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Mutual
Fund Commissions
You have
heard about a particular mutual fund from a friend, saw it advertised on TV or
read about it in some publication thought it would be a good buy. Next you call
your broker to get his advice before you buy because he is an expert and is
there to help you make money.
Hello,
Billy Sol (see Billy Sol Estes on Google), this is Joe Mushroom and I want to
buy some XYZ mutual fund. What do you think?”
“Joe, I
was just thinking about you and was going to call you, but first let me look up
XYZ for you. Uh oh! Joe it has a high expense ratio of about 1 ½ per cent. I
would not recommend that for you.”
Billy Sol
fails to mention that XYZ has no load (that’s commission) so he would not make
any money if you bought it. There are thousands of excellent no-load funds that
outperform the load funds. Billy Sol says the fund his brokerage company
recommends is ABC and again fails to mention it has a 5% load (commission) and
goes on to paint a beautiful picture of ABC and how well it has done in the
past 5 and 10 year period. Furthermore the expense ratio is only one per cent
which is savings of 33%.
WOW! Joe
thinks that sounds pretty good so he lets Bill Sol buy ABC instead of XYZ.
Let’s see what really happened.
Joe saves
½ percent per year on the expense ratio, but pays and extra 5% up front. Maybe
I’m wrong, but if you divide ½% in 5% that goes 10 time. In other words it is
going to take Joe Mushroom 10 years to makeup that 5% commission charge not
counting what that 5% charge would have made if it had been working in Joe’s
account for that 10 year period.
What it
boils down to is never pay commission for any mutual fund. If the broker will
not sell you a no-load fund then get another broker. He is not trying to help
you make money. He is trying to make money for himself and his company and may
tell you his company does not carry a particular fund because they don’t think
it is a good. Hog wash. Another broker lie. It is your money and you are
entitled to buy any fund. Go to a discount broker who handles that fund and
open an account. It will save you a bundle over the years and they are as safe
an any big-name broker.
Advice
from a financial planner is no better if he is making commissions. The smart
method is to have a fee based broker who has a winning track record. Have any
financial planner show you his model account. He should have one or maybe
several model portfolios. Unless they make money every year he is not a
successful money advisor. Don’t let them hoodwink you about their performance
“is better than the S&P500”. That’s nonsense. You want to see a cash
increase every year.
The first
and basic rule is never pay commissions for any mutual fund.
Refer :
Al
Thomas' book, "If It Doesn't Go Up, Don't Buy It!" has helped
thousands of people make money and keep their profits with his simple 2-step
method. Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man
that Wall Street does not want you to know.
Copyright
2005
Article
Source: http://EzineArticles.com/?expert=Al_Thomas
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