Michael Sadoff

What the average investor doesn't realize is that investing with these large entities often comes at a price – an analysis of the 10 largest actively managed equity mutual funds' performance in 2008 shows that the best performer lost 33 percent, while the average lost 39 percent. This compares to a 37 percent drop in the S&P 50. The average fee of these top 10 funds, which on average have nearly $50 billion under management, is close to 0.8 percent.

Many of these funds have difficulty moving markets. If they sell their largest stock holding, often a $1-2 billion position, they will cause downward pressure on the stock price, which negatively affects their performance. In falling markets like 2008, many of these funds decided not to exit the market and raised cash. What the investor ends up with in these mega-funds is often a "closet index fund" with fees that are nearly eight times more than buying an actual index fund.

In 2008 the state of Wisconsin public investment fund lost more than $26 billion, causing state pension checks to drop for the first time in history. The fund started 2008 with $80.7 billion. When the executive director of the fund was asked by a reporter why they didn't get out of the market when firms like ours did, the response was that that it is easier to move millions than billions.

To me that sounds like an admission that the fund has gotten too large to be managed effectively.

Many wealthy investors are still using mutual funds as an investment vehicle, even though they were made for the small investor. Repeated studies show that investors can get similar diversification, more tax flexibility, additional services and often lower fees by working with independent registered investment advisors who use individual stocks and bonds.

Investors need to know the fees they are paying, and make sure their investments are right for someone of their wealth level and remember - buyer beware: bigger is not always better (or safer).