Most investors, including possibly yourself, are involved with mutual funds.
In a mutual fund, your money is pooled with that of other investors. The manager of the fund then reinvests all the pooled money into other investments. These might include stocks, real estate, bonds, cash and other asset classes.
Investing in a mutual fund definitely saves you the research and maintenance involved when you invest directly.
However, as Robert Rohil explains in this video, filmed at a Platinum Mastermind in the Canary Islands, you should always be careful to read the fine print before investing in a mutual fund.
THE FEES OF MUTUAL FUNDS
There are three different fees that mutual funds usually charge.
There is the sales fee, which you pay when you open an account with the fund. This is usually 1–3%. There is similarly the exit fee, which you pay upon closing your account. This is usually up to 2%.
You don’t need to worry too much about these fees, because you only pay them one time.
The devil is the management fee, which takes money from your account every year. Charging this fee is how all the fund managers in the financial industry make most of their money.
Management fees for mutual funds can be up to 2.5%. This is the fee that will cost you the most, so it is the one you should pay the most attention to when choosing a mutual fund.
WHY THE MANAGEMENT FEE MATTERS
The management fee can make a lot of difference to your returns. This is not so much to do with the fee percentage, but because of compound interest.
Here is a hypothetical example. You invest $10,000 into a mutual fund with an annual return of 7%, a sales fee of 2% and no management fee at all. Your returns after 20 years would be $28,700 plus the principal.
If that same mutual fund charges you a management fee of 2%, how do your returns change? After 20 years, you would end up with only $15,064 in returns plus the principal. Your returns are almost halved!
The point is not to discourage you from investing in mutual funds, but to demonstrate the power that the management fee has over your returns.
When looking for a mutual fund, find the lowest management fee you can. Don’t fall into the trap of paying a higher than average fee because the fund tells you it brings higher than average returns.
The MOBE Platinum Mastermind is where the most experienced mentors in investing and asset protection share their investment methods with fellow members. To learn more about the Platinum Mastermind, click HERE.