The,Inside,Scoop,Mutual,Fund,R finance, share, loan The Inside Scoop on Mutual Fund Rip Offs
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The bear market that showed up at the end of 2000 has everybrokerage house-as well as the entire mutual fundindustry-scrambling to find creative ways to boost both theirimage and bottom line. Unfortunately, this is often at theinvestors' expense. Fund managers are ever on the lookout for ways to spin the statsto hide lousy track records and to find ways to obscure fees. Toadd insult to (financial) injury, investors end up beingpenalized for selling. So what's an investor to do? In thiscase, knowledge is power. Here are some of the ways mutual fundinvestors are being taken advantage of: ·Performance is always an issue for any investor. Formerlygreat funds, which I've used myself during the 90s, are thejunkyard dogs of this century. Janus Fund comes to mind and isone of many that buy-and-hold investors got stuck with. It'sdown 59%, since we acted on our Sell signal on 10/13/2000. ·Most of the funds today have 12b-1 fees place, and some go ashigh as 1% of a fund's assets per year. Between fees,commissions and management charges, the mutual fund industry isalways getting paid, even if you, the investor, are losingmoney. For example, if you had bought SunAmerica 2-1/2 yearsago, you would have paid the above fees at 2.35% per year. And,if you finally decided your investment wasn't going anywhere,you would have been stuck with a 5% deferred sales charge. ·If you hold a fund less than 180 days, plan on being hit witha redemption fee. It's almost standard. What's the deal? Brokersonly get paid while you hold their fund. So, if you're going tosell, they get a last whack. It's a great deterrent for selling,too. Can this be avoided? Not completely, but if you have yourmoney managed by an investment advisor, the holding period isreduced to 90 days. ·Then there's the deceptive no-load rip-off involving B-shares.Sure investors don't pay anything up front for these, but you'llpay hefty surrender fees when you sell. Plus, they carry highermanagement fees. Keep in mind that mutual fund companies have market share inmind, not your best interest. If you think that might not betrue, consider the skyrocket growth rate for pure technologyfunds. But look at them now: they've crashed & burned and no buy& holder has come out with a win. Then there's the sad story of incompetence in the mutual fundindustry. There are hordes of inexperienced financial planners(commissioned salesmen) just waiting to sell you load funds (Aand B shares), or to recommend an asset allocation approach withno real plan or strategy that will serve you in a bear market. Of course, there's always the option of having a perfectlybalanced portfolio designed. Such was the case when aprospective client phoned me in 1999 during the height of thetechnology boom. He felt left out because everybody was makingmoney in one of history's great bull markets, but his portfoliowas so well balanced that he was neither making nor losinganything. He would have been better off in a money marketaccount. To me, the term balanced portfolio translates into this: I haveno clue what I'm doing, where the major trend is, what I shouldbe buying or whether I should be in the market in the firstplace. I'm hedging so much that one investment goes up andanother goes down. Balance is one thing and safety is really quite another. Andmutual funds do not automatically mean either safety or balance.The key is always information-knowing how to get reliable infoand what it means once you have it. This is not for everyone. If you have money to invest and youdon't have the time or the inclination to do the homework, thenyour smartest move is to find someone you trust. That would besomeone with a track record you can verify, and someone who isnot going to make money off your investment every time you buyor sell something. People like this do exist, and the good news is you only need todo your homework once. That's when you check them out. From thenon, you can relax knowing you're just not likely to fall prey toany of the rip-offs that are out there.
The,Inside,Scoop,Mutual,Fund,R