well there seems to be universal disdain for mutual funds. This is odd because they offer the least risky entry to the market and are essential to know about in a portfolio. I think they're great. Here's why :
If you had invested in an ASX index mutual fund, it would have gone up by roughly what the index did this year minus 0.7% MER. Now how many people manage to equal this in their individual stock selections - VERY FEW. On a risk adjusted basis, you are probably underperforming these funds by a large amount. I mean can you compete against a fund where they employ dozens of analysts and get discount brokerage for scale by reading the fin occasionally ??? What is your edge ?
80% of individual share investors underperform the index. If you find the volatility too low then you can always leverage the mutual funds, which is riskier but if that's what you want (I would not do this).
Faulty arguments I have heard about mutual funds :
1. They charge too much - then get an index fund (MER 0.5-1% pa)
2. There is no challenge - what ?? there are hundreds of funds available here, and thousands in the US. The process of selecting a mutual fund is quite challenging. I think it is probably more than enough work than the average investor can manage if they have a full time job.
3. They don't return enough - well usually return is related to risk. If you want more risk then leverage these funds. The same techniques that apply to stock selection apply here : money and risk management, position size, rotating sectors/funds etc.
4. It's easy to beat them with individual stock selection : it is actually incredibly difficult over multiple time periods to beat the indices. That is why these active managers get paid a crapload and have performance incentives to do it (and they still fail in the majority)
What you get is a diversified portfolio WHICH IS NOT LIKELY TO GO DOWN AS MUCH as a portfolio of less than 20 stocks. If you ever accumulate a decent account then this is incredibly important - to stop yourself blowing out in the long run you need a well constructed portfolio.
Asset allocation is incredibly challenging and important in the long run. What you get with a mutual fund is diversification : if you are not sure of the benefits of this then read up on CAPM (capital asset pricing model). It is the basis for modernday portfolio construction and mutual funds. In summary it says this : you get no excess risk adjusted return by taking on stock specific risk. THE ONLY THING YOU GET REWARDED FOR IN THE MARKET IS TAKING MARKET RISK. If this sounds crazy then you need to look into it and look seriously at mutual funds.
When I started my portfolio 10 years ago, most of my friends elected to buy individual shares/ learn to trade etc. None of them have done better than the ASX 200 or MSCI over this period. Most have underperformed by a MASSIVE amount. Some blew out their investment portfolios completely.
I haven't done as well as the S&P500 over this period but I did a lot better than them. My goal is pretty agressive : learn more about asset allocation in the next decade and overperform the ASX200 by 2%pa. Maybe invest in one or two shares instead of buying lotto tickets once or twice a year. Now 2% above the ASX may seem like a pittance to you but over a decade it is a huge target.