Saturday Market Update: The ABCs of Mutual Funds

You are receiving this email because you signed up to receive emails from True Market Insiders, rebranding to Sector Edge. [Unsubscribe here]( Keep the emails you value from falling into your spam folder. [Whitelist True Market Insiders](. Forgot your login information? Click [here](. [Image] Saturday Market Update Hey TMI Subscriber, Welcome to "Saturday Market Update," a quick and easy read that recaps True Market Insiders’ market outlook from the week gone by while helping prepare you for the trading week ahead. Today is Saturday, Oct. 16, 2021 Let’s talk about 401ks. The great news about these retirement vehicles is that you often benefit from matching funds provided by your company. For example, say you contribute 6% of every paycheck into the account. Often companies will match 100% (sometimes less) of that amount as incentive for you to participate. You put in $100, your company adds $100. It’s said “there’s no such thing as a free lunch,” but this is as close as you’ll come. That’s why, at the very least, you should contribute whatever percentage the company will match in your 401k. The bad news about a company-sponsored 401k is that your options are often limited. It’s quite possible you can only choose from a list of mutual funds. So, it’s really important that you know how to spot high-fee versions vs. the no-fee (or load) types. Let’s start with the basics... You can distinguish mutual funds from other investment tools by their five-digit ticker symbols that end with the letter “X”. For example, FDEGX is the ticker for Fidelity’s Growth Strategy Fund, and ESPAX is the Wells Fargo Special Small-Cap Value Fund. While the X at the end indicates it is a mutual fund, you should pay even closer attention to the letter next to the X. If you see an A, B, or C in that spot, It means that you will pay a commission or load when you buy or sell the fund. Don’t even consider it for your portfolio. An A-load fund requires that you pay a transaction fee when you buy it. For example, if you invest $10,000 in one with a 5% front-end load, $500 goes to pay the commission and $9,500 is invested. A B-load fund, on the other hand, penalizes you if you sell it within a certain period. A 6% back-end load may be required if you sell in the first year, and it decreases a percentage each year until it reaches zero. The problem here is one of dis-incentives. Many investors will simply hold a bad-performing fund to avoid paying a fee. It’s a lose-lose situation. Just don’t do it. Finally, a C-fund imposes neither a back- or front-end load, but instead adds a sales charge into the expense ratio that is much higher than most no-load funds. So, just as you wouldn’t buy a car for full price from a dealer so the salesman pockets a big commission, you can eliminate load funds from your investing landscape. Be Aware of Excessive Expenses While not every mutual fund carries a load, they all charge ongoing management fees, also referred to as 12b-1 fees. They cover an advisor’s cost to manage the fund’s portfolio, and operating expenses such as marketing or distribution. And no matter their purpose, these fees can and do eat away at your principle. Let’s take a look at two mutual funds nearly identical in holdings, but one charging an expense ratio of 0.60% percent and the other charging 1.60%. Your $10,000 investment in the lower-fee fund grows 10% over 20 years for a total of $60,300. That same investment in the more expensive fund will only grow to $50,200 applying that same time period and interest rate. Funds that charge the highest fees generally fall into the actively managed category. The justification for the higher fees is that it (supposedly) takes more work on the part of a fund manager. Passive funds that track or mirror the performance of an index carry the lowest fees because they require so little work by a manager. These funds allow you to invest in any number of indices, including: - The S&P 500 tracks the largest 500 companies in the US by market cap. - The Russell 2000 tracks US small-cap stocks. - The S&P 400 tracks US mid-cap stocks. - The Wilshire 5000 attempts to track the entire universe of stocks publicly traded on the NYSE. - MSCI EAFE tracks the largest companies in the European markets. - MSCI Emerging Market tracks the stock markets in various emerging economies, such as in Southeast Asia, Africa, South America, and Central America. - Barclays Capital Aggregate Bond Index tracks the universe of publicly traded bonds, including treasuries, corporates, and high-yield bonds. - NASDAQ 100 is an index of the largest 100 companies whose shares are traded on the NASDAQ. This index is also a large-cap index, like the S&P 500, but is much more technology heavy. - Nikkei 225 is an index that tracks the largest Japanese companies. - MSCI US REIT Index tracks the performance of the largest publicly traded real estate investment trusts in the U.S. So, if you’re limited to mutual funds in your 401k, identify lower-cost options. Then, be sure to monitor the funds you’ve chosen quarterly. Just like any investment--stocks, bonds, ETFs--keep abreast of their performance. If any positions are lagging, rotate into better-performing funds and to avoid paying excessive fees, pay close attention to the ABCs. This Week in True Market Insider Oct. 11 - Oct. 15, 2021 [Micro-Cap Monday: On This One Website, Insiders Cannot Hide — Bill Spencer]( Bill Spencer shows you how to find stocks where company management has the most [“skin in the game.”]( Are these insiders selling or buying shares? Why? And what does it mean to you as an investor? [Technical Tuesday: Check this ‘Barometer of Risk’ Before Placing Your Next Trade — Chris Rowe]( You’re not doing yourself any favors by basing your next trades on the performance of the broad markets. Chris Rowe says to use this indicator instead to [see what the ‘True Market’ is doing](. [News Flash: Barbie and Ken May Be Stranded at Sea — Tim Fortier]( Port bottlenecks continue to impact how quickly goods make it to store shelves. So, Tim Fortier suggests stuffing [shares of this shipping stock]( into your family holiday stockings. [Measuring Market Volatility to Make Money — Costas Bocelli]( Costas Bocelli says to pay close attention to the movement of Implied Volatility (IV). Knowing which way options’ traders think a stock will go, gives you a [big advantage over your peers](. [Insurance is Boring Until it Makes You Money]( No one likes pumping money into insurance premiums every month. But Karen Riccio says now’s the time to invest in [insurance-related ETFs so you can replace debits with profits](. Learn More About This Week’s TMI Topics [Biden Orders Companies to Ease Bottlenecks]( [Don’t Wait Until Black Friday to Start Holiday Shopping]( Does Matson Report Earnings?]( [Insider Trading--What is it?]( Director Warns Shipping Industry Is in a 'Crisis Mode']( [Why Out-of-Pocket Costs for COVID-19 Care May Skyrocket in 2021]( and Health Insurers Might See Inflation]( [NYSE: What is the New York Stock Exchange?]( Copyright © 2021 True Market Insiders, All rights reserved. Our mailing address is: 33 SE 8th St, Boca Raton, FL 33432 Want to change how you receive these emails? You can [change your preferences here]( DISCLAIMER The information contained herein has been prepared without regard to any particular investor’s investment objectives, financial situation, and needs. 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