Mutual Fund Commissions

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 ½ 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 ½ percent per year on the expense ratio, but pays and extra 5% up front. Maybe I'm wrong, but if you divide ½% 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

In The News:

Dumped mutual funds? It’s a bad idea  The New Indian Express

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