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Part: 2 Trying to Beat the Market > Mutual Funds: Performance

Chapter 8. Mutual Funds: Performance

The growth in the number of mutual funds and the amount of assets they invest has exploded in the past two decades. The investor who wants to invest in the stock market may feel overwhelmed when choosing from the many stocks listed. Approximately 7,800 companies are listed on the three major U.S. stock markets. The Investment Company Institute (ICI) is the trade group for the mutual fund industry and claims to be 95% representative. The ICI reports that there were 8,296 mutual funds in the United States in October 2001.[1] Of these, 4,684 were stock-oriented funds, while the rest were bond funds, money market funds, and mixed funds. Investors face an overwhelming choice in mutual funds as well. These stock mutual funds managed $3.1 trillion in assets.

There are important advantages and disadvantages to investment through mutual funds. For the investor with little money to invest, mutual funds are likely the best way to get started. For very little money, investors can get a greatly diversified portfolio (see Chapter 6, “Foolish Risks”) and the services of a professional portfolio manager. The greatest disadvantages are the expenses and tax implications associated with mutual fund investing, but the diversification benefits outweigh the expenses for the investor with little wealth to invest. However, an investor with larger investment capital can diversify more easily and thus the expenses become more important. Despite these disparities, nearly all investors are interested in mutual fund performance. After all, mutual funds make up the primary investment choices for most defined contribution pension plans. To some extent, we all invest in mutual funds.


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