Mutual Funds - Dirty Little Secrets of the Industry

Mutual funds can be shark pit to the honestfor 40 years and the fund manager just slowly
investor, if he doesn't know what he is doing.loses your money until there is nothing left.
Who can forget 2003 when Eliot Spitzer, USThere is a rule however that they cannot put all
Attorney General, brought charges and huge finesyour funds into one company or one stack. They
against some of the biggest names in the industryhave to diversify and spread your funds across a
for late trading and marketing timing. There arelarge array of companies in different sector. Now
the fat cat fund manages that pockets your hardthis rule in itself is one of the reasons why funds
earned money even before they invest any of it,lose money, over diversification!
in what is known as front loaded fund. Even whenLet us look at a scenario: You have $500.00 in
you lost money, they still get their hefty bonuses,your mutual fund, you place this money into 500
don't you just hate when that happened to you.different companies or stocks as a way of
Today I am going to show you 3 things to lookdiversification. At the end of one year about 490
out for to avoid this kind of pitfall and how toof those companies will lose money and only
become your own mutual fund manager, investingabout 10 will make money for you. So you end
for income and security. It is easier than youup losing money. Why because you were too
think. Now before we get started let me tell youdiversified, you were spread too thin across too
a little story.many different companies
One day while talking to my banker he suggestedBe Careful of Fund Manager that Practice Portfolio
that I should invest a portion of my RRSP intoDressing:
mutual funds, so I agree to do so. (This wasPortfolio dressing is when A fund manager have a
during the 24 years that I spend in cooperatelot of loosing stock or under performers in his
North America).The following year I receive myfund, and he is too lazy to clean it up, (because
statement only to find out that I lost 30% of myweather the fund made a profit or not he is still
portfolio. At the same time my bank receives angetting paid) What this manager will do is Every
award for fund manager of the year. How canlast Monday or Friday of each month he will dump
that be I contemplated, I lost my money andall the losers, (sell them on the open market,
they receive an award!possible at a loss) because he does not want
Do you suffer this kind of mutual fund investmentthem (the losers) on his books for month end
pain too?inspection. Now what follows is just mind boggling,
That same year I enroll into the securities course,The first Monday or Friday of the following month
offered by the securities commission. This is thethe fund manager will go back and buy the same
same course that qualified you to be a financiallosers that he sold the week before and hold
adviser and allow you to sell mutual funds andthem for another month until it is time to dress
insurance. I took the course to understand howhis portfolio again.
to manage my own finances.Never Give Power Of Attorney to Anyone you
Now here are the 3 things to look out for whenare investing with:
investing your hard earned money in mutual funds.Do not give power of attorney to your broker or
The Fund Manager Must Have his own Moneyyou portfolio manager; they will lose all your
invested in the Fund:money by trading your account just for the
If the fund manager cannot put his money wherecommission. This is more of a problem with your
his mouth is, do not invest in his fund, he will notbroker than fund manager; however it is a word
put enough effort and energy into it to return toto the wise.
you a profit. Did you know that less than 1% ofThere are 3 main types of funds that operate in
mutual funds make money for the investor?North America, close end fund, open end funds
There are no laws against the fund managerand (UITs) units' investment trust.
losing your money. You could invest into this fund