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Mutual Fund Investors Beware – Investing Mutual Fund
Investors Beware – Investing December
20 Adam
Lallana World Cup Jersey , 2013 | Author: Frank Miller | Posted in Finance

Risk-adjusted return provides a simple means of comparing similar mutual
funds on a common basis. As similar mutual funds usually are not equivalent in
terms of risk, simply comparing their average returns is not a valid means of
selecting the best mutual fund. Similar mutual funds are those that are in the
same category or asset class. In other words, compare large cap value to large
cap value, technology to technology, emerging markets to emerging markets and so
on. It’s important to understand that using risk-adjusted returns to compare
mutual funds in different categories may be interesting, and useful in getting a
feel for the relative risk of different asset classes, but it’s not a valid
means of selecting mutual
funds Wayne
Rooney England Jersey , as mutual funds in different asset classes are not
alternative investments, they are complementary investments in a
well-diversified portfolio.

The problem is that market timing it not illegal. The problem occurred when
the mutual fund stated in it’s prospectus that it did not allow that activity
while they secretly allowed privileged investors to do it anyway. For instance,
large hedge funds would move millions of dollars into a mutual fund one day and
sell it out the next. This gave the mutual funds increased fees while hurting
the return of their regular investors. In response, the SEC has proposed a
number of rule changes. One rule would require mutual funds to impose a
redemption fee when a sale occurs within five days of purchase. Unfortunately,
many mutual fund companies have seen this as an opportunity to impose new fees
that make it harder for you to move your money elsewhere. So the SEC’s
involvement has had the unintended effect of increasing costs and reducing
flexibility for the average mutual fund investor.

Modigliani and Modigliani recognized that average investors did not find the
Sharpe ratio intuitive and addressed this shortcoming by multiplying the Sharpe
ratio by the standard deviation of the excess returns on a broad market index,
such as the S&P 500 or the Wilshire 5000, for the same time period. This
yields the risk-adjusted excess return.
This Tom
Heaton England Jersey , too, is a significant and useful statistic, as it
measures the return in excess of the risk-free rate, which is the basis from
which all risky investments should be measured. However, this still falls a bit
short of being truly intuitive to the average investor, and excess returns are
not part of the mutual fund data that is ordinarily published.

Worse, the big mutual fund ‘supermarkets’ are imposing their own redemption
fees. Charles Schwab One Source has begun charging a .75% redemption fee for
sales within 6 months of purchase. TD Waterhouse charges .50% for sales within
90 days of purchase. Fidelity imposes a $75 fee or
.75% Theo
Walcott England Jersey , whichever is greater, if the redemption is done
by phone within 6 months of purchase. Interestingly, Fidelity does not impose a
redemption fee on Fidelity’s own mutual funds! This begs the question–if
short-term trading is so bad then why doesn’t Fidelity impose the same
redemption fees on Fidelity mutual funds?

The bottom line is that redemption fees cause you to lose flexibility. Let’s
say unexpected events, good or bad, cause you to need premature access to your
money. Or maybe you just need to adjust your portfolio. Worse yet, what if we
have another terrorist attack a few months down the road? These new fees mean
you’ll have to pay a penalty to access your money.

The financial services industry’s goal is to reduce their costs and increase
client retention by making it harder for you move your money elsewhere. My goal
is to manage my clients’ money in such a way that protects what they’ve worked
so hard to acquire without limiting their flexibility.

Frank Miller has a Debt Consolidation Blog & Finance, these are some of
the articles: Spot Price Of Gold And Its Relevance In The Markets You have full
permission to reprint this article provided this box is kept unchanged.

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