Sunday, May 13, 2012

Money - Mutual Funds destroyers of wealth

My experience with mutual funds ranges from bad to horrible.  I am not a big fan of them.  I personally feel they are a destroyer of wealth, and creativity of the American people. Why create a new business, or invest in your local community when you can just send your money to the Wall Street casino and get returns of 10% or more?

Some jobs create negative value...and this is one of them. 

I literally cringe every time I have prepared taxes and see mutual funds.  It gives me the heebie-jeebies, and I start to break out in hives.  Seriously, I have heard more horror stories than good ones.   I’m certain I would hear many more horror stories, but people do not tend to talk about how much money they lost or didn't make.  Probably due to embarrassment.  When investing in mutual funds you gain about zero financial knowledge. Your fund manager might have gotten smarter at your expense.  Your fund manager just lost 30% for your account…oops…I guess that didn’t work out too well.  On the brighter side...at least your fund manager still got paid.

I’m not positive, but I have a hunch that a certain mutual fund broker is taking advantage of the military in ways that I find are unethical.  I will not name the company, but I will say that I believe this taking place.  Same thing with those loan companies that give you money before payday.  If you are going to a company to get money before you get your paycheck...you need help.  This is no way to live.  The military offers ways to get money without the huge interest rates and fees.  Get the help you need.  Do not be ashamed to talk to your supervisor.

When it comes to mutual funds...almost all the people you talk to up front are sales people.  Some of them are not financially smart.  None of them will actually do any trading in your account typically unless it is selling one fund for another.  Mutual funds nothing more than a basket of stocks and/or bonds.  Sometimes a mutual fund would buy or sell options, but the strategy has to be in the prospectus.  

A mutual fund is nothing more than a vehicle for many people to collectively pay for fund managers, analysts, traders and others to purchase stocks and/or bonds for the fund.  In my opinion, an index fund can do the same thing with much less cost, human error risk, and typically has lower turnover.  Turnover is the percentage of stocks that have been bought and sold over a period of time.  High turnover typically means the manager is trading several stocks each year.  This can result in higher management fees, can force taxes on the fund holder and could mean all sorts of problems.

Something I have noticed is many military members are purchasing loaded mutual funds.  In my opinion you should never purchase a loaded mutual fund. This means you are paying for your sales person's vacation.  It is a sales tax that goes to the broker.  This plus a high management fees of 1% or more can sometimes gets assessed!  This is financially damaging. You can get Warren Buffett one of the greatest investors of all time to manage your money.  He only charges his shareholders $100,000 per year for his salary.  Unlike mutual funds...Buffett actually owns companies.  He does have shares in publicly traded companies, but the majority of the money comes from the companies he owns.  I would guess that most mutual fund managers make more than this per year.  Do some research and find out!



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