If you are considering investing in mutual funds, you need to understand the various types of funds that you will encounter. You can pay no commission or high commissions, low expenses or high expenses, transaction fees or no transaction fees, but if you are naive or unsure about your choices, you could make some costly mistakes.
Five Fund Facts To Consider:
1. Commission Structure: As with any investment, you need to consider how you will pay for your investment advice. With a no-load fund, you will not pay any commission or sales charges. If you select A-class shares, you will pay up to an 8% commission up front, B and C-Class funds are more expensive annually but you will pay a back-end redemption fee or a much higher annual charge.
2. Transaction Fees: Depending on the commission type you select, there may also be transaction fees as you buy or sell your investments. They usually cost between $15 and $75 per trade, but if you purchase through some of the big mutual fund marketplaces, you may not have any transaction fees. Most funds also have a short-term redemption fee to deter those that are trying to day-trade with mutual funds. Most no-load funds are also no transaction fee funds.
3. Annual Expense Charges: A funds annual expense charge can be a substantial cost and can contribute negatively to your overall return on investment. If a funds annual expense charges are above average for their category and their long-term returns are below average, you probably want to avoid this fund. Most no-load funds also keep a watchful eye on their expenses and generally keep them very low.
4. Management Tenure: One factor that can really make your fund a standout in its group is quality and experienced management. If you see that a funds manager just took over or has changed multiple times over the past few years, you may want to avoid this fund. If you see a manager tenure of over 7 to 10 years, that means they are probably pretty stable and have been doing an exemplary job.
5. Risk And Return Analysis: This is one of my favorite comparison areas. If a fund has a no-load class as well as commissioned classes, the no-load usually outperforms when it comes to lowering risk and increasing returns. Not surprisingly, if you screen all fund categories, there are more no-load funds in the top ten percent for overall risk and return than there are for any of the commission based funds.
Summary: So why wouldn't you only want to select the best no-load funds that meet you criteria? Good question. That is exactly what I try to do for my clients, myself and is my personal recommendation for you. You may have to find a good "fee-only" investment adviser or you will have to do the research yourself, but either way you should end up with a stronger and less costly portfolio that will help you to build your wealth faster over the long run.
To discover additional investment, financial and income tax strategies, check out my blog or download your FREE Wealth Expansion Kit by clicking here. The first step to creating wealth is knowing where you are and then charting a path that will enhance your financial strengths and correct your weaknesses.
About the Author:
Keith Maderer is a financial expert and has been a investment and tax adviser in the Western New York area for over 30 years. He is the owner of SENIOR Financial and Tax Associates and the founder of the Maderer Foundation, a private scholarship program.
Keith is also the author of "How To Get Your College Education For Less". Available on Amazon.com - ISBN No: 978-1-4538-2053-7.
You can get your FREE Wealth Expansion Kit, or check out his blog by visiting http://www.sftaweb.com/
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