But, fortunately, there is a better way and this development has the mutual fund industry running really, really scared.

Exchange Traded Funds, or ETFs, first appeared about five years ago and today are stealing money hand over fist from traditional funds.

This asset class is growing almost 300% a year and it's easy to see why.

Exchange Traded Funds offer higher performance by simply tracking a market; as we¡¦ve already seen, 80% of mutual funds under perform the market so ETFs are better performers right off the bat.

ETFs trade like stocks, their expenses are far lower and they have zero scandals. On top of that, you can trade major market indices or you can trade sectors like precious metals, health care or international. All in all, Exchange Traded Funds offer an excellent alternative to mutual funds and we recommend that ETFs be a part of every investor's portfolio.

Big Lie #3: Buy Bonds

There's nothing wrong with buying bonds as long as you realize they're not the safe haven the financial press makes them out to be.

Sure, they're backed by the full faith and credit of the U.S. government, but they come with a host of insidious risks that need to be considered by every investor, particularly those nearing or in retirement.

The standard rule of thumb is that an investor should allocate his assets by subtracting his age from 100 and then using that number to determine the mix of stocks and bonds in his portfolio.

For instance, a 55 year old investor would subtract his age from 100 and come up with 45. Therefore, his portfolio should be divided 55% in bonds and 45% in stocks.

The theory is that the older you get, the less stock market exposure you should have since you would have less time to recover in the event of a market drop. This is sound advice if you're following a buy and hold plan.

However, the danger of this plan is that as you allocate more and more money to bonds, you become increasingly vulnerable to inflation. In today's world where the average person can expect to live for 20 years or longer in retirement, inflation, not market risk is your worst enemy.

10 Year U.S. Treasury Bonds currently yield around 4.4%, not great when you consider that the cost of living is rising 2.5% a year.

It'll take a huge nest egg to make a livable retirement income on a fixed 4.4%, and in twenty years, your inflation adjusted bond income will be cut by more than 50%.

Another horrific risk of bonds is interest rate exposure. As rates rise, bond prices drop; in other words, your nest egg declines in value in a rising interest rate environment. That won't matter if you can hang on until the bond matures, but that could be ten, twenty or even thirty years from now.

What would happen if unexpected illness or financial need forced you to cash in your bond before maturity? If interest rates have risen since you bought, you will lose money.

How safe is that?

The only sane solution for an investor today is to educate himself and find a better way to protect and grow his wealth. There are a number of proven options available, but the absolute worst thing one can do is listen to the pundits who tell you to "buy large caps, buy mutual funds and buy bonds."

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