"Marriage is an alliance entered into by a man who can't sleep with the window shut, and a woman who can't sleep with the window open."George Bernard Shaw
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A Guide to Preparing for Retirement
It is everyone's hope to be able to retire in relative comfort in their later years, after they've paid their dues and worked hard at their chosen profession for what may seem like the majority of their life. Unfortunately, many people find retirement a ...
College Savings Plans - are they the best choice for my child?
College Savings Plans - are they the best choice for my child?College Savings Plans, also called Section 529 plans, are one of the best ways to save for college because they offer:-Tax advantages-A variety of investment options-Flexible contribution ...
For Entrepreneurs A Simple IRA May Be Best
Q: I own a small decorating business and I'll be the first to admit that I don't know anything about taxes or retirement plans. I'd like to set up a 401(k) or an IRA or some other kind of retirement plan for me and my three employees. What are the various ...
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Soft dollars, a form of legal kickback, is a sly way you can get ripped off by mutual fund managers. Full service brokers give these kickbacks to non-indexed mutual funds in the form of a “rebate” to purchase research, software, and even computer equipment.
You pay for these soft dollars! In recent years, the SEC estimated that soft-dollar deals exceeded $1 billion. Typically, $1 accrues for every $1.60 of brokerage commissions paid. Congress made these kickbacks legal in 1975 when it passed the “safe harbor” law. The legislation allows fund managers to pay more in commissions than is necessary, as long as the excess comes back in the form of services or research that benefits investors.
The problem is that this has created an opaque system that can be abused. In 1998, the SEC found that some money mangers were using soft dollars to pay for salaries, office rent, and even vacations! Think about this. You sweat every day at work to make a living. You buy a mutual fund to secure your retirement. Then the person who is supposedly protecting your retirement is sipping Margaritas in Cancun discussing with his or her buddies where to buy their next mansion with your retirement dollars!
The second problem is that many funds are not taking advantage of cost saving efficiencies in their operations just so that they can keep the soft-dollar spigot open. Think about this as well. If you had enough money to not have to work you would spend a considerable amount of time looking for safe places with a good return for your money. You would not waste money on things your family did not want and hence did not need.
Why give your money then to a mutual fund managers who could care less if they waste some of your retirement dollars; its no skin off their back! The best way to avoid these losses altogether is to restrict your purchases of mutual funds to your 401(k) and try to only buy indexed mutual funds such as the Vanguard 500 (FINX).
About the Author
ABOUT THE AUTHOR: Dr. Scott Brown, Ph.D., the Wallet Doctor, is a successful investor. Dr. Brown holds a Ph.D. in finance. The Wallet Doctor is sought after for investment advice and coaching. For more information visit Dr. Brown's site at www.BonanzaBase.com or sign up for his investment tips at www.WalletDoctor.com
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