Figure Your Mutual Fund’s Total Costs

Mutual funds have to be shopped carefully. The fundamental differences among funds, aside from investment class and specialty, is cost. The lower the cost of operation, the better the fundamental choice. Relative cost makes a lot of difference in accumulated investment value over the years.

                       

The average expense ratio for all mutual funds is about 1.3% per year. Many charge more than 2% This covers only fixed costs, such as salaries, marketing and overhead.

                       

Then, there are variable costs such as brokerage commissions and trading spreads. While funds pay lower commission rates than you, the more the fund trades, the more it spends on brokerage. And the less you earn. (Those expenses are not included in the Expense Ratio or are they mentioned in the prospectus, They are in the fund’s Statement of Additional Information,)

                       

In 2007, an analysis by researchers at Virginia Tech, the University of Virginia, and Boston College, in a sample of 1,706 U.S. equity funds from 1995 to 2005, found the average fund had annual trading expenses of 1.44% per year Added to the 1.32% average expense ratio for funds, the average mutual fund expense ratio becomes a total cost of 2.76% per year. There haven't been positive changes since. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Poor Financial Headlines

The Media’s  reasons why markets go up or down are often pure fiction. There may be many reasons why the stock market has gone up or down but the financial headline writers manage to have a dubious answer.

                       

It is almost impossible to know after a trading day’s closing, the moods and sentiments that drove that day’s market, nor the supply and demand of securities over the global markets that would have had an impact.

                       

Short of a major calamity or important market-impacting event, the media does not know. But is ready with answers, as if a market crystal ball has somehow telegraphed some secrets to them.(See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Taking on a Real Estate Mortgage

If you think your job is too risky to permit you to make future mortgage payments; that the mortgage amounts may even increase over the next five or ten years, amidst a doubtful earnings picture, then avoid the commitment.

Real estate ownership, rather than rentals is always risky if you plan to move every few years. Moreover, mortgages are chancy if you cannot put down at least a 25% cash payment and your ability to make periodic payments is clouded. Yes, this was a tough lesson to teach, until 2008. The facts remain today. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

General Consumer and Credit Card Debt

It’s easy to get enmeshed in consumer debt. Remember: you can consciously enter into excessive credit card purchases you cannot handle. All government regulations tell you is what the small print says, but in larger size. They will do you no good once you spend insanely.

Consumer debt is an addiction. If you can’t handle it, do not use credit cards. If you have cards, treat them wisely. This means pay debts punctually and don’t drop a card for others to get better deals; it hurts your credit standing to have too many. As it does if you decide to drop the excess. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Savings is the Household Budget’s Essential Ingredient

Saving money wisely is a fundamental habit. Savings or investing amounts you set aside ought to be about 10% of your family’s net earnings, but that can vary by income size and family needs. Save as much as you can, diligently and as a habit.

Any convenient arrangement that helps you properly allocate expenditures and for periodic savings or investment, qualifies as a good budget plan. Otherwise the plan is doomed for eventual failure. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Some Neglected but Easy Banking Tips

    Diligently compare terms, interest rates and fees on services banks offer; what to choose is often a matter of common sense. But not implemented.

     If you must keep a minimum balance to get free checks, compare any lost interest on that balance you give up, against any savings on check charges, or added fees you pay.You would be surprised to learn how many bank depositors fail to do this because they’re either lazy or uninformed about the math.(See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Dodd-Frank’s Regulation of Hedge Funds

                                  

Hedge funds with assets over $150 million must now register with the Securities and Exchange Commission. But there are arbitrary exemptions, such as those for “family” owned/controlled operations.

                       

Hedge funds are actually a stabilizing factor in market trading, but a mostly inept media never gets this point across. Thus, politicians are able to pin blame for market problems on the hedgers.

                       

The SEC has had a poor record in checking out fraud in the past. They overlooked the Bernard Madoff fraud scandal until the damage was done.

                       

Hedge funds tend to work off the extremes of the market. This keeps prices in line. Dodd-Frank however, does nothing but exaggerate the too-big-to-fail problem. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)