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Why Mutual Funds Aren’t Responsible Investing and How to Better Maximize Your Returns

03/18/2016 9:14 am EST

Focus: FUNDS

Stephen Kalayjian

, Ticker Tocker

Stephen Kalayjian, Co-Founder & Chief Market Technician of KnowVera and author of the Kalayjian Report, discusses why investing in mutual funds is not the most responsible way to invest and he provides tips related to how you can better maximize returns.

What was once a popular option for investors, “buy and hold” is no longer proving successful. Today’s market is volatile and while many advisors will tell their clients to keep their long term plans clearly in focus to help weather the periodic storms, the truth is the market does not always rebound. If you are taking the time to invest your money, you should be doing so wisely. Responsible investing is smart investing. It is time to take control of your own money and your own destiny.

The buy and hold technique is meant for people to invest in one fund for the long haul. With little care for short-term prices, the buy and hold investors leave their money in a stock regardless of market fluctuations. With today’s significant number of opportunities to enter and exit the markets throughout the year, there is much more responsible and profitable ways to increase your wealth.

Most hard working Americans invest their money into mutual funds, where the buy and hold technique is applied.  Mutual fund managers proclaim the benefits of focusing on long term goals despite market fluctuations. This convenient strategy allows them to hold your money and collect management fees. The New York Times previously reported that very few mutual funds “sustained consistent and persistent outperformance.” Only 2 of the 2862 mutual funds in the study “managed to achieve top-quartile performance” over the studied 5-year period.

A better alternative for individual investors is ETFs, exchange traded funds. An ETF allows you to stop handing your money over to these managers you have never met before.  Mirroring the United States’ equity markets, ETFs allow you to buy, sell, and/or short the markets with minimal commissions. You are not forced to buy and hold while paying management fees. Instead, purchase an exchange traded fund using an online broker and pay minimal execution fees. Some widely traded ETFs are SPY (S&P 500), DIA (Dow Jones Industrial Average), IWM (Russell 2000), and QQQ (NASDAQ-100). Any one invested in the stock market can long or short the US equity market at any time using these instruments, instead of being forces to buy and hold while paying management fees.

A common excuse used by most people is that they do not have time to manage their investments themselves due to various commitments in their lives. However, after working hard and saving money one should take responsibility upon themselves to invest their money the right way. The advantages of ETFs, along with the higher liquidity and lower fees, outweigh the misconception that there is not enough time to manage your own money.

It is not impossible to predict market trends. Proprietary charting software can assist in making more accurate market calls. If a market appears to be declining, selling funds would be a smart move. Do not stick out the fluctuations for long term goals. If you predict a market rally, however, losses may be erased. By keeping an eye on the market and utilizing the short benefits of the markets, it is possible to maximize your opportunities.

The markets have significant volatility. Do not be complacent and let others manage your investments. Minimize losses, go long or short, and pay minimal fees with ETFs. It is time to stop being satisfied with hitting the benchmark and start striving to outperform the market.

Trading involves significant risk of loss and is not suitable for everyone.

By Stephen Kalayjian, Co-Founder & Chief Market Technician of KnowVera and author of the Kalayjian Report.

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