Beware of mutual fund charges

If you have money in mutual funds, I hope you're doing it the smart way. Readers of my blog are too smart to invest their money in load mutual funds, right? You wouldn't put your money in a mutual fund that charges you a front end load, right? Please say you know better than that.

That front end load is 2-8% of your money that you lose right off the top, as your immediate "reward" for choosing that particular mutual fund out of the only 8000 or more that you could have chosen. That load goes into the pockets of the mutual fund company and is split with the broker or financial planner who conned you into sending your money there.

Studies have proven -- mutual funds that charge a load don't perform any better than no-load funds, no matter what that broker or financial planner who wants to get a commission from you claims.

Also beware of mutual funds that charge you a rear-end load -- that's a charge to withdraw your money. However, I admit I can sympathize with that one somewhat, since I believe that once you invest in something like volatile like stocks, you should be keeping your money in for the long haul.

What many people don't realize, however, is that even no-load mutual funds can charge 12b-1 fees to pay for all the advertisements they place in financial magazines. Also, they do charge management fees.

Management fees are legitimate, of course -- they aren't running the mutual fund for free. However, many funds take out an amount that's so large it dramatically affects your long-term performance.

That's why if I were going to invest in a mutual fund, I'd almost certainly pick Vanguard, which has notoriously low expenses. There're not the only ones, but they're a safe bet.

But personally I'd rather not invest in mutual funds. Their only advantage over owning individual stocks is diversification, and you can obtain that with exchange traded funds.

"Expert" management is often touted as an advantage of mutual funds, but since numerous studies have shown that actively managed mutual funds underperform the market in the long run, this to me is a disadvantage, not a benefit.



beware mutual funds
beware mutual funds