How do I determine which mutual funds have fees? Not even sure what load and no load is. Then I know some have an initianition fee and that you must keep your money locked in for a certain amount of time before cashing out to avoid another fee. Is it best just to look through a list of the top performing mutual funds and pick the one that has had the highest YTD gains?
There are three types of “fees” though only two of them are commonly referred to as such.
One is the load fee. This is paid to the broker when you buy shares in a mutual fund. You might be able to negotiate these. Some funds have back-end loads for which the commission is charged at the time of selling rather than buying. There are no-load funds, but you’re much less likely to find out about them from a broker for obvious reasons.
The second type of fee is the management fee. This is a fee charged to the mutual fund by whatever person or company is managing the fund. You won’t pay this directly. It will be paid by the fund out of its assets and your account will not grow as fast in value as it otherwise would.
The third type, generally not called a fee are the mutual fund expenses. These are the ordinary expenses of the business like mailing, secretarial and accounting, and a biggie, the commissions they pay on buying and selling the stocks they own.
All funds will have fees of these latter two types. The mutual fund prospectus will show the management fees and tell you what the expense ratio (third type as a fraction of assets) has been.
I would definitely not pick a fund by looking at how it’s done year-to-date. First that’s much too short a period and second even for longer periods there is only little evidence that winners in the past continue to win. And to the extent they win, by and large due to the expenses they do not consistently outperform the market.
My advice to you is to pick as low a load as possible passive fund (index) fund.
I learned a lot from this ‘Bogleheads’ Wiki - it should have answers to many of your questions.
High management fees are not your friend and I consider front or back load fees to be the enemy of efficient investing.
I recommend the “Three Fund Portfolio” (in the Wiki above) as a great place to start - and for the long term as well. It is easy to do a lot worse and hard to do much better.
Huh? Mutual funds charge a fee to get in or out?
That sounds like something from 20 years ago when funds benefitted from ill-informed investors.
The only fee my Canadian RRSP with TD bank (like an IRA or 401K) charges me is the management fee. I can even buy fractional shares with a monthly contribution amount. If a fund wants to charge you an in or out fee, they better have extremely low management fees!
The only other penalty is if you cash out, IIRC, within 30 days. This is to avoid day-trading on mutual funds.
Of course, in Canada you can buy these sorts of funds through your bank, so an “investment advisor” is simply a guy looking for commissions.
Another point - don’t be confused by any salesman trying to tell you a whole life policy as a fund investment. You’ll get all sorts of conflicting stories, but the short explanation is whole life is a crap-pile with an expensive up-front fee. If you need insurance (wife, kids, mortgage etc.) buy that separately. Young healthy starting out people generally have extremely cheap term life rates. When you’re 60, the house is paid for, the kids are graduated and gone, and you have 40 years of savings - you don’t need insurance.
If you want to invest for retirement, put money in an investment account and buy mutual fund shares with that.
Unless you are really knowledgeable about investing, buy index-type funds in the sort of areas you think are good - industry, science and tech, or Dow/nasdaq tracking funds, etc.
Says no commissions apply, for example. This is just one bank. They all do this.
Picking the fund with the highest YTD average is generally a bad idea. If you do this alot of times you end up chasing return.
Chasing means if mutual fund performance is random around the market as a whole, if a mutual fund does significantly better than average one year, reversion to the mean is likely the next year. This means that the list of the highest YTD performers are those whose performance is most likely to decline the next year.
Of course it is possible, though not likely, that the mutual fund is better at investing than everyone else and they are going to make you the most money.
As all of the ads for mutual funds state, “past performance is no guarantee of future results.” So the funds that did well year-to-date might lag in the next year. That’s the reason that some advise investing in index funds.
The Morningstar web site has all of this but a simple Google search will often tell you basic info. Try googling : Morningstar PTTRX
You pretty much have it. Here is a good definition from a helpful site. It also mentions a “12-b” fee which is basically an annual commission taken from your money in the fund you own to pay the broker who sold you the fund.
Many books and an industry of advisors have attempted to answer this, but IMHO - No. As others have noted, index funds outperform ‘managed funds’ over the long run.
The simple answer: put your money into a Vanguard S&P 500 index fund. The expense ratio is something like .17 of 1 percent.
A couple pieces of advice:
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NEVER EVER pay a front end or back end load. If a fund you are interested in charges a load, move on. Don’t be a sucker.
