With the vast majority of fund managers underperforming the market and fees eating into your returns, "mutual funds are a scam," says Phil Town, author of Payback Time.
Citing Forbes research, Town says 96% of active fund managers underperform the market over periods of 15 years or longer. Meanwhile, he says even relatively small 1.5% management fees can cut your returns in half over a 40-year period, citing research by Vanguard founder John Bogle.
"Those little fees kill you," Town says. "It's got to be some kind of scam. Those guys are not doing what they say they can do."
If you believe that claim - surely the mutual fund industry would deny it - Town says you have two main choices:
The Simple Strategy: "If you don't know what to do as an investor, put a little money away every month and put it in the SPY and maybe pick one international fund to get a ride on China," Town says. "But I wouldn't bet against the U.S. You'll be glad 20-30 years from now that you kept your money here."
The problem with that strategy, Town says, is the Dow could "very easily" remain range-bound between 14,000 and 8000 for a very long time. "That will kill you" if you're planning to retire within the next 15 to 20 years, he says. "You come out down the road and all you've got...is what you put in."
Stockpiling Stocks: Town recommends boning up on a handful of stocks and trading in and out of them over a long period of time, as detailed here. "We're not just buy and hold -- we're buy when they're cheap and sell when they're expensive," he says. "If you do that a couple of times, those returns are very much higher than" the broad market's long-term average of 7%.
Personally, I would suggest lazy investors to dollar cost average 50% on SPY and 50% on one of the emerging market ETF on a monthly basis. There is a 90% chance that these investors will outperform the market.