The Truth About Mutual Funds: Past Returns and Future Prospects

Investing in mutual funds has been a journey for many over the years. Some find success and others feel they have been let down. In this article, we explore the returns from mutual funds, backed by real-life stories and data, and the alternatives of investing in individual stocks.

My Journey with Mutual Funds

I've been investing in mutual funds for the past 12 years, initially starting with a small amount. Over time, I've increased my investments, and currently, my Compound Annual Growth Rate (CAGR) stands at 16.8%. My portfolio includes a mix of Systematic Investment Plans (SIP) and lumpsum investments. My current focus is on low-cost stock mutual funds and ETFs, with a notable investment in MSFT.

Comparison with Individual Stocks

While I started with mutual funds, I turned to individual stocks in recent years, driven by their potential for higher returns. Two-year returns from individual stocks have seen a significant jump, with a chart showing a 2.3% return, still lower than savings bank accounts. This experience led me to question the sustainability of mutual funds, leading to a series of reflections and research.

Personal Finance Research and Ventures

For the past 10 years, I've dedicated myself to personal finance research, starting from November 2018. Despite working for 10 years from 2010 to 2019, my savings fell short, with less than $50,000 in Canadian assets. My journey led me to inadvertently make a significant mistake. In 2000, I invested $3,000 in the VIGRX fund, selling it in 2001 for a 30% loss. Had I held it, the value would have surpassed $10,000 by 2019. This mistake highlighted the importance of long-term investment and patience.

The Case for Mutual Funds

Let's conduct a thought experiment. Imagine purchasing 1,000 shares of an SP 500 fund exactly 10 years ago. Given the SP 500 index closed at 1,105.65 on November 24, 2009, and the current value is 3,128.85, you would have seen a substantial increase, even accounting for fund fees. Dividends from the fund play a significant role, typically around 2-3 times the value each year, which could have grown your investment further.

Moreover, any capital gains or dividends would have added to your investment, though income taxes would reduce this gain. However, you would be in a better position than someone who has made frequent, hasty transactions.

Conclusion and Future Outlook

The success of mutual funds largely depends on the investor's strategy and the market conditions. While individual stocks may offer higher returns, the consistency and reliability of mutual funds should not be overlooked. Long-term investments in mutual funds can be fruitful, and the impact of holding onto investments can significantly enhance your returns.

For those looking to venture into mutual funds, our research and data can provide valuable insights. It's crucial to reassess your investment strategy and consider the benefits of long-term investment, even when the short-term returns may seem disappointing.

Additional Resources

For more information on mutual funds and personal finance, refer to the following resources:

Investopedia - A comprehensive guide to mutual funds and investing. YouTube - A collection of finance-related videos for beginners and seasoned investors. Bogleheads - A community for sound personal finance practices.

Remember, the key to successful investing is not just about returns but also about consistency and patience. Whether you choose mutual funds or individual stocks, the journey is just as important as the destination.