Very confusing video.

  • Dan G. says:

    I eco this mesg "You lost me the moment you said I can turn your 10,000 into 100,000,000 
    If you can do that you wouldn't be posting videos on youtube"

  • Hanif Rahi says:

    need cash

  • Mike Nelson says:

    I'll let you in on a little secret.  The way the "rich and wealthy" make money is through individual equities.  How do I know?  I managed multimillion dollar accounts.  No load mutual funds are great for investors with little/nothing to work with (starting out) = some have good performance with low net exp ratios (annual fees).  Some ETF's are good for specialty investments or investors with under 1 or 200k (again some have low annual fees and great performance).  Stocks will split, merge, increase dividends, create spinoffs, etc.  Example: PNY was a stock I sold clients @ 30 per share.  Duke Energy bought them @ 60 per share.  Nike and Coke also were stocks I put clients in.  They had stock splits more recently.

  • Supernova says:

    Absolutely correct! Anyone who can do a simple time value of money calculation can figure this out on their own. Great job on your assertions regarding mutual funds!

    However, you are 100% wrong about your economic assertions (its 2015 and still no economic collapse!). Nobody can predict economic booms or busts because they are far too complex and governments control their economies to an extent. I can't imagine you are an economic expert of domestic and international policies or you would not be making youtube videos.

    Good day!

  • christopher belarmino says:

    you even mentioned in one of your videos about wealth that you had a seminar that cost 10,000$ that could make attendees wealthy after that said seminar,you sound convincing like ponzi,

  • Pedro Diaz says:

    (11:00) The managers wished they collected the entire 2% MER….
    Educate yourself, fees are used to pay the fund manufacturer, the managers, the dealers, the representatives, the admin costs and the fees to sell/buy stocks and bonds.

  • Gomer Hanger says:

    wtf is this shit ?

  • Lee Smith says:

    you say up 46% and $ lost 30%. How does that equate to not gained any purchasing power. Is 46 not bigger than 30? Also you have ignored dividends as well. They must ad a couple of percent a year to those returns. Plus choosing a good mutual fund would beat the market.

  • Christian Marion Espenilla says:

    Dude, you're one sided.

  • Arun Shankar says:

    I think the analysis is completely skewed and flawed. Can be argued against on every count.

  • cintrik says:

    Hrmmm, so 6:30 I'm assuming Charles Johnson must have had some sort of skin pigmentation disorder? LOL?

  • Bryan Wheelock says:

    Wow. The Forbes 400 has really changed since 2012.

  • Ajendra Patil says:

    Buddy your Fundamental Logic is flawed when you say that People selling Mutual Funds become rich and the buyer's lose from it. Why havent you Spoken about Warren Buffet , Bill Gates and such name who today even after retirement due to their investments are still accumulating wealth every second. Mind you these two names are probably in the top 3 of forbes consistently. you are speaking as if these Mutual Funds are run by some Casino Guys and the US SEC's are bouncers working for them!!!! ( Just by me watching your 15 Mins video on youtube you have made money by fooling you viewers, would you be so generous as to share you profits from this video with your audience ( I guess not). There is not such thing as a free lunch in this world. When people want their money to work for them then they obviously have to pay up for the cost of channelizing that money into a proper fund. Research on any subject matter requires time, energy and money.

  • Zippy B says:

    Some of what he says is silly be he is 100% correct that mutual funds are for suckers and the fees will greatly eat into your gains. If you don't want to buy individual stocks go with a couple etfs. They still have fees but significantly lower than mutual fund fees.

  • dcfreak23 says:

    The person who made this video can't possibly be taking himself seriously….

  • L. F. says:

    If this guy can turn 10k into 100,000k, why is he making youtube videos for a living?

  • quantomic1106 says:

    $100,000,000 from $10,000?
    Wow!!!!! You are a market God!!!!!
     No wonder you're in the Forbes 400!!

    Oh wait…. you're not in the Forbes 400…..

    hmmmmm…..  O.o

  • JohnnyGodto says:

    just because none of the richest people made their fortune through mutual funds doesn't mean they are the worst investment. your logic doesn't follow.

  • David Le Gallez says:

    Here is another way to look at it.
    You hire a mechanic to fix your car because you don't know how or don't have the time
    You hire an electrician because you don't know how to do electrical work of don't have time
    You hire a maid service because you don't have time to clean your house or you just you just rather spend that time doing something you like.
    You hire an accountant because you don't know all the tax laws when dealing with your personal/investment/business finances.
    You hire any professional because you either lack the skill, the time or the desire to do the task in question.
    Mutual funds are not different.  You are hiring an investment professional (or a team of investment professionals) to do the market research and analysis to make the investing decisions that you either don't have the skill or the time or the interest to do.  These investment professionals enjoy what they do, many do make big money doing it.  So it becomes their full time income. (career).  Some are better than others, as is evidenced by the performance of the fund under their management, but at the end of the day you are hiring a professional service.  Nothing more.
    It is really that simple.
    Do you really want to spend all day at work, come home, take care of the kids, deal with dinner, do the household tasks that you have to do then spend what little time you have every night and weekend tracking your portfolio and conducting market research? 
    If not, you hire a service to do it for you.  That is called a mutual fund.
    This guy's video is a promotion for his courses.  Sure, the webinar he mentions is free but like most crack dealers, the first one is always free.  If you want more you have pay $$$$. 
    He points to the 0.01% to show how they did it but he fails to show what they had to do give up to do it.  These fund managers (the ones that he is pointing out) work 14 hour days, 7 days a week.  They have no hobbies and very little time for their families, if they have families.  Even when they are on vacation they are working.  That is the cost of being super wealthy.

  • rebelionfighter says:

    you have no clue what your talking about

  • cirolino1200 says:

    I think he's right. Invest on stock markets instead and buy and sell when you want.

  • najor666 says:

    By this guy's logic all asset accumulations are meant for the benefit of the fund operator – broker -, not the investor. Very good way of thinking. I wonder why there are many people invest in any financial instruments at all? Some of them even got rich!

  • Shean Phallow says:

    i dont know man, i feel pretty good about my mutual funds

  • angtubomo72 says:

    of course, this guy is selling something. mutual funds are very easy to understand. full of fallacy. this guy is a hoax.

  • Adrian B says:

    Fuck sakes stop beating around the bush just tell us why mutual funds are bad

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