Mutual funds are an excellent investment opportunity if you are searching for a way to fund your retirement. In essence, mutual funds are nothing more than a pool of money from numerous individuals that place their investments into certain things. There are many different types of investment opportunities when it comes to mutual funds. For example, one may elect to invest in the stocks associated with a large company, in Treasury bills, or in bonds. When individuals invest in a mutual fund, they each get a share. It is the hope that the mutual fund will result in gains; however, there are some instances in which the investors suffer from losses as a result of their investment. While this is a challenging issue, most losses in mutual funds directly relate to hidden fees. It is important that you are not only aware of these fees, but that you beware of these fees because they have the potential to rob you of your retirement.
When you elect to invest in mutual funds, you should know and understand that where you make that initial investment will make a large difference in your retirement’s earning potential. Many individuals use a financial advisor, a broker, or a mutual fund company to initialize their investment into mutual funds. Unfortunately, there are typically many hidden fees associated with this process. These are referred to as “sales charges”. These types of hidden fees are outlined below:
- “Front-Loaded” – If you purchase a mutual fund that is identified as being “Front-Loaded”, it means that you pay a sales commission fee of anywhere from 5% to 8.5% up front, which reduces your investment right at the beginning stages.
- “Level-Loaded” – These are often referred to as “Class C Mutual Funds”. If you invest in these, you will likely incur – at least – a 1% annual fee for the entire “life” of the investment.
- “Back-Loaded” – These types of hidden fees are often referred to as sales charges that are “Contingently Deferred”. These types of mutual funds only result in a charge if you elect to sell out. The charge that is incurred typically decreases each year. For example, if you sell out the first year you have it, the charge would likely be 5%. If you sell out the second year, the charge may only be 4%. These are only examples, but, relatively accurate.
- “No-Load”– These types of mutual funds do not have sales charge hidden fees; however, this does not mean that they are not associated with hidden fees.
In evaluating mutual funds, you will find that there are many different types of management fees. In essence, you must pay someone to manage your portfolio. This is where management fees come into play. You may find that you are subjected to distribution fees, marketing fees, commission fees, shareholder fees, custodial fees, legal fees, accounting fees, transfer fees, and even administrative fees. All of these hidden fees are detrimental to the overall performance of the investments that you make to fund your retirement. These management fees are often referred to as the “Expense Ratio” of your mutual funds. In simple terms, the charges are totaled and then divided into the dollar amount of your investments. You should always opt for investments that have the fewest management fees in order to ensure the highest level of return on your retirement investments.
As you can see from the information in this financial guide, there are many different types of hidden fees that have the potential to rob you of your retirement if you invest in mutual funds. The mutual fund industry in the United States is considered to be the largest within the entire world. Mutual funds are operated by individuals called “Money Managers”. These professionals invest the fund’s overall level of capital and make an attempt to create capital gains or an income for the investors of the fund. When electing to invest in mutual funds as a way to fuel your retirement on a financial level, it is imperative to ensure that you carefully examine the prospectus so that you will know if your investment will be detrimentally impacted by hidden fees.