Mutual funds and brokers are always preaching not to buy any fund with a high expense ratio. That is the annual costs of the fund to pay for trading of stocks within their portfolio, salaries, rent, telephone, analysts, etc. Most of them tell you not to buy one that exceeds 1.5%. There is also another expense added by some mutual funds called a 12b1 (usually from ?% to 1%) that is supposed to be used for promotional purposes only. These numbers may appear small, but they are being applied to multi-millions, sometimes billions of dollars.
The 12b1 is for advertising of the fund to bring in more investors. The more customers, the more money in the fund, spreads expenses over a greater amount of money and should reduce the expense ratio.
We have seen allegations recently that many funds are putting the 12b1 in the pockets of the fund managers and even as the fund gets larger and larger the expense fees have not been reduced.
I won't be discussing here the loads (commissions) charged as I see no reason to buy any fund that charges commissions; there are thousands of no-load (no commission) funds that outperform the load funds.
For example, here are 2 funds. The first is Pioneer Fund which incidentally has a commission charge of 5.75% with a price per share increase of 22% in 2003 and an expense ratio of 1.11%. Another fund Yacktman Focus Fund with no commission charge and a return of 27% with an expense ratio of 1.25%. Five percent better return is a huge difference. Which one would you buy?
The Merrill Lynch Global Technology Fund with a back end load of 4% and an expense ratio of 2.78% yielded 52% so far this year. Another no-load fund, Profunds BioTechnlogy, with an expense ration of 2.92% and has made 56% YTD. Another no-brainer as to which one you wished you had bought earlier this year. Just a couple of more: Enterprise Growth Fund with a commission of 4.75%, an expense of 1.73% and a return of 20% YTD and Rydex Energy Fund a no load with expenses of 1.39% and a return of 23% YTD.
Even if you leave out the commission charges you will easily find funds that have returns in excess of those with lower expense ratios. Don't be fooled by Wall Street nonsense of anything but net total return on your money. Period. If you take into account the additional commissions that many funds and brokerage companies charge you will quickly see you have been hoodwinked all these years.
The above examples are not extreme as I don't think expense ratios should mean anything to influence your purchase. Don't let any broker or financial planner sell you anything other than the best return for your money.
Al Thomas' book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know.
Copyright 2005
Chicago limo Skokie ..Sidney felt sick as she looked at her latest OptionsXpress... Read More
'Sector funds are too risky.' 'I doubled my money with... Read More
For weeks, no, months we have been bombarded with nothing... Read More
Ever turn down a street, get half way and suddenly... Read More
First let's see what protectionism is. According to Mr. Webster... Read More
There can't be many traders who haven't at least considered... Read More
If you were to find that you had some severe... Read More
I receive emails from Morningstar. This company provides statistics and... Read More
(1) CHK stock price $16.74, NAV $32.5CHK is my favorite... Read More
For the last few weeks we have seen the stock... Read More
Sometimes the best way of lowering exposure to risk is... Read More
One of the basic laws of physics states that a... Read More
Money management starts with protecting your capital, realizing profits and... Read More
Reduce your investing and stock market risks by:Setting your sights... Read More
Why? Because I am going to shatter your conventional wisdom... Read More
Any online investor / trader seeks an excellent off or... Read More
How do you make money without picking tops and bottoms?I... Read More
After some forty years of banking and investments, I retired... Read More
One of the great "secrets" of successful people is discipline... Read More
Stock investment advice is easy to find. Do you get... Read More
There are major differences between trading stocks and trading futures.... Read More
We've all heard of the stock market and probably have... Read More
Let's assume that you want to make some serious money... Read More
One of the great "secrets" of successful people is discipline... Read More
A few years back ? it seems like an eternity... Read More
limo O'Hare Bonfield ..If you were to find that you had some severe... Read More
I have a 2-car garage. There are nice shelves on... Read More
One of the basic laws of physics is that a... Read More
It has been said that low cost or even free... Read More
Dollar cost averaging is one of the most popular ideas... Read More
Most advisors will tell you they can beat the market.... Read More
A recent cartoon in my daily newspaper showed two guys... Read More
Who are the successful investors?There are those who follow the... Read More
Picking a beaten-down stock requires a different kind of selection... Read More
If you don't know what a Roth IRA is then... Read More
Have you ever thought of investing? Do you have a... Read More
According to Investopedia Inc. the penny stock market has seen... Read More
If there is one term over-used when talking about making... Read More
So you're started trading, you bought some positions with your... Read More
If you have talked to a stock broker or financial... Read More
Maximizing a stock market investmentThere are several factors an investor... Read More
Three little pigs went to the market to stock up... Read More
What does it mean to short a stock?This means that... Read More
The debate rages all over Eastern and Central Europe, in... Read More
If you've ever flipped on the television to CNN Financial... Read More
There are many good penny stock investments available, which could... Read More
What are you thinking when it comes to your no... Read More
You'd have had to be living on a desert island... Read More
Both the stock market and oil prices rallied recently, which... Read More
There are many important things you need to know to... Read More
Stocks & Mutual Fund |