A mutual fund is a pool of money belonging to multiple parties invested in securities (usually stocks or bonds). Conceived to assist small investors, or people who didn't want to buy individual stocks, funds also allow one manager to handle thousands of people's money simultaneously. Each fund has a 'goal'. This can be to invest in a type of security, e.g. growth, where the fund manager buys growth stocks; income, where stocks or bonds that pay high dividends, or high yields are purchased. Or the goal can be to invest in a sector of the market, like technology or energy, or an index, such as the S&P500. The shareholders participate in the fund's gains, losses, income and expenses in proportion to their investment.

Bottom line: I think funds are a terrible investment and avoid them almost completely. Why? Mostly because I believe they are very bad value: there are significant fees, which are often very hard to detect. According to an article in the March 17th, 2004 Wall Street Journal entitled 'Deciphering Funds' Hidden Costs', beyond the management fee, which can be substantial, a study found that brokerage commissions on trading within the fund can more than double the cost of owning fund shares - and that did not include 'soft dollar' costs. I can provide numerous articles from Forbes, Fortune, and other publications which clearly show what a bad investment mutual funds are. Additionally, your risk profile is unique, and your investment portfolio should be as well.

Fund managers constantly come up with flashy new ideas in order to get attention; consequently, there are tens of thousands of funds - some are bound to perform well. Bear in mind that the vast majority under-perform the S&P 500, and there are many more funds than individual stocks.

This answer could be long and complicated, but basically I have two tenets: 'The streets aren't paved with gold' and 'there is no free lunch'. Clients, friends and family constantly ask about various investment opportunities. First rejoinder: Something that sounds 'too good to be true' more than likely is. The flow of information is too efficient these days for an obvious opportunity to be missed. Arbitrage is possible, but it's very difficult. You will make money in the stock market over time by buying above-average companies and holding them. It is this discipline that you are paying me for.

There is a big difference between investing versus speculating. I do not recommend speculating (short term bets) on the markets - though it can be very tempting. Study after study has shown that on-average people who invest the same amount of money regularly (say, each month), and adhere to a buy-and-hold strategy outperform all other investors. Stories abound about people like the woman from Georgia who took in laundry or cleaned homes, but was able to donate over a million dollars to a university; or the couple who both worked for the post office, but amassed a sizable estate. These, and many others did it the same way - by buying good companies and not trading too frequently.

Very few managers can charge less than 1% because they have high overhead, and often charge over 2 and 3 percent. I am able to do this by keeping my overhead to a minimum, by limiting the number of clients I have by having a high minimum requirement, and because I'm not trying to devise 'sexy' investment schemes that require elaborate presentations and legal structures.