Monday, May 14, 2012

Mutual funds...the destroyer of wealth (2)

In my last article I talked a little bit about mutual funds.  I want to be more specific to why they destroy your wealth.

First question to ask...would you send your paycheck to a "mortgage fund" and have them pay your mortgage for a small fee?  What would a mortgage fund do for you?  Take care of your real estate investment of course!  They would pay your mortgage bill by deducting from your paycheck every month.  They would pay your property taxes, and insurance on your house.  They would make sure you got the best interest rates at any given time.  They would charge you a 5% sales fee on all mortgage payments plus and annual fee (accrued daily) of 1% of your total mortgage payments.

Sounds like a great deal right?

Here is some more details on how this would work:

Say you have a $1000 monthly mortgage ($12,000 per year including taxes and insurance).

The mortgage fund would charge you 5% each month or $50 a month ($600 annual), and then only $120 per year management fee.  I'm surprised that everyone doesn't have a mortgage fund.

Fortunately no such industry least I hope not.  However, this is essentially what many people are doing with their retirement.  At least with the mortgage fund, you wouldn't be taking any additional losses or get taxed on losing money.  Unlike with mutual funds.

This is why mutual funds are, and will always be destroyers of wealth.  If you can pay your mortgage, or pay your rent...then you can handle learning how to invest.  It will take time, and you will need to do reading.  Some work is involved, but it isn't like putting a new roof on your house.  You may get a paper cut if you aren't careful.  However, trust me...learning about investing is much easier than taking the CPA exam.  Most of investing can be learned by a 5th grader.

Legendary mutual fund manager Peter Lynch once said, “Everyone has the brainpower to follow the stock market. If you made it through fifth-grade math, you can do it.”

If you work for the government, then I know you made it through fifth grade math.  If you forgot how fun it is to learn new things...start by going to my recommended reading page.  Let your millionaire journey begin.  Pick up that first book today!

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