You may hear about them often and if you’re new you need to know what they are before you make your first investment. Let’s talk mutual funds!
A mutual fund is an investment funded by investors (shareholders) that trade in diversified holdings and is professionally managed.
Income is earned from capital gains (trades), longevity (holding the fund overtime) and dividends (money paid to shareholders from companies revenue). Though there are short-term funds, mutual funds are mostly used for long-term strategies-often encouraged to “get and forget” until retirement. You can profit a large return, however, it’s not guaranteed and there are many fees involved.
“Get and Forget”
Unfortunatley, what is not heavily advertised to the new investor are the multiple fees for service management. You will be responsible to pay for their professional services since your finances will undergo constant supervision and rebalancing. The types of fees the investor will be responsible for may be the following:
- Annual Fees (to remain in the fund)
- Loads/Transaction Fees (purchase of the fund)
- Management Fees
- Distribution & Service Fees
- Account Fees
- Legal Fees
- Transfer Agent Fees
- Custodial Expenses and etc.
These fees can dangerously cut the investors annual return.
If the managers take nothing, the investor takes everything.
It was said by John Bogle, investor, business magnate and founder of the well-known Vanguard Group, “If the managers take nothing, the investor takes everything“. If the new or seasoned investor is willing to commit to learning about how the market works, she/he may profit more by purchasing a diversified index fund in the S&P 500 or purchasing other securities by saving their money from high fees.
Regardless, mutual funds have played a very big role in retirements and there are great companies servicing the market. The individual investor will properly make his or her decision as they see fit for their lifestyle.