Financial experts: what does this investment jargon mean?

I am confused by the brochure of a Fund recommended to me. Specifically: I would be despositing x dollars every month. There is an annual management charge of 1.25%. There is also an “initial charge” of 5.25%.

I made this enquiry:

And received the response:

I just do not understand this: does it mean yes or no to my question?

It sounds like a front-end load. Are you being offered this fund by a broker or other commissined financial advisor?

He seems to be saying that the cost to you of any units you buy will be 5.25% higher than their market value. This sounds like a really shitty investment, in my opinion.

Thanks both. I am being offered this Fund by a financial planning manager at HSBC (after I made enquiries about investment opportunities).

He mentioned the anticipated yield is 6-9%. It strikes me that with an initial charge of 5.25% and an annual fee of 1.25%, I could actually lose money. Does this make sense?

This is what the brochure says:

This is what got me confused, because it seems as though every deposit is effectively more “shares” and therefore subject to this 5.25% charge.

This appears to be a fund of funds. Actually it appears to be *three/i] funds of funds in different flavors.

The expenses are very high for this type of fund.

Just want to point out that when it comes to investments this is pretty much always true, while the risk of doing so varies from investment to investment. I think what you mean is that if the yield is 6% and the costs are 5.25+1.25% then you’ll have a net loss. But also you shouldn’t be paying 5.25% annually, just initially on all invested funds. So if you hold the shares for more than a year and the yields are correctly anticipated then it’s not necessarily a loss.

There could be a lot better investments, of course.

Between the front-end load and the MER, the first year’s gains are pretty much wiped out, assuming average performance. Also, 6-9% is less than the market’s historical annual return, so you would be better off getting into a low cost index fund or just buying SPDRs.

What is this fund (or fund of funds) investing in? There are very few fund investments now that would yield 6-9%.

Keep in mind that the yield, or income on an investment, is only half of the picture. Yes, low-quality bonds might be yielding 6% right now, but those are the same bonds whose value might drop by 6%+ if/when interest rates rise.

I would doubt the integrity of a planner who is selling you an overpriced fund-of-funds (the average fund charges about 1.5%, and you’re looking at 5%+) based on a catchy yield figure.

Man, that sounds like a total rip-off.

You simply can’t overlook the loads and fees when you’re trying to invest. When you figure them in with the odds that your investment advisor could actually beat the S&P 500 (probably less than 50-50 chance) it just doesn’t make sense.

If I were you, I’d consider 2 options. . .

Option 1: Open a mutual fund with the company that makes it. No commissions, but there’s a small charge associated with your purchase (1-3% maybe).

Option 2: Open an account with an online broker and just purchase a fund that follows an index (for example, SPY or QQQQ, both with very small loads).

The drawback with option 1 is that the load is greater than option 2 and there’s a good chance that the fund won’t out-perform the index anyway.

The drawback with scenario 2 is that if you want to deposit MONTHLY, I think that there would be a commission with each transaction.

I’ve been doing a lot of investment reading lately (and a bit of investing) and the overriding conclusion that I’ve drawn is this: stay away from advisors.

They’re not likely to do any better than you could on your own, ESPECIALLY when you figure in the fact that the fees you pay them come out of what you could invest on your own.

The fees that guy wants to charge you are nuts.

With Trunk’s option 2, you could stash money in the brokerage account monthly, then do your purchases whenever you have accumlated enough cash to make the commission reasonable as a percentage. That is what I have been doing.