| Most mutual funds offered by reputable fund | | | | assets under management to $2 billion and |
| companies or families have good intentions. It's in | | | | charges investors 1% a year, it basically doubles |
| their best interest to perform well and beat their | | | | its income. Much of this goes to the bottom line, |
| benchmarks. Others make a token effort to | | | | since expenses do not increase proportionately. |
| perform, and are more concerned with making big | | | | Now, here's a thought for you. In the past 30 or |
| profits for the fund company. Here's how the | | | | so years, mutual fund assets under management |
| business works, and how to separate the good | | | | have grown like crazy. Yet, many stock funds are |
| from the bad. | | | | charging investors 2% and more for yearly |
| Professional money managers make the | | | | expenses while others charge less than 1%. |
| investment decisions in actively managed mutual | | | | Why would a large mutual fund company need to |
| funds. Only in index funds is performance a given, | | | | charge investors 2% or more? What's the |
| because they are passively managed to simply | | | | objective here, and whose side are they on? |
| track an index. The vast majority of traditional | | | | There is one sure way I know of to separate the |
| mutual funds are actively managed. | | | | good guys from those who are looking out for |
| Simply put, it is fund management's job to | | | | themselves. Every mutual fund has an EXPENSE |
| outperform the market in general, and to beat | | | | RATIO, and it tells the investor how much it |
| the competition. If a manger excels at his job, | | | | costs a year to be invested in the fund. Plus, |
| everyone benefits. The manager gets a raise for | | | | information is available that compares a fund's |
| outstanding performance. The fund company | | | | expense ratio to other similar funds. |
| benefits as investors pour more money into the | | | | Do not believe for one minute that you get what |
| fund because it has proven itself to be a winner. | | | | you pay for. High expenses come out of |
| Investors benefit directly as their money grows. | | | | investors' pockets, and act to directly lower |
| That's how a good mutual fund operates. All funds | | | | investment returns. No mutual fund can guarantee |
| make their money from the yearly expenses | | | | good performance, but it would be nice to know |
| they charge investors. The more money they | | | | that your fund is on your side and doing the best |
| have under management, the more profit they | | | | it can for you as an investor. |
| make for the mutual fund company. | | | | If you want to separate the good guys from the |
| For example, if a fund grows from $1 billion in | | | | bad guys, look no further than the expense ratio. |