Number 4: Market timing. Most mutual funds are required to stay fully invested in the market, even if it's crashing just as it did in 2008. Standing buy your fund in a bear market is a great way to lose your money.
Number 3: Transparency. Often it's difficult to understand exactly what your fund is invested in, or why it feels as though those stocks will bring you the best results. Even more importantly, if the star fund manager who got you those great returns over the past three years leaves, you may very well not know about it. And then you'll be sitting there, wondering why your money has suddenly started to disappear.
Number 2: Fees. Mutual funds don't make their money by making you rich. They make their money by charging you for the "privilege" of giving your money to them. And they'll keep charging you even if they're losing your money in a bear market or their star manager has moved on to better things.
Number 1: They just don't work. Period. Only one in three funds will beat their benchmark in any year, and more than 95% will fail to beat the market over ten years.
So unless you happen to like being charged to make a small amount of money, stay away from mutual funds. What should you do then? If you have only a small amount of money invest in an index fund that directly tracks the market. The fees are lower, and there's far less risk.
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