Just starting to invest

[imported_Lothar]

Originally posted by: sandorski
Buy Low, Sell High(not drug induced )

How low is low enough?
AMD? Ford? Delta? or some stock that's selling for pennies? :laugh:

 

[alrocky]

Originally posted by: PAB
A shares... Just because something has a load dosent mean its evil, it just means you have to be careful investing with it.

I'm wrap eligible, so my advisory fee saves me about $2000 a year just in loads.

Just because something has a 1.5% expense ratio dosent make it all bad.

Loads, wraps, and high Expense Ratios: the axis of mutual fund evils trifecta!

Motley Fool paying LOADS and High Expense Ratios

LOADS:
a broker recommends... will be in all probability a load fund, and the load, or sales charge, is pocketed by the broker and/or other middlemen as payment for the "service of helping you pick a good fund."

Funds that impose no cost to purchase have outperformed those that brokers pay themselves to find for their clients.

it is so obvious that the arrangement of giving 5% of your money away for nothing in return is such a lousy deal

Bottom line -- the only thing that you really need to know and remember about mutual fund loads is that you don't ever have to pay any. Everything that a broker could ever find for you in a load fund, you can find for yourself, and find much better, by doing a little research or asking questions

EXPENSE RATIOS:
Let's say you were assessing whether or not a mutual fund was likely to outperform the market over the next ten years... What would that question be?... the first question that you should answer before buying or deciding to continue to own a mutual fund is "What about the costs?" The costs of owning a fund are called the expense ratio.

the typical expense ratio for an actively managed mutual fund is about 1.5%... an expense ratio of 1.5%, a mutual fund is cutting itself in on 1.5% of the total money in the fund every year. That's whether there's a good year or a bad year for the fund... be aware that as time goes by, it is likely going to become more and more expensive to own an actively managed mutual fund.

Some mutual fund companies... have heard about the superiority of index funds, have started index funds with expense ratios of more than 1%. Avoid these like the plague.

Costs matter -- tremendously.

TURNOVER:
Because buying and selling stocks costs money through commissions and spreads, a high turnover indicates higher costs (and lower shareholder returns) for the fund.

look to own funds with lower-than-average turnover rates -- preferably no higher than 50% and hopefully much lower.

Taxes and Tax Efficiency:
active trading... behavior not only has the effect of reducing returns by about 0.7% per year through transaction costs, it also has the unfortunate result of creating taxable gains on those sales.

as much as a quarter of a mutual fund investors' annual returns are consumed by the taxes payable on dividend and capital gains distributions. Over time, the compounding effects of an average equity return of 10% being reduced by one-quarter are truly dramatic... almost exactly half the amount. Yikes!

Does this mean investors should be indifferent to high turnover rates for funds held within their tax-deferred accounts? No. High turnover rates will still present a drag on a fund's annual returns because of the trading costs of buying and selling often.

creating wealth over long periods of time through the magic of compounding, on an after-tax basis the more money you can keep invested, the more value you can create. Just as every dollar in fees you fork over to invest hurts your returns, every dollar you give to the tax man does just the same.

An ancillary benefit of not selling very often and having a preset investment plan is that you can keep the amount of money you have in low-yielding cash to a minimum. An index fund can keep 98% to 99% of its money invested, whereas the cash position of the average mutual fund is much higher. With only 90% to 95% of your money invested, you actually need to beat the index return with the money that has been invested to match the return of the index in your fund. So to match the return of the index, money managers not only need to outperform in order to make up for higher expenses, but they also have to outperform because they cannot be 100% invested. On top of that, even if they do breakeven or beat the market on a pre-tax basis, they can destroy this value for individual investors through capital gains distributions that make most of the gains taxable.

By keeping expenses low, minimizing your tax burden, and maximizing the amount of money in the market, the average S&P 500 index fund kicks the pants off professionally managed money.

 

[PAB]

Originally posted by: Lothar

Originally posted by: sandorski
Buy Low, Sell High(not drug induced )

How low is low enough?
AMD? Ford? Delta? or some stock that's selling for pennies? :laugh:

AMD - fighting a price war they cant possibly win.
Ford - See above
Delta - barely above water with enough red ink to make a coroner squirm.