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You won’t be able to beat the market. Not even professionals can beat the market consistently. Study after study has shown that the average performance of mutual funds over time is about equal to the overall market performance LESS the amount of money paid in fees. So a mutual fund that charges a 1.5 percent annual management fee is going to cost you more money than a fund that charges .17 of 1 percent management fee. Over time, the drag on performance that high fees have will have a significant effect on your total performance.
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Look at the Motley Fool web site. www.fool.com. They have a lot of good investment advice for the beginning investor.
When I first started investing 30 years ago, I tried choosing the “best” funds I could find. I ended up in about 8 - 10 of the funds that had the best performance over the previous 5 and 10 year periods. Over the next 5 to 10 years none of them beat the market. NONE. I would have been much better off just putting my money into an Index Fund.
For the last 15 - 20 years, that’s what I have done. Most of my investment money is in an S&P 500 index fund. And I have done fine. I don’t worry about market down turns, because I know I’m going to do as good as the market, and the market usually turns around.
J.
Well I figured a fund with a high YTD return means its got a damn good manager that knows what hes doing. Isn’t this the same as a professional sports organization draft? The first picks are usually the athletes with the best track record.
Yeah, that’s what the managers with high YTD want you to believe, just like managers with low YTD want you to believe that it’s all “adverse market conditions” or something. In reality, mutual fund performance is more prone to randomness than they want to admit, and like buying a stock just because it’s “hot”, you risk losing money when it reverts back to the mean.
Look up “random walk” and “regression to the mean”. It’s possible for a manager to be “lucky” several years in a row.
There is also the somewhat cynical story (probably apocryphal) that goes like this: a financial guru wanna-be, sent out 10,000 letters, half of which said “the market is going up”, and half said “the market is going down”. Then they took the 5000 left for which he made the right call, making the same 50-50 split. He then took the 2500 for which he made the right call, doing the same thing again. Now he took the 1250 that he got right and crowed about his successful record, and how you’d be a fool not to invest with him.
Don’t believe in financial managers. If they knew the market as well as they think, they’d be investing only their money and getting rich, not yours.
J.
Almost all of stock picking is luck, and you want the ones who are going to be lucky, not the ones who have been lucky in the past. Regression to the mean is a very real thing.
Almost means that there is a possibilty that somebody is really good and there is a skill that only they have.
There’s almost no such thing.
Study after study has shown that only the tiniest sliver of actively managed mutual funds does better than just randomly picking investments. Yes, there are people like Warren Buffet out there, but they are so few that your chances of picking on is not worth the extra fees you’ll pay.
Furthermore, high YTD return is exactly the opposite of what you should do because of reversion to the mean. Even great fund managers have some bad years. If you buy when everything is going gangbusters, you’ve just bought high, and you’re (on average) in for some worse years to come.
Just buy an index fund. There’s no sure-fire way to outperform the market on average, so the best you can do is minimize the fees you pay.
Yeah, if the manager was that good, he’d be Warren Buffet, not a desk jockey at some investment firm.
That’s more-or-less my investment strategy, and that’s pretty much Warren Buffet’s investment strategy for the average investor like me. I’m most influenced by books like “A Random Walk Down Wall Street” and while I appreciate the role of behavioral finance in this, the simple, low cost index fund commensurate with your level of risk is the one I go with, and have done well with. I started investing in 2006 or so, before the last crash, and just kept investing through it at my usual rate, not changing a thing, and it’s worked out well for me. My parent, unforunately, bowed out near the end and lost a shitload of money. I understand, with their age, that they were in a more precarious position, though, and couldn’t afford possibly risking the market continuing to go downward, while I have plenty of time to recoup losses and go on, well, faith in the market. I had one managed fun with a few thousand in it during that time, and it underperformed its target index. I know it’s just anecdotal, but it’s helped bolster my view that managed funds are a waste of money. YMMV.
You could buy shares in Berkshire Hathaway too, though the Sage of Omaha won’t live forever.
I like this little story regarding the UK stockmarket -
This goes against the common wisdom of managers making or breaking a company. Consider the “Dilbert” mentality and the idea that stupid managers don’t use their employees right and make the company fail. But while mutual funds generally are legally constituted as a company (i.e. shares in a mutual fund are actually stock shares in a company), the company doesn’t have any product - it just buys shares or notes of companies that do have a product. The mutual fund manager who buys Conglom-O stock isn’t at the 10:30 Conglom-O morning meetings making or breaking the day’s performance.