Do mutual funds lose money?

Question

if i put 2000 dollars in a mutual fund that had an average interest rate what would i have in 20 years?

Answer 1

They absolutely can, and often do, lose money.

These are really just collections of stocks whose purchase and sale is managed by professional investors (whom you pay by virtue of fees or reduced yields).  Last I read, about 75% of all managed mutual funds do more poorly than just investing in an index fund.  All mutual funds help to reduce your risk by diversifying your investment, but if the economy as a whole takes a prolonged (or early) downturn you can still lose.

Average rates of return are historical, which unfortunately isn't a great way of predicting the future when the future is unlikely to be very similar (globalizationn, retiring baby boomers, etc.).

Having said that, the historical rate of return for the market as a whole is about 7%, while inflation has been about 3%.  So your yield (in today's dollars) is:

$2000 * (1.04)^2 = $2000 * 2.19 = $4380

Answer 2

Hi,

This might clear some cobwebs:

http://where-to-invest.blogspot.com/sear...

Answer 3

A mutual fund is not like a savings account.  It's an investment in a particular basket of stocks so therefore it is subject to the volitility of the market so it can lose money.  If you want a safe place to put your money, look into a money market account.

Answer 4

No mutual funds will not loose ur money don"t go for 20 years ,3years is the best if the market will be higher ,you will get 48% to 76% in a year depends upon the company of mutual fund.

Answer 5

I'm not sure what you mean by 'an average interest rate' exactly.  But taking it at 5% total return, compounded annually, $5306.6.  5% compounded daily, $5436.19.  (The 5% is assumed to be after fees.)

To do experiments for yourself, search on Google for 'compound interest calculator'.

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Note: dtwarwick's answer is also correct, depending on what you really meant by your question and what assumptions are made.  His answer is the figure at 20 years in today's dollars for a 4% total return (his 7%-3% estimate).

Answer 6

Well, to answer your question, yes, mutual funds can (and do) lose money.  If you want to be sure of not losing your money, you need to invest in a guaranteed security, like a certificate of deposit or a treasury bill.  These tend to have lower returns than riskier investments like stocks or mutual funds, however.

If you want to find out how much money you'll have in twenty years, a good idea is to use a compound interest calculator.  One can be found here: http://www.moneychimp.com/calculator/com...

To find out how much return you'll get, you will want to look at individual mutual fund's history and find out how they've done in the past.  Although past performance is not a perfect indicator of future performance, this will give you a rough guideline on how they will do.  You can also use a rough estimate of 10%; this tends to be about how well the market on a whole does on average (although of course individual years can be better or worse than this.)

So if you assume 10%  and put 2000 dollars in a mutual fund to withdraw in 20 years, you will have 14,774 dollars according to the calculator.  Keep in mind that inflation will decrease the value of this money somewhat, so in twenty years 14,774 dollars will not be able to buy as much as 14,774 dollars does today.