Some mutual funds are only available for large institutional investors, e.g., pension funds, or to high-net worth individuals through their investment advisors. Because they do not deal with the public (and the higher turnover rate associated with public or “retail” funds due to “emotional” trading), they typically have lower internal costs. They can, therefore, pass …
Investing Blog
Different Funds and Different Investors Institutional Mutual Funds
Different Funds and Different Investors Retail Mutual Funds
As explained earlier, every mutual fund charges fees to cover expenses and transaction costs, etc. However, because the manner in which a fund charges fees can affect its price, it is important to be mindful of the different “share classes” of mutual funds. The major difference among them is when you pay the fees. Think …
The Tricky World of Broker Commissions
Mutual funds typically do not disclose much information about commissions, yet brokers make a commission on every transaction. One significant problem with commissions is the perverse incentive it creates for advisors who only make money based on transactions to recommend a transaction even if the more prudent course is to do nothing. Equally problematic is …
Definition: Turnover Ratio
The Turnover Ratio is the percentage of the fund’s holdings that have been sold and replaced with other holdings during the course of the year. A fund with a higher turnover ratio purchases and sells more stocks, bonds, and other financial instruments. The more transactions that a fund engages in, the more fees it incurs. …
Definition: Mutual Fund
A Mutual Fund is a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. These funds may hold over 10,000 stocks and are widely diversified. Mutual funds are constantly offering new shares for sale to the public. As the Table …
All Other Things Being Equal, Keep your Costs Low: Part 2
Transaction Costs Transaction costs are not included in the expense ratio, nor are they disclosed in most prospectuses. They average approximately 1.44% annually. The three most common ones are: brokerage commissions, market impact, and spread cost. Brokerage Commissions. Brokerage commissions come from mutual fund managers who buy and sell stocks for mutual fund investors in …
All Other Things Being Equal, Keep your Costs Low: Part 1
A simple way of improving your return on investment is reducing the fees you pay while investing. This is important enough to be an Investment Rule: Reduce your costs. The only way to reduce your costs is by knowing the cost of every investment you make. Nothing on this Earth is free. Not lunch. Not …
How Do You Know Which Asset Class(es) is Right for You?
One important piece of information to share with your investment advisor is how much time you have to invest in order to achieve your goal. This is all part of having open and honest conversation with the person who will invest your money. If you’re young and have a long time horizon before you need …
The Risks and Benefits of Investing in Stocks
This list continues ranking assets from least risky (T-bills and bonds) to most risky (U.S. and International Value Stocks). Large Stocks: U.S. and International: Large U.S. Stocks make up a disproportionate share of Americans’ portfolios. That is partly for marketing reasons, and partly because people tend to invest in what is familiar or what they …
Bonds, Treasury Bonds
There are numerous types of investment vehicles, or assets, available to you. Assets are economic resources. Each asset class theoretically has the same overall goal—to make money over time—yet each serves a different function in terms of risk and reward. Let’s review the most popular ones starting with Treasury Bills and Bonds. (They asset class …