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Investing in Mutual Fund- Why Your Mutual Fund Manager Doesn't Want You to Read This
Just imagine, $5,750 vanishing in front of your with the blink of an eye! Is there a way to deal with this? Sure there is! Invest in Exchange Traded Funds (ETFs).
But do you know this fact that if you invest $100,000 of your retirement savings in a mutual fund, you will have to pay the following fees and loads;
Management Fees: 0.5% to 1%
12b-1 Distribution Fees: 0.25% to 1%. This is the advertising fees to attract new clients.
Administrative Fees: 0.2% to 0.4%
Sales Loads: 3% to 5.75%. This you will have to pay for buying mutual fund shares
Exchange Fees: This is the additional fee you have to pay when you switch to another fund or sell the mutual fund shares.
You worked hard to save these $100,000 in your retirement account. Take out your calculator and do the calculations. If you invest $100,000 into a mutual fund, $5,750 will simply vanish from your deposit in the name of the above fees and loads and your deposit will tumble to $94,250 on the very first day of your investing into the mutual fund. In simple terms, $5,750 will be taken away by the mutual fund management on the very first day from your deposit of hard earned money.
Just imagine, $5,750 vanishing in front of your with the blink of an eye! Is there a way to deal with this? Sure there is! Invest in Exchange Traded Funds (ETFs). With ETFs, you will start earning better returns with the same underlying stocks, the management fees is also very small something like 0.7% but not more than this. Some charge as low as 0.1%. But usually the ETFs charge on average around 0.5% as fees. The most important advantage of investing in ETFs is that you can trade the ETFs shares just like ordinary stocks anytime of the day. Rather, you can use all those trading strategies that you use with stocks.
You can go short, you can go long. You can even have options on ETFs. You can hedge your ETF portfolio with options stratgies. You can't do any of these things with a mutual fund. ETFs are a much superior investments. ETFs are usually a collection of stocks, bonds and investments. You can even invest in Currency ETFs, Commodity ETFs. There are ETFs that track some underlying index like the S&P 500 Index and the DOW or some foreign stock index.
There are many possibilities. Infact, ETFs are the most revolutionary financial innovations of the last two decades. There are Inverse ETFs. These ETFs give you the opportunity to profit from a falling market. Inverse means, when the index that the ETF is tracking is going to go up when the index goes down and the ETF is going to go down when the index goes up.
Now, ETFs are priced up to the minute when the stock market is open. Unlike the mutual fund shares that can only be sold at the end of the day. You can invest in ETFs that track some sector index, you can track ETFs that track some regional index, you can invest in ETFs that track some country index. What you need to do is to master investing in ETFs. Learn how to trade them like stocks. Use all the trading strategies that you can use on stocks. Profit from these Inverse ETFs when the market goes down. Invest in Leveraged ETFs that have an inbuild leverage into them. Whatever, the point is simple! ETFs are a much superior investments.
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Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading stocks and currencies!