What is a Mutual Fund, and how does it work against you? Video 3 of 4 in this banking series.
In our third video on the banking series we will dig deeper into a Mutual Fund and a breakdown of how those work and how they can hurt you financially.
Banks are in the money business and invest other people’s money into Mutual Funds.
So what is a mutual fund really?
Mutual funds fees and expenses are charges that are incurred by investors who hold mutual funds. Buying into a mutual fund involves costs, including shareholder transaction costs, investment advisory fees, and marketing and distribution expenses.
Funds pass along all these costs to investors, meaning you if you have a 401k or 403b for example, in several ways.
Then you also have expense ratios, which is an annual fee that’s ongoing for as long as you own the mutual fund expressed as a percentage of your investment that goes towards the fund’s expenses.
So if you have $100,000 invested in a mutual fund and it has a 1% expense ratio, you will pay $100 per year, every year on that balance. And because mutual funds are variable, they can lose just as much, if not more than what they can appreciate.
For example, if you have that $100,000 in a Mutual Fund and the fund goes up let’s say, 20% this year.
Now you have $120,000 right?
Well, what happens if the second year that the mutual fund drops down 20%?
You now lost $24,000 and your new balance would be $96,000, so here you don’t even have the $100,000 you started with 2 years prior without taking into account any of the fees that also had to come out as previously discussed.
This is the very real risk of variable accounts like mutual funds, which by the way is what your 401k or 403b retirement account is invested in.
You have to pay these fees whether your account goes up, down, or stays the same, and you are bearing all the risk in the account as an added pain point. Have you ever heard of a mutual fund millionaire?
Neither have I, but the mutual fund managers are the ones shopping for yachts.
When you look up your mutual funds, like stocks, they have a ticker symbol like Apple is APPL or Tesla is TSLA.
I emailed the holder of my 401k account for the money I wasn’t able to roll over and here is what I own and what they charged me.
I wish there was a way to pull all of my money out beyond what I could with the CARES Act and sorry if you missed out on that opportunity, there is another video on my channel if you’re curious to learn more about that.
However, there is another option called a 72T which I will be taking advantage of as well to pull out 10% annually from my 403b to invest into something better, some things are better discussed on a one-on-one basis, reach out to me to learn more about those options.
Sadly, most people have no idea what accounts or funds their money is in, and if they do, they don’t understand how it grows, shrinks, or how much in fees they fork out on an annual basis to keep it parked where it is.
As a financial professional with a license, not a financial advisor or an investment advisor, you will never hand me a dime, I get compensated by the company directly, you will not worry about transaction fees, annual fees, and even better, I offer what none of these banks can offer you, my team can customize a plan that has a guaranteed minimum rate of growth so you will know at a minimum how your money will perform over the next 10, 20, or 50 years with no fees for talking to us and providing the service, even if you don’t sign up, but you will when you see how well the illustrations we provide, and will perform.
I checked my own 403b account and saw that I have 47 different buckets of investments that my retirement can be spread across.
First set of fees are the ones you pay to the advisor to manage all the mutual funds, it’s called passive management which basically means the holder of your account will charge a fee and then pass the expenses to you the retirement fund investor.
Then each individual mutual fund has a charge called the expense ratios.
Here are the examples of the funds from the screenshot I took of my own personal account, the top ones that I could fit that are on the page and the expense ratios that come out as annual fees, yes, money coming out of your retirement account each and every year to cover each fund being managed regardless of how they perform, be it up or down.
It’s an added expense that most people aren’t even aware of slowly chipping away at your potential future gains if it was invested instead in safer and guaranteed growth funds.
So in a nutshell the custodian of your retirement fund will charge you the passive management fees and then will pass the funds on to a few mutual fund managers who again will charge you fees in the way of gross expense ratios.
If the account doesn’t make you dollars then it doesn’t make sense to keep, in this day and age when we can all do our own research and we can make a choice as to where our money is invested, wouldn’t you like to know what your options are?
If you would like to sit down with me and go over your own retirement accounts to see what your fees are annually, reach out and let’s make sure you get what’s happening in your accounts and what alternatives you have, if you qualify for them.
So, again, let me first go over what you have in your accounts and break it down to explain what exactly you own, a full free analysis, then we can review what possible better options we can provide for you.
There is a book called “Wealth Beyond Wall Street” by Brett Kitchen and I believe you can find this book for free online if you want to read up more on this and do your own research.
You need to understand that you are bearing 100% of the risks in these mutual fund accounts, the account holders, and the fund managers are getting paid regardless of how your funds perform, they offer no guarantees on your principal or your income.
I would love to educate you on how to invest like the banks do, to hedge your risks with insurance and build compounding interest, and take advantage of tax savings as well, but that is an entirely different subject.
By the way, did you know that you can also invest into your own pension plan like companies used to offer but no longer do?
Yes, you can have a guaranteed income for life, guarantee that when you retire you can stay retired.
Nobody wants to update their resume in their late 70’s or 80’s am I right? If anything that I have shared here is of interest to you, please reach out to make an appointment with me.
Feel free to comment below or send me a message from the healthwealthandrealestate.com website on the “Get in Touch” link at the top of that web page and please like and subscribe to the channel so that you don’t miss any future educational videos. I hope you found this series enlightening so far with one more to create and I look forward to chatting in depth about it with you.