Mutual Fund Costs

Costs are the biggest problem with mutual funds. These costs eat into your return, and they are the main reason why the majority of funds end up with sub-par performance.

What’s even more disturbing is the way the fund industry hides costs through a layer of financial complexity and jargon. Some critics of the industry say that mutual fund companies get away with the fees they charge only because the average investor does not understand what he/she is paying for.

Fees can be broken down into two categories:
1. Ongoing yearly fees to keep you invested in the fund.
2. Transaction fees paid when you buy or sell shares in a fund (loads).

The Expense Ratio
The ongoing expenses of a mutual fund is represented by the expense ratio. This is sometimes also referred to as the management expense ratio (MER). The expense ratio is composed of the following:

• The cost of hiring the fund manager(s) – Also known as the management fee, this cost is between 0.5% and 1% of assets on average. While it sounds small, this fee ensures that mutual fund managers remain in the country’s top echelon of earners. Think about it for a second: 1% of 250 million (a small mutual fund) is $2.5 million – fund managers are definitely not going hungry! It’s true that paying managers is a necessary fee, but don’t think that a high fee assures superior performance. (Find out more in Will A New Fund Manager Cost You?)

• Administrative costs – These include necessities such as postage, record keeping, customer service, cappuccino machines, etc. Some funds are excellent at minimizing these costs while others (the ones with the cappuccino machines in the office) are not.

• The last part of the ongoing fee (in the United States anyway) is known as the 12B-1 fee. This expense goes toward paying brokerage commissions and toward advertising and promoting the fund. That’s right, if you invest in a fund with a 12B-1 fee, you are paying for the fund to run commercials and sell itself! (For related reading, see Break Free Of Fees With Mutual Fund Breakpoints.)

Are high fees worth it? You get what you pay for, right?


Just about every study ever done has shown no correlation between high expense ratios and high returns. This is a fact. If you want more evidence, consider this quote from the Securities and Exchange Commission’s website:

“Higher expense funds do not, on average, perform better than lower expense funds.”

Loads, A.K.A. “Fee for Salesperson”

Loads are just fees that a fund uses to compensate brokers or other salespeople for selling you the mutual fund. All you really need to know about loads is this: don’t buy funds with loads.

In case you are still curious, here is how certain loads work:

• Front-end loads – These are the most simple type of load: you pay the fee when you purchase the fund. If you invest $1,000 in a mutual fund with a 5% front-end load, $50 will pay for the sales charge, and $950 will be invested in the fund.

• Back-end loads (also known as deferred sales charges) – These are a bit more complicated. In such a fund you pay the a back-end load if you sell a fund within a certain time frame. A typical example is a 6% back-end load that decreases to 0% in the seventh year. The load is 6% if you sell in the first year, 5% in the second year, etc. If you don’t sell the mutual fund until the seventh year, you don’t have to pay the back-end load at all.

no-load fund sells its shares without a commission or sales charge. Some in the mutual fund industry will tell you that the load is the fee that pays for the service of a broker choosing the correct fund for you. According to this argument, your returns will be higher because the professional advice put you into a better fund. There is little to no evidence that shows a correlation between load funds and superior performance. In fact, when you take the fees into account, the average load fund performs worse than a no-load fund. (For related reading, see The Lowdown On No-Load Mutual Funds.)

Key points in retirement plans, min taxes from sale of your business

pre retirement plan 35yrs of ageCan your current CD, mutual funds, tax-qualified retirement plans and 401k provide you with 6 added values listed below?
1. Safety
2. High growth potential
3. Tax-deferred growth
4. Tax-free access during your lifetime
5. An income-tax free benefit will pass to your heirs at death
6. Accept an incredibly large lump-sum of money

Reference: Patrick Kelly’s book on The Retirement Miracle, pages 86-93

While tax-qualified retirement plans allow workers to make annual deposits up to the contribution limit of the plan, they have no ability to receive a large deposit in one lump sum.
How much of the contribution limit can be carried over to the next year if it is not utilized? Tax-qualified plans work on a “use-it-or-lose-it” proposition each and every year because there is no carry-over provision.

Where can you put a lump sum of $1 Million that has any tax-advantaged growth possibilities and with zero market risk?
Only one option fits the above criteria: Indexed Universal Life (IUL).

If your exit strategy in your current business is to sell in few years, you have to have this retirement strategy now to min taxes.  Call 408-854-1883 to open a retirement vehicle to allow you to save your money from the sale of your business for your retirement.
The company I am with provides this powerful option – an IUL with full living benefits (received 75-90% of funds when terminally or chronicall ill).
We are hiring in the financial service arena all over the USA, call Connie Dello Buono, wealth strategist 408-854-1883 ,