Dirty Mutual Fund Secrets

Website design By BotEap.comThis essay is to enlighten investors as to what they are getting themselves into if they rely on mutual funds as a way to provide financial freedom in retirement.

Website design By BotEap.comBecause of the complexities of keeping track of stocks and finding competent money management, unless you’re a billionaire, many Americans have turned to the quick fix known as a mutual fund.

Website design By BotEap.comIn recent comments, experts have adopted the following views on mutual funds. “Most mutual fund investors have no idea what they’re invested in, which is how the industry wants it.” Also, mutual funds have problems because they reward you for how much money you attract, not how much money you make.

Website design By BotEap.comSEC Chairman Arthur Levitt, Jr. warned of the growing unfairness in the relationship between individual investors and mutual funds in January 2001. Mr. Levitt made the following comment:

Website design By BotEap.com“THERE ARE A NUMBER OF INSTANCES WHICH, VERY FRANKLY, DO NOT HONOR THE RIGHTS OF AN INVESTOR. INSTANCES WHERE… HIDDEN COSTS HURT INVESTORS’ FINANCIAL RESULTS, WHERE TURNOVER AND EXPANSION CONSTITUTE THE TRUE PERFORMANCE OF A MUTUAL FUND, AND WHERE ACCOUNTING TRICKS AND A PLAY OF HANDS DRESS THE FINANCIAL RESULTS OF A FUND”

Website design By BotEap.comThere are, in effect, FIVE separate bills that mutual funds charge. The best way to determine whether or not something is effective for you is to dollarize the benefit or charge. When you invest in the typical mutual fund (assuming it’s not a qualified retirement plan), you face the following costs that erode your benefits and you probably never knew about them, you won’t find them in your prospectus and your broker won’t sit down and tell you about them . The five costs of investing in mutual funds are:

Website design By BotEap.com1. Tax costs: Excessive capital gains from active trading.

Website design By BotEap.com2. Transaction costs: the cost of the transactions themselves.

Website design By BotEap.com3. Opportunity Costs – dollars taken out of portfolios for the custody of a fund.

Website design By BotEap.com4. Selling expenses, both visible and hidden.

Website design By BotEap.com5. Ration of expenses (“management fees”): there is no end to the increases on the site.

Website design By BotEap.comREAD CAREFULLY:

Website design By BotEap.comHow do all these costs of funds affect you? Well, with the expense ratio averaging 1.6% per year, sales charges 0.5%, portfolio transaction costs generated by turnover 0.7%, and opportunity costs, when funds keep cash in place to remain fully invested in stocks, 0.3%. The average mutual fund investor loses 3.1% of their investment returns to these costs every year. While this may not seem like a lot on the surface, the costs would eat up 31% of a 10% market return. Add in the 1.5% capital gains tax bill that the average fund investor pays each year, and that number skyrockets to 46%, nearly half of a potential 10% return. Do you feel like you are taking a step or two backwards while trying to move forward?

Website design By BotEap.comIn his book “The Mutual Fund Problem,” Richard Rutner shares that “Nobody denies that the average mutual fund returns 2% less per year than the overall stock market returns. Yet the mutual fund industry spends billions of shareholder dollars to promote their money managers as experts who can skillfully manage investor dollars The vast majority of mutual funds (94% according to a recent five-year survey by Lipper Analytical Services) have underperformed the stock market as a whole.

Website design By BotEap.comTherefore, FIVE serious myths are attached to the public and it would be prudent for these fallacies to be reported.

Website design By BotEap.comMyth #1: Mutual funds are long-term investment vehicles

Website design By BotEap.comIn the year 200, 451 funds simply disappeared, like Jimmy Hoffa.

Website design By BotEap.comMyth #2: Mutual fund money managers are long-term investors.

Website design By BotEap.comThe average fund traded 15-20% of the stocks in its portfolio in the 1950s. Today, the rate of trading within the average fund has exceeded 95%. For the most part, fund managers are short-term speculators.

Website design By BotEap.comMyth #3: Mutual fund shareholders are long-term owners.

Website design By BotEap.comToday’s rapid redemption rate is 75% higher than the average rate during the 1970s. This clearly violates the most fundamental principle of investing success: buy and hold for the long term.

Website design By BotEap.comMyth #4: Mutual fund costs are falling.

Website design By BotEap.comIn 1950, the average stock fund earned about three-quarters of a percentage point. By early 2001, that number had more than doubled.

Website design By BotEap.comMyth #5: Mutual fund returns meet investors’ reasonable expectations.

Website design By BotEap.comIn the biggest of bull markets, funds of all sizes underperformed well against the stock market. The inability of 85% of all fund managers to match broader market performance is the result of high fees (see above), short-term investment horizons, and substantial transaction and tax costs.

Website design By BotEap.comIf any of this scares you, reconsider your investments. The asset allocation model where they show you a pie chart with so many stocks, so many bonds, and maybe 3% cash is a failure. This was designed for institutions with 100% investable assets, not for people with lifestyle needs and expenses. You’ll never see real estate on that pie chart, yet for most Americans, your home is worth more than your other investments. No one offers the idea of ​​buying investment properties that appreciate and allow you to get dollars out of them by refinancing and adjusting rents to cover your cash crop. Once you harvest, it’s time to implement, and you like the seasons, you can do the same cycle over and over again increasing your wealth.

Website design By BotEap.comHowever, having real estate as an investment does not mean that you do not manage it. What do I mean? You need to be responsible and manage the equity in your home and if you have investment properties, you need to manage those properties as an investment portfolio with precise planning so that you don’t create negative cash flow because cash is king. In the business world, companies that fail to properly manage their cash flow often fail to survive. Similarly, when individuals or families fail to properly manage their cash flows, they end up in the same place, in bankruptcy court.

Website design By BotEap.comThe four letter word that no business can live with and is known as the lifeblood of any business is CASH. Consequently, the individual investor is best served when thinking like a business and creating cash flows to implement with leverage in arbitrages. What did you just say? If these terms are foreign to you and you claim to be an investor, you better look them up because they are as old as salt in the financial world and the best investment advice three self-made billionaires on the Forbes 400 ever heard. If you don’t know how to include cash flow, arbitrage, and leverage in your investment plan, find a company that does before it’s too late.
If you would like more information on how leverage, arbitrage, and creating cash flows can benefit your portfolio or rebalance it back to a positive position, please give the author a call.

Website design By BotEap.comJames Burns, Esq.

Website design By BotEap.comlawyer at law

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