Mutual funds may be OK for you, but they might be more expensive than you think. So if you have the slightest inclination to "do it yourself" -- and make a lot more money -- you should probably read on.

I just want what's coming to me
With the possible exception of local property taxes, nothing I've encountered picks our pockets more efficiently than the U.S. mutual fundindustry. And yes, that includes the IRS.

Think about it. Uncle Sam takes a piece of every penny you earn, but your mutual fund manageris worse. He isn't content with his cut of what your money earnseach year. (We'll assume for now that your fund actually makes you money.) Your fund manager wants more -- muchmore.

When I tell you how much more, you may not believe it, so I'll warm you up with a quick example.

Wahoo! My fund manager's a genius!
The year is 1991. The economy is stagnant, Saddam Hussein is rattling his saber, and President Bush assures us that this aggression will not stand. And you just dumped $10 grand into a mutual fund.

Fortunately, your fund manager doesn't buy the gloom and doom, and he doesn't buy diversification, either. He buys good old American capitalism. So, he rolls the dice on just three growth stocks.

You hit paydirt! Now it's New Year's Day 2000, and just look at what has become of your $10,000 stake ...

1.  Best Buy (NYSE: BBY): $275,333

2.  Texas Instruments (NYSE: TXN): $111,245

3.  Hewlett-Packard (NYSE: HPQ): $35,985

Happy New Year! You're sitting on $422,563! But wait. Mutual funds have a price. Maybe a lot more than you think.

Surprise! Your $10,000 isn't worth $422,563
You see, assuming your fund manager hits you up for a 2% fee (not cheap, but hardly unheard of), you would owe him about $8,000. That seems fair enough. After all, the fellow just made you $400,000, right? But there's a catch.

That $8,000 is for the past year alone. You've been paying out every year along the way. In fact, by New Year's Day 2000, you'd have paid that rascal more like $20,000 in fees, and the lost profits on those fees would have cost you a lot more -- another $58,000 or so. And that's over 10 short years!

That's a high price, but it gets worse. Imagine if you'd invested $20,000 instead of $10,000. You'd be paying twice as much! And what do you get for all that extra money -- for paying twice as much? Not a darn thing, as far as I can tell.

Oh, yes, it gets worse still
What if it turns out you're paying for very little? I mean, let's face it -- you're not going to buy into a miracle fund like the one I just described. Your fund manager won't be a genius. More likely, he'll be an Ivy League MBA looking to keep his job and follow the herd -- or worse.

Don't believe me? Check out a list of the most widely held stocks. I'll spare you the trouble: You'll find the occasional surprise, but I'm betting you'll find mostly old-school Altria (NYSE: MO) and  Johnson & Johnson (NYSE: JNJ), along with hot tech names like Apple (Nasdaq: AAPL), among the usual suspects. Now, run down the top holdings in your mutual funds. See anything familiar?

Worse, even if your fund manager did stumble on a stealth bomber such as Intuit (Nasdaq: INTU), or any other 10-baggerfor that matter, what are the chances he'd actually hold on for the entire ride? More likely, he would buy and sell it many times over. You guessed it: In addition to the outrageous annual fee, you'd have gotten murdered on taxes and transaction costs. Continued...