My reccomendations are in this order:
Pass
Walk away
RUN

 

[PAB]

Originally posted by: alrocky

Originally posted by: PAB
A shares... Just because something has a load dosent mean its evil, it just means you have to be careful investing with it.

I'm wrap eligible, so my advisory fee saves me about $2000 a year just in loads.

Just because something has a 1.5% expense ratio dosent make it all bad.

Loads, wraps, and high Expense Ratios: the axis of mutual fund evils trifecta!

Motley Fool paying LOADS and High Expense Ratios

LOADS:
a broker recommends... will be in all probability a load fund, and the load, or sales charge, is pocketed by the broker and/or other middlemen as payment for the "service of helping you pick a good fund."

Funds that impose no cost to purchase have outperformed those that brokers pay themselves to find for their clients.

it is so obvious that the arrangement of giving 5% of your money away for nothing in return is such a lousy deal

Bottom line -- the only thing that you really need to know and remember about mutual fund loads is that you don't ever have to pay any. Everything that a broker could ever find for you in a load fund, you can find for yourself, and find much better, by doing a little research or asking questions

EXPENSE RATIOS:
Let's say you were assessing whether or not a mutual fund was likely to outperform the market over the next ten years... What would that question be?... the first question that you should answer before buying or deciding to continue to own a mutual fund is "What about the costs?" The costs of owning a fund are called the expense ratio.

the typical expense ratio for an actively managed mutual fund is about 1.5%... an expense ratio of 1.5%, a mutual fund is cutting itself in on 1.5% of the total money in the fund every year. That's whether there's a good year or a bad year for the fund... be aware that as time goes by, it is likely going to become more and more expensive to own an actively managed mutual fund.

Some mutual fund companies... have heard about the superiority of index funds, have started index funds with expense ratios of more than 1%. Avoid these like the plague.

Costs matter -- tremendously.

TURNOVER:
Because buying and selling stocks costs money through commissions and spreads, a high turnover indicates higher costs (and lower shareholder returns) for the fund.

look to own funds with lower-than-average turnover rates -- preferably no higher than 50% and hopefully much lower.

Taxes and Tax Efficiency:
active trading... behavior not only has the effect of reducing returns by about 0.7% per year through transaction costs, it also has the unfortunate result of creating taxable gains on those sales.

as much as a quarter of a mutual fund investors' annual returns are consumed by the taxes payable on dividend and capital gains distributions. Over time, the compounding effects of an average equity return of 10% being reduced by one-quarter are truly dramatic... almost exactly half the amount. Yikes!

Does this mean investors should be indifferent to high turnover rates for funds held within their tax-deferred accounts? No. High turnover rates will still present a drag on a fund's annual returns because of the trading costs of buying and selling often.

creating wealth over long periods of time through the magic of compounding, on an after-tax basis the more money you can keep invested, the more value you can create. Just as every dollar in fees you fork over to invest hurts your returns, every dollar you give to the tax man does just the same.

An ancillary benefit of not selling very often and having a preset investment plan is that you can keep the amount of money you have in low-yielding cash to a minimum. An index fund can keep 98% to 99% of its money invested, whereas the cash position of the average mutual fund is much higher. With only 90% to 95% of your money invested, you actually need to beat the index return with the money that has been invested to match the return of the index in your fund. So to match the return of the index, money managers not only need to outperform in order to make up for higher expenses, but they also have to outperform because they cannot be 100% invested. On top of that, even if they do breakeven or beat the market on a pre-tax basis, they can destroy this value for individual investors through capital gains distributions that make most of the gains taxable.

By keeping expenses low, minimizing your tax burden, and maximizing the amount of money in the market, the average S&P 500 index fund kicks the pants off professionally managed money.

I disagree. I pay 2% and rotate positions relatively frequently, so all my funds are load free to me. The advisory fee absorbs sales charges. This quarter it was $400 and I certainly got my money's worth.

1.5% isnt bad, IMO. However, since the SEC forbids me from investing in a hedge fund with a high water mark provision - I dont really have a choice in active management products.

Turnover - I like turnover. One of my better performing funds had a 141% turnover last year, meaning they trade the account and generate returns. Right now, I'm happy with my returns and through adjunct speculation I intend to double my spec portfolio by the end of 2008.

 

[Dudewithoutapet]

bump for good info.