Home | Newest Editions | Most Popular Issues | Free Newsletters | Forums

Custom Search
Publication: Investor's Notebook

Subscribe FREE to Investor's Notebook by clicking here.

        Investor's Insight - Wednesday, March 8, 2006           
          "A Digest of Investment Opinion From the 
             World's Leading Financial Advisers"

Comment The Post Below...


by Scott Burns

"My husband had a hallway conversation with a financial 
planner who shares an office building with him. The plan-
ner said something like, 'Index funds can cost more than 
load funds because people can buy and sell in and out of 
the index fund. This triggers transaction costs of buy-
ing and selling stock that have to be paid by the index 
fund. Whereas with the load fund, people tend to stay in 
it longer. The fees are higher in the load fund, but the 
transaction costs are lower.'

"My husband and I got in a big conversation about this. 
I thought it was ridiculous. First I asked if the guy 
sold load funds, and my husband said he didn't; he gave 
fee-based advice only.

"I said that probably the index funds have some kind of 
pooled cash or shares. And every time someone buys or 
sells 100 shares of the index fund, they don't actually 
have to buy or sell individual shares of stock in and 
out of the fund. Some people sell; some people buy. It 
all evens out."


$9.99 For ANY Pair of their exclusive line of Sunglasses

Normal Retail $59.99 & Up. . . Introductory Price $9.99

Take advantage of this SPECIAL INTRODUCTORY OFFER. We have 
made an exclusive deal with Dakota Eyewear to offer only our 
subscribers their newest designer sunglasses.

PROTECTION SUNGLASSES from Dakota Eyewear. This offer won't 
last long. Don't Wait. Pick up a pair or two today. Perfect 
for men and women. Sorry due to demand, we must limit you to 
8 pairs per order. Take a look at their selection by visiting:

Dakota Sunglasses Introductory Offer


So wrote N.B., a reader in Washington state, of an en-
counter with an enduring story often told by people on 
the sales side of the mutual fund business.

The actual facts, which are as available to those in 
financial services as they are to financial journalists, 
are quite different.

First, the broad index funds have portfolio turnover 
rates that are small fractions of turnover rates in man-
aged funds. According to Morningstar, for instance, the 
average turnover rate for all managed, large-blend dom-
estic equity funds is 85 percent. The average turnover 
rate for all managed, large-blend domestic equity funds 
with front-end loads is 74 percent. The average turnover 
rate for all managed, large-blend domestic equity funds 
with deferred loads is 73 percent.

This adds a lot of expense.

The average turnover rate for all index funds in the 
same category is only 18 percent. The turnover rate in 
the 10 largest index funds in the category ranges from 
a low of 2 percent (the SPDR exchange-traded fund that 
replicates the S&P 500 index) to a high of 5 percent 
for Vanguard Institutional Index fund and Fidelity 
Spartan U.S. Equity fund. Only 148 of the 1,888 managed 
domestic funds, or 7.8 percent, have turnover rates of 
5 percent or less.

So if there is an expense burden due to portfolio turnover, 
the liability is on the side of managed funds. Indeed, low 
portfolio turnover cost is one of the major advantages of 
broad index funds.

Another advantage of index funds is that they seldom have 
as much cash in their portfolios to meet redemptions as 
managed funds, though the difference isn't great. The 
Morningstar data for the same group shows that managed 
funds had 3.7 percent of their portfolios in cash, while 
index funds in the same category had 2.7 percent of their 
portfolios in cash.


    ****  The One and Only John Wayne...On America  ****

How can you go wrong with this spectacular CD? The Duke
recorded this CD as a loving tribute to the country that
made him proud to be an American. Lovingly remastered by
his son, this special is a great keepsake for the entire
family. 10 great narrations on John Wayne's America.
In stock and shipping today for $14.98 (plus s&h) VISIT:  

John Wayne


Similarly, most of the major fund firms now charge fees 
that discourage short-term trading, whether the fund is 
managed or an index. Fidelity, for instance, charges a 
fee of 0.50 percent if shares of its Spartan 500 Index 
fund are sold within 90 days of purchase. The fee is 
paid into the fund, not to the fund company. The idea 
is to protect long-term investors.

Vanguard does not allow purchases within 60 days of a 
fund sale for some funds and, like Fidelity, imposes a 
redemption fee that is paid into the fund for some funds.

Whatever the relative cost of managed vs. index funds, it 
has been argued that investors in load funds have advisers 
who encourage them to hold. Self-help investors frequently 
change their minds and fail to reap the advantages of long-
term performance.

That's an issue that may concern self-directed investors. 
As I have said many times, indolence pays.

(Investor's Insight reflects the opinions of experts. It does 
not recommend any specific investments, and no endorsement is 
implied or should be inferred. For more information, contact 
the individual firms cited).



          GopherCentral's Question of the Week

Do you think the UAE (United Arab Emirates) should be in 
charge of port security in the US?

     Please take a moment to share your opinion, visit:

Question of the Week


Want some Fun and Amusements sent to your email F-R-E-E?  
More Fun & Newsletters
Copyright 2006 by PENN LLC. All rights reserved.
Go ahead and forward this, in its entirety, to others. 
E-Mail this issue
Subscribe FREE to Investor's Notebook by clicking here.

The Investor's Notebook Forum
Is Vanguard the way to go?
Which Investment
View this Forum | Post a topic to this forum

Money - Everyone Has A Price

Watch Video Clip

Home | Newest Editions | Most Popular Issues | Free Newsletters