You have heard about a particular mutual
fund from a friend, saw it advertised on TV or read
about it in some publication thought it would be
a good buy. Next you call your broker to get his
advice before you buy because he is an expert
and is there to help you make money.
"Hello, Billy Sol (see Billy Sol Estes on
Google), this is Joe Mushroom and I want to buy
some XYZ mutual fund. What do you think?"
"Joe, I was just thinking about you and was
going to call you, but first let me look up XYZ
for you. Uh oh! Joe it has a high expense ratio
of about 1 ? per cent. I would not recommend
that for you."
Billy Sol fails to mention that XYZ has
no load (that's commission) so he would not make
any money if you bought it. There are thousands of
excellent no-load funds that outperform the load
funds. Billy Sol says the fund his brokerage
company recommends is ABC and again fails to
mention it has a 5% load (commission) and goes
on to paint a beautiful picture of ABC and how
well it has done in the past 5 and 10 year
period. Furthermore the expense ratio is only
one per cent which is savings of 33%.
WOW! Joe thinks that sounds pretty good so
he lets Bill Sol buy ABC instead of XYZ. Let's see
what really happened.
Joe saves ? percent per year on the expense
ratio, but pays and extra 5% up front. Maybe I'm
wrong, but if you divide ?% in 5% that goes 10
time. In other words it is going to take Joe
Mushroom 10 years to makeup that 5% commission
charge not counting what that 5% charge would
have made if it had been working in Joe's
account for that 10 year period.
What it boils down to is never pay commission
for any mutual fund. If the broker will not sell
you a no-load fund then get another broker. He
is not trying to help you make money. He is
trying to make money for himself and his company
and may tell you his company does not carry a
particular fund because they don't think it is a
good. Hog wash. Another broker lie. It is your
money and you are entitled to buy any fund. Go
to a discount broker who handles that fund and
open an account. It will save you a bundle over
the years and they are as safe an any big-name
broker.
Advice from a financial planner is no better if
he is making commissions. The smart method is to
have a fee based broker who has a winning track
record. Have any financial planner show you his
model account. He should have one or maybe
several model portfolios. Unless they make money
every year he is not a successful money advisor.
Don't let them hoodwink you about their
performance "is better than the S&P500". That's
nonsense. You want to see a cash increase every
year.
The first and basic rule is never pay
commissions for any mutual fund.
Al Thomas' book, "If It Doesn't Go Up, Don't Buy
It!" has helped thousands of people make money
and keep their profits with his simple 2-step
method. Read the first chapter at
http://www.mutualfundmagic.com
and discover why he's the man that Wall Street
does not want you to know.
Copyright 2005