CNN/Money 
graphic
Commentary > The Bottom Line
graphic
Why I'm sticking with funds
There are plenty of problems with the way funds are run. But they're still the best game in town.
September 8, 2003: 11:45 AM EDT
By Adam Lashinsky, CNN/Money Contributing Columnist

Sign up for The Bottom Line e-mail newsletter

MENLO PARK, Calif. (CNN/Money) - Our new state of permanent outrage naturally requires that we be outraged about something at all times.

The latest object of our scorn: Mutual funds.

Mutual funds are as good as any evil institution with which to be upset. In the 1990s, they lured millions into investing their hard-earned cash in an illusory chase for riches.

More on the scandal
graphic
Fund investors weigh options
How Mom & Pop lost out
Fund industry investigated
Mass. probes Prudential
Mutual fund inquiry spreads

They did this by spending gobs of money in newspapers and magazines trumpeting their trumped up performance and by answering the phone call of any financial journalist wanting a quote about a hot stock.

There are other problems with mutual fund companies. They charge too much. They won't give timely disclosure on how they're investing our money. Their corporate governance is a shambles.

Many fund managers take their best ideas -- which they got while collecting fees from you and me -- and put them to work in separate, private funds.

And now, we're chagrined to learn, many of these funds have been allowing private hedge funds to play by different rules than ordinary investors.

Thanks to yet another barn-burner investigation by New York's Attorney General, Eliot Spitzer, we've learned that some funds let private investors make after-hours trades not available to the general public.

In the slightly less dubious department, the hedge funds also can dart in and out of funds in ways the rest of us cannot.

The devil you know

Having said all that, and to paraphrase Winston Churchill, mutual funds arguably are the worst place to put your money except all those other places.

By now the real virtues of mutual funds are well known. They enable small investors with as little as $100 a month to diversify their assets in a way that would be impossible with individual stocks.

Recently by Adam Lashinsky
graphic
WaMu: The bad boy of banking
Silver Lake goes for the gold
Is it nice to share, or not?

That's a big deal, helping -- if used properly -- to considerably lower risk.

And so consider the alternatives. A federally insured bank account is better than your mattress. But the returns stink.

Relying on retail brokers to get you in and out of stocks certainly is an option, but you're more likely to be disappointed.

You also could buy exchange traded funds, known as ETFs. But I like the strategy of dollar-cost averaging, investing money in regular chunks, every two weeks and monthly. Most mutual funds make it really convenient to do so. It's not as easy with ETFs.

YOUR E-MAIL ALERTS
Corporate Governance
The Bottom Line
Adam Lashinsky

There's also a perverse upside for mutual fund investors in the latest scandal. Sure, you ought to be upset that your funds -- if your funds are involved, which most of us don't even know yet -- gave away some of your money.

But the portfolio theory works to our advantage here as well. We shared the risk of being ripped off and each of us is relatively unscathed. It's not like someone stole all the money from our bank or we had our retirement money tied up in Enron stock.

The hangover from a really great party -- the 1990s investment boom -- continues. But unless you like metaphorically sitting home alone on a Saturday night, this tainted place to put your money still is the best get-together in town.


Adam Lashinsky is a senior writer for Fortune magazine. Send e-mail to Adam at lashinskysbottomline@yahoo.com.

Sign up to receive The Bottom Line by e-mail.  Top of page




  More on COMMENTARY
Yes Virginia, there is a Santa Claus rally
Thanks for nothing, Corporate America
It's not just the economy, stupid
  TODAY'S TOP STORIES
Boom: Alibaba surges 38% in huge IPO debut
7 things you can do on Alibaba
Alibaba's Jack Ma: My hero is Forrest Gump




graphic graphic

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.