As the description suggests, this article investigates how legitimate the charges and relative performance of mutual funds are considering the $10 trillion invested in them and the approximately 90 million individual investors that have put their faith in mutual funds for their retirement. To avoid excessive explanation, I'll outline why:
- Investment companies (typically) rely on assets under management, rather than performance to generate fees. The more assets, the greater the revenue. The problem is there is no benchmark to keep managers honest and competitive.
- Fund managers (typically) own very small portions of their own funds. Managers are not eating their own cooking. Just like with insiders of companies owning a large percentage of their stock, the same applies for fund managers to show a vote of confidence. More would be at stake for the manager and therefore he would have extra incentive to perform.
- Mutual funds under perform the S&P, which has averaged 12.3% annually since 1980, while the average equity mutual funds averaged around 10% annually over the same period.
- Fund manager profit margins come in at around 42%, not a bad take.
- Fees grow around 15% per year, and compared to the above cited performance of the S&P relative to mutual funds, is it warranted?
This is not to say that excellent mutual funds are not out there, but rare gems they are. Consider low cost alternatives like Vanguard, that charge ultra low fees, but mimic the indexes if you are conservative defensive investor. If you have the time, than a more enterprising approach can be taken to look for positives like fund managers that take a large stake in their own fund, low turnover to assure low fees and funds managers with long consistent performance records.
Saturday, May 3, 2008
How To Select A Mutual Fund
Investing in mutual funds is a way to make a surer investment than some other forms. It provides you with a more stable foundation for your investments and can act as a balance to other high-risk type of instruments. Here are some tips on how you can choose a good mutual fund that will bring you the safe returns you want.
Determine Your Investing Goals First
Your investing goals will help you determine just how you should invest. Mutual funds come in different forms, as well as risk levels, so you will need to make a decision about this from the start.
Decide How Much You Have for Fees
Some forms of mutual funds, such as no load funds, have no additional fees associated with them. This also means, though, that you do not get the same level of services with your mutual fund as you would with those that have fees. You have no professional assistance or oversight of your fund, which means that it will not be given the best attention or care. Of course, if you know what you are doing, then this would give you a low cost way to control your own funds.
Loaded funds mean that you will have to pay a sales fee for your purchase. Along with the fees, though, comes a lot better management of your investment. Your broker will pay closer attention to how your investments are doing which also means that you have a lower risk involved.
Choose How Much Involvement You Want
With no load funds, you need to pay attention to your own investments. This is because you are the only one making those choices, and any success you have is largely up to you. You also will not receive investment counsel from your choice of mutual fund company.
Loaded funds are the best way to go if you want professional care over your investment. This allows you to take a hands off approach and they do the investing for you. They know that poor management will mean loss of customers and money so they have a very good reason to want to do a good job.
Make Decisions over the Variables
Once you decide about the cost needed for the investment, there are some other factors you want to choose from. This would include things like:
• The time frame
• The taxes
• The fund's goals.
You will also need to consider how profit comes to you. If you are looking for dividends to be paid, then you need to look for funds that will do that.
Others may give capital appreciation or capital gains distribution. Just be sure that you know beforehand, so that you know how money is either to be paid to you or reinvested.
Determine Your Investing Goals First
Your investing goals will help you determine just how you should invest. Mutual funds come in different forms, as well as risk levels, so you will need to make a decision about this from the start.
Decide How Much You Have for Fees
Some forms of mutual funds, such as no load funds, have no additional fees associated with them. This also means, though, that you do not get the same level of services with your mutual fund as you would with those that have fees. You have no professional assistance or oversight of your fund, which means that it will not be given the best attention or care. Of course, if you know what you are doing, then this would give you a low cost way to control your own funds.
Loaded funds mean that you will have to pay a sales fee for your purchase. Along with the fees, though, comes a lot better management of your investment. Your broker will pay closer attention to how your investments are doing which also means that you have a lower risk involved.
Choose How Much Involvement You Want
With no load funds, you need to pay attention to your own investments. This is because you are the only one making those choices, and any success you have is largely up to you. You also will not receive investment counsel from your choice of mutual fund company.
Loaded funds are the best way to go if you want professional care over your investment. This allows you to take a hands off approach and they do the investing for you. They know that poor management will mean loss of customers and money so they have a very good reason to want to do a good job.
Make Decisions over the Variables
Once you decide about the cost needed for the investment, there are some other factors you want to choose from. This would include things like:
• The time frame
• The taxes
• The fund's goals.
You will also need to consider how profit comes to you. If you are looking for dividends to be paid, then you need to look for funds that will do that.
Others may give capital appreciation or capital gains distribution. Just be sure that you know beforehand, so that you know how money is either to be paid to you or reinvested.
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