Why settle for purchasing mutual funds from the fund companies. You will have to pay MERs whether the funds go up or down; you will have to pay capital gains tax for the manager’s frequent trades; and you will most likely be settling for underperforming the index.

Instead of buying the mutual funds, you should look at investing in the mutual fund companies themselves! I hate paying MERs because, in the long run, the mutual fund company makes more money than me from my own investment. So, why not invest in the mutual fund company instead.

I was reading an article by Gary Norris that solidified my belief. He states

The virtues of mutual funds are well known and, especially at this time of year, heavily promoted.Not so well known is the likelihood that a long-term investor could do better by buying stock in mutual fund companies than by investing in the funds they sell.

To put it another way, as the man in a Wall Street Journal cartoon tells Jack-in-the-Beanstalk: “This is better than magic beans, Jack. It’s stock in the company that makes the magic beans.”

He goes on to use IGM Financial Inc. as an example. Over the past decade, its stock has produced an annual compound growth of 18%. Compare that with its best performing fund, Investors Summa C, which produced a 10.8% annualized return.

CI Financial also outpaced its mutual funds. CI stock has a 10-year annualized return of 32%. Its best fund returned a 16.9% return over that same period.

I know. I know. You are not getting any diversification by simply buying the stocks of the mutual fund companies. But, if diversification is so important, then people will continue to buy mutual funds for that exact reason which means that these mutual fund companies will be around for a very long time!

I loved this line in the article

Fund managers charge fees to manage your money, but their corporate parents pay you to invest in their stock.

The choice seems obvious.