Friday, September 2, 2011

Why Mutual Funds are Stealing your money - Pt3

Yesterday, I looked at some simple calculations that show how a mutual fund steals your money.
today, I will look at some of the ways that Mutual Funds are sold to unsuspecting investors.

But Jack, my adviser told me that my mutual fund is the best one out there!

You must remember that advisers are working their job to make money. I have yet to see an adviser that doesn't charge, and doesn't take a commission on the products they sell. This means that they are going to try to get you to purchase a product from them, and then they receive compensation for it.

The 'better' (more expensive) the investment they sell you, then more they receive in turn.
I am doubtful that a bank would be able to have such nice offices, or pay their employees so much if everyone invested in indexes (at low MER's that is.)

Expert's Bias

People are asked, and even required to defer to 'experts' all the time. We go to doctors for our health, teachers & professors for our learning. Why shouldn't we trust financial advisers with our money? This is what I would call 'experts bias'. But what we have to realize is that most financial advisers are paid to sell.
In my eyes, Commission-based financial advisers are no better then used car salespeople, trying to make the highest profit from every duped customer.

Fee-based advisers that do not receive a 'kick-back' from a mutual fund are much more likely to give you a honest opinion, but even they will have 'favored' investments that they prefer, just like anyone. This is why you need to learn for yourself how to invest, even if you buy a pre-packaged product like a mutual fund.

The only people that win with a mutual fund is the people that run and sell the fund.

Tomorrow, I will talk about a sub-set of mutual funds that most of these rules don't apply to, index funds.

Do you feel your financial adviser is stealing from you?
How much have you lost?
Let me know

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