Mutual Funds Are Jokers In The Stock Market Deck!

The World’s Stock markets are a house of cards. When you want to build a robust house of cards you begin with a rock solid, steady and level table, so too with the stock market. Sound finance and economics begins with a foundation of company stocks that are making real products and supplying real customers who are happy to go on buying those products.
Mutual funds are the first tier of the stock market house of cards on the tabletop of solid stocks. Take a look at the website of any mutual fund and the first thing you will see on the home page, in big flashing numbers is their performance rating. These are very tough economic circumstances and mutual funds like all finance products are showing zero returns. Should you be discouraged? After all mutual funds performance follows closely that of the stock market and stock markets the World over are in economic dire straits.
You should be discouraged if all your retirement eggs were dependant upon the mutual fund house of cards. What is it about mutual funds that make them more like the cards than the table? Mutual funds are like big baskets full of a variety of finance products but predominantly stocks. Stocks are certificates of ownership of shares in all the limited companies on the stock market. So mutual funds, while they rely on the table they are not actually part of the table and are therefore more prone to being blown about by economic ill wind.
The most solid of the mutual funds, those in the ground floor of our house of cards will be fine and their fortunes will come about with the stock market as Whole. These mutual funds have an economic and finance strength. The economic strength is that they are in the business for the long term. The managers of these funds have real money invested in these funds along with their other investors. They have a vested interest and are not interested in the short-term speculative gains.
The finance strength of the ground floor mutual fund cards is that they will have a diversified portfolio of stocks and are not overloaded with finance stocks like Bear Stearns, Citgroup, AIG and Bank of America. I’m afraid termites are eating this leg of our table.
The first floor of our mutual fund house of cards is a very shaky prospect indeed. These are the mutual funds that have attracted depositors with eye-catching returns. But those returns have been earned through the boom years of easy credit and speculation. Professionally managed funds that merely reflect one or other of the stock market indices will collapse in a heap along with the S&P 500.
The cash value of all the stocks in the mutual fund stock market baskets has shrunk immensely with credit crisis and Wall Street crash of 2008. But those baskets were so large and there are so many varied mutuals, that the trading of mutuals has become a big nest egg of finance for many individual retirement funds. The stock market trading of mutual funds is entirely on the Internet and you can watch the whole house of cards come tumbling down on your own computer.