A Lucrative Alternative to Mutual Funds

June 27, 2014 Posted by admin

Why is it that your mutual fund advisor will get rich off of your investments before you do? More importantly, what can you do to stop the flow of your capital into your advisor’s pocketbook? Rest assured that there is a better and more lucrative alternative for you.

So how is it that your advisor is claiming your hard-earned savings for his or her own? In a nutshell, the mutual fund industry is made up of an extensive network of salespeople who are paid to “advise” you on where to place your investment dollars.

In doing so, these salespeople benefit from “their” hard work by tapping into your investment capital over the lifetime of having you invest with them. This is done through a combination of one or more of the following drains on your capital and earning potential:

1. Trailing commission: Your advisor is paid a certain percentage in the range of 0.25% to 0.50% of your total investment per annum. This monetary incentive encourages advisors to “hang on” to their clients. As your mutual fund portfolio grows in value over time, it means that your advisor that initially sold you the investment is making even more and more money.

2. Front-end loads: These fees are paid to financial planners, brokers and advisors as sales commissions. The fees are deducted from the investment amount, which results in lowering the size of your initial investment.

3. Back-end loads: These fees are paid by the investor when selling mutual fund shares within a specified number of years, usually five to seven years. The fee is a percentage of the value of the mutual fund shares being sold. This fee can be as high as 7% within the first year of withdrawal. The fee percentage is highest in the first year and decreases yearly until the specified holding period ends, at which time it drops to zero.

4. Management Expense Ratio (MER): I’ve saved the best to last. The mutual fund company charges management fees in the typical range of 1% – 4% per annum to cover their expenses. A MER of 2% doesn’t look like much; however, it represents a 25% loss in growth potential if the portfolio only managed a typical stock market annual return of 8%. Yikes! That’s a big hit to the pocketbook over time.

You can see how your advisor could potentially end up retiring before you do thanks to your efforts.

How can you re-claim what is rightfully yours?

With a little education and effort on your part, you can benefit immensely from the increased growth potential for your stock holdings. By setting up a portfolio of self-directed investments, you not only have a greater chance of being a more successful investor financially, you also will gain greater confidence and control over your investment portfolio.

Let me ask you this question: Would you rather pay $5 – $20 for each of your stock purchases or hand your money over to a mutual fund manager who will take 1% – 4% of your portfolio each and every year, whether your investments go up or go down?

Start by empowering yourself to become a better investor. Take a look at various stock investment websites that focus on educating the novice investor. Pick up a couple of basic stock investment books or audio books that will walk you through each aspect of investing step-by-step. Within a short period of time you will build your level of confidence to a point where you will be wondering why you hadn’t taken this path to greater wealth creation sooner.

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