Mutual Funds are touted as being a great way for people to invest in stocks in order to diversify risk.  The Fund Manager buys stocks in a variety of industries or markets depending on the funds mandate and bundles them up to sell them as mutual funds to investors. Investors buy them hoping to get a good return at the same time diversifying their risks and fund managers take a fee.   This sounds like an ideal situation but many of these funds do not outperform the market; the fees that investors have to pay are sometimes greater than the return.[1] I think a simple solution for small investors in this situation is to invest in Electronically Trade Funds (ETF’s).  Basically, the EFT’s are made up of the same stocks that make up the different stock markets (ie. Dow TSX or NASDAQ).  This way you know what your return is-it is the same as the overall market less the fee-which is much less than fees from mutual funds. Ok you may not have as many options to invest in ETF’s compared to mutual funds, and ETF’s cannot outperform the market as some funds do, but I believe most small investors should go with the ETF’s.