Mutual Fund Advice in the Global Financial Crisis - Understanding Risk Disclosure

The global financial crisis has devastated many people retirements. It is very important to be aware of the global financial landscape. This in particular means being aware of and taking control of the mutual fund advice you receive. Mutual fund advice always needs to be filtered from self serving and customer serving sources. In the harrowing days since the global financial crisis devastated investments this becomes more pertinent. You need mutual fund advice that you won’t hear from the salesperson selling you the fund is critical to your investment decision. That is you need objective advice. The need for objectivity is borne out in the Goldman Sachs fraud charges, borne out by the Federal Reserve monetization of US debt and US financial reform.

You must be aware of global affects on your mutual funds. Know where you are invested. What risk is the European financial crisis to your investment? Does Ireland, Greece, Hungary, Great Britain, Spain, Portugal, Japan, China or Italy affect your investment? This list of course could be endless. The point is understand your investment risk. Mutual fund advice you need includes the fee structure, hidden fees, liquidity issues, trade efficiency, exit and sales fees and tax impacts. You need to know this criteria not just advice on performance and security. This will advise you on how the fund’s assets are used and the cost to you personally of mutual fund entry, exit and taxes. Filtering through all the little hidden sales pitches and economic warning signs is crucial for your financial health.

Step 1

Mutual fund advice needs to include fees. Hidden fees are actually not hidden as they have to be disclosed in the mutual funds prospectus. They are hidden as most people never read through them. Hidden fees usually refer to 12b-1 fees which are disclosed in the prospectus. Many mutual funds do not charge a 12b-1 fee, check if they do. Invest in a mutual fund that does not charge the fee if you want to avoid it.

Step 2

While we are on fees mutual fund advice you need to know of any sales fees. There are multiple no-load mutual funds to choose from.

Step 3

It is easy enough getting in to a mutual fund, what about getting out? The liquidity of a fund is important to your investment decision, particularly for your investment timetable. The mutual fund advice needs to include whether being invested in ETFs, stocks and closed-end funds suits your circumstances more appropriately. The majority of large mutual funds give you access to your cash the day after selling. The global financial crisis has changed the expectations on this aspect.

Step 4

Mutual fund advice needs to include that the exit and entry rules which will take place at the close of the market. This is regardless of the time you placed the order to buy or sell the mutual fund. The plusses of this you don’t have to stress on the time of the trade but you don’t benefit from the flexibility of ETFs.

Step 5

Mutual fund advice needs to include the taxable impact to you personally. Tax percentages have a huge effect on your real investment return. Capital gains distributions should to be estimated where practical. The funds turnover is relevant here as many mutual funds are low-turnover funds and as a result does not make capital gains distributions annually.

Step 6

Further to the capital gains affect mutual funds advice includes strategies to avoid capital gains distributions. These strategies include tax-loss harvesting and selling mutual funds prior to the capital gains distribution. Importantly retirement plans such as your IRA or 401ks are not affected by capital gains distribution.

Tips

• Be thorough and plan a timeline for financial goals
• Research mutual funds that satisfy your investment goals

Warning

• Read thoroughly the risk disclosure statement from the fund; know implicitly the risks of the fund.
• Discuss your investment and mutual fund advice with your financial advisor.
• Check the Quick Guide to Mutual Fund Ratings.
• Check the Quick Guide to Mutual Bond Funds
• Check the Quick Guide to Mutual Funds Research