 SM
|
|
Who We Are
Money Focus Personal Finance Insurance Mortgages Taxes Step by Step Hot Topics Contact the Editor
Featured Site TradersDigest AfterHourTrades.com, Inc. Featured Columnist: 
All content is © copyright (1998-2003) BonPaulProductions (all rights reserved) |
Order your copy of Building Wealth in a Paycheck-to-Paycheck World by Paul Petillo. It is packed with safe, proven wealth-building strategies that cover all the major components of a balanced financial plan, including:
Are you asking yourself...
..When markets don't do well, and fund managers continue to receive bigger
and bigger paychecks for services that would find folks like us on the
growing unemployment line, there tends to be a lot of finger pointing at
investors. You lost because you thought you did what was right. You
bought mutual funds on your own and in your retirement plans based on
performance, and much of that can be manipulated on the last day of any
given quarter. But you also bought fees.
Half of all of the mutual funds on the open market today have expenses
that are greater than 1.4%. that means for every $100 invested, $1.40
is taken off the table immediately. If you think that is a pittance,
think again. Markets are now moving in single digit increments and in
doing so, that 1.4% is the first hurdle you must overcome. Secondly,
60% of the investors feel that a load fund, a mutual that charges a
sales fee to get in or out, because the fund that does will perform
better than one that doesn't. Mark Carhart, who is currently doing
quantitative research at Goldman Sachs has found that the majority of
funds that charge loads lag behind those that don't charge anything.
And this is before he calculated in the load fees to the tune of 6% over
the course of a decade!
So why do folks buy into the idea that a load fund performs better? The
charging of a load encourages investors to stay put. This cuts down on
redemptions which cause funds that charge nothing from posting lesser
returns as they cover those that have migrated in search of better
performance. This happens to a no-load fund about every 2.9 years
compared to load funds whose investors move along every 3.2 years.
So even though many of these load funds are south of even performance,
why do investors stay put? They believe. They believe in the sales
pitch, the hand holding of the sales rep, and the fact that they are
unwilling to admit they made a mistake.
Another factor in the holding power of the two types of funds. Load
fund holders tend to hang longer as I have just mentioned, but they also
make more in the market. The funds have a tendency ot be better
involved in the market because of lesser chances of redemption by fund
holders. No-load fund managers have to keep a certain amount of cash
available for redemptions. That means that the average load vs no-load
return is 5% higher in the load fund. Does the presence of a load mean
that investors will make more money? Maybe.
Maybe not. Mr. Carhart has figured that 90% of the funds that closed
their doors between 1962 and 1993 charged a load, either front end or
back end. Click here for a list that differs from the typical top ten
lists that sell funds. This is the groupthat closed their doors and
simply went away. All are load funds.
"...accompanied by a steady disappearance of many other funds through
merger, liquidation and other means... this data is not reported by mutual
fund data services or financial periodicals and in most cases is
(electronically) purged from current databases. This imposes a selection
bias on the mutual fund data available to researchers: only survivors are included.."
|