The Inside Scoop on Mutual Fund Rip Offs

The bear market that showed up at the end of 2000 has every brokerage house-as well as the entire mutual fund industry-scrambling to find creative ways to boost both their image and bottom line. Unfortunately, this is often at the investors' expense.

Fund managers are ever on the lookout for ways to spin the stats to hide lousy track records and to find ways to obscure fees. To add insult to (financial) injury, investors end up being penalized for selling. So what's an investor to do? In this case, knowledge is power. Here are some of the ways mutual fund investors are being taken advantage of:

• Performance is always an issue for any investor. Formerly great funds, which I've used myself during the 90s, are the junkyard dogs of this century. Janus Fund comes to mind and is one of many that buy-and-hold investors got stuck with. It's down 59%, since we acted on our Sell signal on 10/13/2000.

• Most of the funds today have 12b-1 fees place, and some go as high as 1% of a fund's assets per year. Between fees, commissions and management charges, the mutual fund industry is always getting paid, even if you, the investor, are losing money. For example, if you had bought SunAmerica 2-1/2 years ago, you would have paid the above fees at 2.35% per year. And, if you finally decided your investment wasn't going anywhere, you would have been stuck with a 5% deferred sales charge.

• If you hold a fund less than 180 days, plan on being hit with a redemption fee. It's almost standard. What's the deal? Brokers only get paid while you hold their fund. So, if you're going to sell, they get a last whack. It's a great deterrent for selling, too. Can this be avoided? Not completely, but if you have your money managed by an investment advisor, the holding period is reduced to 90 days.

• Then there's the deceptive no-load rip-off involving B-shares. Sure investors don't pay anything up front for these, but you'll pay hefty surrender fees when you sell. Plus, they carry higher management fees.

Keep in mind that mutual fund companies have market share in mind, not your best interest. If you think that might not be true, consider the skyrocket growth rate for pure technology funds. But look at them now: they've crashed & burned and no buy & holder has come out with a win.

Then there's the sad story of incompetence in the mutual fund industry. There are hordes of inexperienced financial planners (commissioned salesmen) just waiting to sell you load funds (A and B shares), or to recommend an asset allocation approach with no real plan or strategy that will serve you in a bear market.

Of course, there's always the option of having a perfectly balanced portfolio designed. Such was the case when a prospective client phoned me in 1999 during the height of the technology boom. He felt left out because everybody was making money in one of history's great bull markets, but his portfolio was so well balanced that he was neither making nor losing anything. He would have been better off in a money market account.

To me, the term balanced portfolio translates into this: I have no clue what I'm doing, where the major trend is, what I should be buying or whether I should be in the market in the first place. I'm hedging so much that one investment goes up and another goes down.

Balance is one thing and safety is really quite another. And mutual funds do not automatically mean either safety or balance. The key is always information-knowing how to get reliable info and what it means once you have it.

This is not for everyone. If you have money to invest and you don't have the time or the inclination to do the homework, then your smartest move is to find someone you trust. That would be someone with a track record you can verify, and someone who is not going to make money off your investment every time you buy or sell something.

People like this do exist, and the good news is you only need to do your homework once. That's when you check them out. From then on, you can relax knowing you're just not likely to fall prey to any of the rip-offs that are out there.

About The Author

Ulli Niemann is an investment advisor and has been writing about objective, methodical approaches to investing for over 10 years. He eluded the bear market of 2000 and has helped hundreds of people make better investment decisions. To find out more about his approach and his FREE Newsletter, please visit: http://www.successful-investment.com; ulli@successful-investment.com

---

Hill of Hope

Just about now everyone is confused as to which way... Read More

Option Trading Basics

Options trading can increase the profits you make when trading... Read More

Kick The Tires

Before you buy another car you walk around the lot,... Read More

Trading vs Investing

I often hear from people, "I don't trade. I invest.... Read More

Inertia

One of the basic laws of physics is that a... Read More

Red, Green, Yellow - or - Stop, Go, Go Very Fast: Which Describes Your Online Trading?

Ever notice how behavior in one area of life can... Read More

Successful Trading ? Taking Profits - Part 1

So you're started trading, you bought some positions with your... Read More

The Bottom?

Every day I hear someone on CNBC proclaim that "this... Read More

I Love To Lose Money

Well, not really. What I mean is I don't mind... Read More

A Personal Stock Market Investment Philosophy

∙ Make every investment in the stock market a long-term... Read More

Precision Money Management

This article describes the model of a natural relationship between... Read More

Gurgle Gurgle

Caught in a whirlpool and being sucked under. No life... Read More

Paddle Your Canoe

At some time in your life you have been on... Read More

?Fears Only Enemy Is Action?

What a great statement!I just heard someone use it in... Read More

Moving Averages

Every day on CNBC-TV they show a 200-day moving average... Read More

Expense Ratios

Mutual funds and brokers are always preaching not to buy... Read More

Market Timing?

The recent criminal fiasco in the mutual fund industry is... Read More

Small-Cap Stocks: The Beginning of the Journey

When an individual investor wants to roll up his sleeves... Read More

Inertia Syndrome

When it comes to buying a stock or mutual fund... Read More

Hedge Fund Advertising

Have you seen all those big full page ads for... Read More

Mr. Market

I constantly hear the talking heads on CNBC-TV, the radio... Read More

Some Good News for A Change

Before we get into all the good news out there,... Read More

Evaluation II

As I said in Part I everyone in the insane... Read More

Hedge Funds: the Good, the Bad, and the Ugly

Alfred Winslow Jones started hedge funds in 1949. He was... Read More

Stock Market Course .... Day Trader Online Seminar ... Can You Generate Profits Trading from Home?

When it comes to stock market trading it PAYS to... Read More

A Good Fund Manager

Every Wall Street analyst, financial planner and broker will tell... Read More

NASDAQ 800?

In November of 2000 when the NASDAQ was trading at... Read More

The Stock Market Investor?s Worst Enemy

Every stock market investor faces one primal enemy. An enemy... Read More

365/7/24

What does it take to be a stock trader? It... Read More

Stock Market Investing Odds

The greatest stock market myth is the idea that investing... Read More

Discover the Retirement Breakthrough the Federal Government Created for You - The Roth IRA!

If you don't know what a Roth IRA is then... Read More

Adding Funds

Someday you may want to retire and continue to live... Read More

Why Investors Use Financial Planners

Do you have a financial planner? Does one of your... Read More