One of the big advertising kicks today from mutual funds is to tell how low their expense ratio is and that you will make a great deal more money if you buy and hold with them. Partly true, but that is not the whole story.
What is the expense ratio? It is all their overhead including but not limited to all the managers and other employees salaries, rent, computers, utilities, travel (the fund manager says he has to visit a company in Florida in the winter to see how it is doing), advisory services, telephone, etc., etc, etc. Oops, and don't forget the manager's bonus whether he makes money for you or not. If the fund has one billion (yes, that's a B) that means they can spend $10,000,000 on expenses and no one will complain because it is a tiny 1%.
At some point expenses just about stop going up as you don't need very many more people to manage the paper work for a billion than you do for 250 million. The fund manager's duties remain the same just the size of the orders he places changes. Actually as a fund grows in size its expenses should automatically come down as a percent of assets, but you will find that is not the case for many funds. They keep sticking it to their investors who don't have any idea how egregious this is.
The larger the fund family the lower should be their expenses per fund as they can outsource from the fund to a central billing and customer service desk.
Vanguard Funds has more than 100 individual funds in its family and they brag on how low is their expense ratio. It should be as they have more than 720 Billion spread out over those funds. They keep their expenses low and at only 1/2% they can charge about 360 million to offset their overhead.
Many funds run very high expenses. This is especially true for new and smaller funds, but as they take in more money they can spread their expenses and lower their ratios. One of the recent criticisms of funds is they have been making extra charges labeled 12B-1 that are supposed to be expressly for promotion to bring in new customers. Unfortunately, some (not all) of the fund managers have been pocketing this. If this does bring in new money then the expense ratio should fall and again in many cases it has not.
Investors expect fund managers to be honest. When large sums of money are at stake it seems to bring out the worst. That real nice fund manager turns into a hungry wolf and the investor becomes one of the 3 little pigs that did not escape.
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
During the month of January the Dow Jones Industrial Average,... Read More
Who are the successful investors?There are those who follow the... Read More
Everybody is riding the Wall Street Roller coaster. Even if... Read More
I cringe every time I hear a novice investor tell... Read More
The greatest stock market myth is the idea that investing... Read More
This is the continuing story of our two imaginary traders,... Read More
Sidney felt sick as she looked at her latest OptionsXpress... Read More
It is commonly reported that the stock market averages about... Read More
It looks like the market is ready to start up... Read More
Investing in long-term financial vehicles give you the most gains... Read More
Let's say you are interested in this one company. You... Read More
Checked your 401K lately? Going back to about a year... Read More
After finding the price of a particular stock, usually the... Read More
You have a lock on your house. You have a... Read More
Because you don't feel too sure about which stock or... Read More
Reach in your pocket and take out that big roll... Read More
Congress recently passed another new law that is supposed to... Read More
One of the great truisms of Wall Street is "Don't... Read More
Let's hope you did not have any of the Enron... Read More
Every year I go to the Money Show in Orlando,... Read More
You read and hear a lot about hedge funds. Unfortunately,... Read More
A common problem I often see when working with living... Read More
Did you run out to buy that duct tape yet?... Read More
I use the P/E ratio as a secondary indicator for... Read More
When we go to the circus we see a trapeze... Read More
Are you attracted to the idea of being in control... Read More
Everything you invest in has risk so you want to... Read More
Do you have a nest egg? You know, a place... Read More
There is nothing more exciting than finding an undervalued stock... Read More
In today's volatile and confusing stock markets everyone is searching... Read More
Should the market turn against you, it is important that... Read More
Hedge current portfolio positions and gain access to capital resources... Read More
What the heck am I talking about?It is often said... Read More
I have a 2-car garage. There are nice shelves on... Read More
Professional stock options traders use the term lean to refer... Read More
Are you paying any attention to your retirement savings? Do... Read More
This is a guide to the different types of mutual... Read More
Picture one of those clubs where only the real heavyweights... Read More
We are already in it, but you can't see it.... Read More
As the man said, "I've got some good news and... Read More
There can't be many traders who haven't at least considered... Read More
We learnt the following the hard way! If any of... Read More
Both the stock market and oil prices rallied recently, which... Read More
When most analysts, financial planners, fund specialists and investors try... Read More
When it comes to 401k's there is an overabundance of... Read More
(1) CHK stock price $16.74, NAV $32.5CHK is my favorite... Read More
The greatest stock market myth is the idea that investing... Read More
When you become interested in a stock or mutual fund... Read More
It takes a total mental commitment to the task. It... Read More
In a previously written article, we expanded the use of... Read More
One of the great truisms of Wall Street is "Don't... Read More
I often play a little game with myself when I... Read More
Investing in long-term financial vehicles give you the most gains... Read More
It has often been said that there is only two... Read More
We keep hearing about this bear market and that the... Read More
During the day I watch CNBC-TV, the stock market channel.... Read More
When you become interested in a stock or mutual fund... Read More
Have you ever thought of investing? Do you have a... Read More
There has been great condemnation recently because China has been... Read More
You remember the story about the frog that was put... Read More
Sidney felt sick as she looked at her latest OptionsXpress... Read More
This is the continuing story of our two imaginary traders,... Read More
Regardless of the fact that the world's stock markets have... Read More
Today we are inundated with tons of information about the... Read More
If you're like many investors who squander those small dividend... Read More
There is so much involved in developing peak performance, that... Read More
Stocks & Mutual Fund |