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The top 5 mutual funds secrets that you must know – Part 2

As index funds are not run by managers, you pay much less on expenses. Mutual funds average around 1.5% in expenses, whilst index funds average no more than 0.2%

This difference might not seem so great to start with, but it really adds up over a long period of time. If, for instance, you have invested $10,000. Half goes into a mutual fund with a 1.5% expense ratio, and the other half is put into an index fund with an expense ratio of 0.3%. Twenty years later, you will have paid more than $29,000 more in the mutual fund.

Famous investors have had the following to say on the subject: the famous stock picker Peter Lynch said that most investors would be better off if they invested in a index fund, and Warren Buffett said that index funds are the best way to buy into common stocks. Clearly, in the Mutual fundsvs index funds debate, index funds win it.

Secret number 3 – No loads mutual funds are really worth it: most investors, when they really look, can find a no load that is as good or better than the load fund. Paying a load gets you nowhere. Don’t do it!

Secret number 4 – Small mutuals on total assets are better for high returns, and the manager is typically more motivated.

Secret number 5 – into the manager! The good mutual fund managers constantly visit the factories, communicate with the competition, visit trade shows etc. They do much more than review data provided by news services.

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The information supplied in this article is not to be considered as medical advice and is for educational purposes only.

5 Responses to “The top 5 mutual funds secrets that you must know – Part 2”

  1. 1
    mike Says:
    The comment from Jon is very correct - index funds are great for beginners but not so great for market savy investors who could probably do much better.
  2. 2
    jake Says:
    Redemption rules can be quite strict with index funds. This is so that the funds can keep costs down to a minimum, which is a good thing, but it means that funds have strict rules on the frequency of trading. As a result early redemption fees can be large.
  3. 3
    jon Says:
    Index are the preferred option of many investors as such funds are designed to track the index that it is mirroring, which means that the investor cannot outperform. There are still come costs too, although they are small. Really, this is a safe option good for a percentage of a portfoilio or for beginner investors who know little about the market.
  4. 4
    jake Says:
    The main reason why mutual funds often don't beat the market is because they are subject to a huge number of expenses and administrative costs. Managers, analysts, staff and rent have to be paid. So if the market average is 10%, the fund has to make at least 12% to cover all these expenses.
  5. 5
    jim Says:
    Be aware that many stock indices are based on market capitalization. These indices have contain the largest companies of a certain category. If you put money into such an index you will probably be buying the more expensive stocks. The fact is that stocks often join such indices after some decent share price gains. These gains increase their level of market capitalization and this makes them candidates for indices based on market capitalization.