They're too high and too confusing. Despite the economies of scale one would expect from managing ballooning assets, annual fund expenses have risen from 1.45 percent to 1.55 percent in the last decade, according to Morningstar. That may not sound like much, but left to compound for many years, fractions turn into big bucks. Worse, part of these costs go toward giving raises to fund runners, even if they don't deserve it. With arcane fees, tax complexities and reporting anomalies, funds virtually specialize in making comparison shoppers feel incompetent.
People hate to feel incompetent.
In 1999's bull market, mutual funds saw net contributions drop by 30 percent from the previous year. Many investors have realized that while individual stocks may carry greater short-term risks than mutual funds, they can assemble their own diversified stock portfolio at no greater risk. Ten bucks a trade is 10 bucks a trade. Compare this with mutual funds. Not too bad.