| Many people believe that mutual funds are simply | | | | $10 tosell. Total Costs $214.63. Lost Returns |
| the best way to invest forthe long term. That's | | | | $188.37. Total account value after 5years $4607. |
| what all the advertisements say, right? They | | | | If you take that scenario and stretch it out to 10 |
| arediversified, relatively safe, and have | | | | years, the results areeven more dramatic. Why? |
| professional management. For some | | | | Because as Joe's account grows in value, the fund |
| people,investing in mutual funds makes a lot of | | | | takesmore and more in fees! The management |
| sense. People who should invest inmutual funds | | | | fee percentage does not change. Managementis |
| know that the stock market is a great way to | | | | taking the same size piece of a larger pie. How do |
| create lasting wealth,but they don't want to make | | | | you think they pay for allthe advertising? Mary will |
| the effort to learn to invest correctly. | | | | only pay the fees to execute the trades. |
| These people are not "too dumb", or "don't have | | | | Performance |
| time", or whatever excusethey make. There is | | | | Most mutual funds fail to beat the market in a |
| nothing wrong with someone like this, they just | | | | given year. In fact, 75% ofactively managed |
| make it alot more difficult to create wealth for | | | | funds fail to beat the market in a given year. This |
| themselves. Investing is a continuallearning | | | | means that |
| process. There is no magic formula or special | | | | 75% of the time, you would get better returns |
| degree required to be agreat investor. The only | | | | by investing in a passivelymanaged index fund |
| requirement is desire. Anyone can have that. For | | | | than investing in an actively managed mutual fund. |
| thosewho don't want to make the effort to | | | | As anindividual investor, you can beat the market |
| understand how the market works, hand | | | | in most years. If you don't, atleast you aren't |
| yourmoney to a pro. They will charge you | | | | paying huge fees to someone on top of not |
| outrageous fees, but at least you might beable to | | | | beating the market. |
| sleep at night. | | | | It's Not Their Fault |
| Fees | | | | Why do mutual fund managers lag the market |
| The main reason you want to avoid mutual funds, | | | | most years? Because of the natureof their job. |
| if you choose to make theeffort, is fees. | | | | They have to make most of the investment |
| "Management fees" and "loads" will rob you of | | | | mistakes you aren'tsupposed to make. They have |
| potentialreturns. Here's how: | | | | a compressed time frame for their fund to |
| Without Mutual Funds | | | | perform. |
| Mary buys 100 shares of XYZ company. She | | | | They can advertise all they want, the bottom line |
| pays her broker $10 to execute thetrade. The | | | | is that performance attractsmore money and |
| shares were at $10 per share when she bought | | | | more fees for the fund. If the fund manager was |
| the company. Her totalinvestment was $1000. | | | | buying stockswhen they are truly cheap and |
| She owns the stock for 5 years and it goes to | | | | telling the fund holders to be patient, they |
| $50 pershare. Her investment is now worth | | | | wouldpull their money out. The fund would then |
| $5000 and she has a profit of $4000. | | | | lose money and the manager would losehis or her |
| Marydecides to sell her shares. She pays her | | | | job. |
| broker another $10 for the trade. | | | | Wall Street professionals in general have so many |
| Total Costs $20. Total account value after 5 | | | | pressures around them thatit is difficult to ever |
| years $4980. | | | | be a great performer. Is it any wonder that |
| With Mutual Funds | | | | Warren |
| Joe buys shares of a mutual fund at $10 per | | | | Buffett, the greatest investor who ever lived is |
| share. He pays $10 to execute thetrade. The | | | | based in Omaha, Nebraska? Nexttime read about |
| mutual fund management fee is 1.5% per year. | | | | all those analysts who make stocks move with |
| At the end of the firstyear, the fund has gone | | | | theirrecommendations and how you can profit |
| from $10 to $20 per share. Joe pays $30 ($2000 | | | | from it. |
| newaccount value x 1.5% management fees) Not | | | | If you want to pay huge fees for poor |
| only has he paid a fee, but that $30he paid has no | | | | performance, then mutual funds are yourbest bet. |
| opportunity to compound. Instead of being worth | | | | If you want to beat the market and not pay |
| $2000, Joe'smutual fund is now worth $1970. If | | | | anyone else to do it, makethe effort to learn and |
| you use that math for the remaining 4 years, | | | | invest for yourself. Good information is out there |
| Joe's account value ends up at $4617. He paid | | | | youjust need to find it. Check out the links below |
| $194.63 in fees and lost anadditional $188.37 in | | | | for more info. |
| potential returns. Oh yeah, he also paid another | | | | |