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Just Say "No" To High Costs And Fees

By Doug Fabian
President, Fabian Investment Resources
Host, The Doug Fabian Show

Many unscrupulous individuals and several fund families aren't playing on the level. What can you do about it? Say NO to back-end loads, redemption fees and unjustifiable expenses.

1) Brokers and Their Loads. Saying no to brokers -- the people who steer you toward "load" funds to get fat commission checks -- is simple. Let's say you want to invest in a mid-cap value or mid-cap blend fund when I give a broad-market Buy signal. There are a few hundred of them out there, so how do you decide?

First, eliminate load fund offerings (A shares and B shares, in particular) like the Alliance Fund (CHCLX), the American Express AXP Progressive fund (INPRX) or the Van Kampen American Value fund (MSAVX). These sour investments are poor enough to make the Fabian Lemon List, to say nothing about the commissions as high as 5.75% and additional percentage points in management fees.

Looking for a solid mid-cap performer for a future Buy signal? Consider no-load superstars like Oakmark Select (OAKLX) or a relative newcomer like Berger Mid Cap Value (BEMVX).

2) Ooops. The "Your Portfolio Sank" Redemption. Redemption fees are slightly harder to identify, which means you need to be extra-vigilant before making a fund purchase. For example, Amerindo Tech (ATCHX) insisted that its investors hold their fund for 1 year or pay 3% of the purse. Few people gave it a moment's notice when it was the hottest fund in America; after all, what's 3% when your money is doubling in 1 year? 

Over the last 12 months, however, ATCHX has lost 73% of its value. That type of drawdown unmasks the true purpose of the 3% redemption... a cheesy way to lock investors up -- even through a horrific bear market downtrend.

3).Unjustified and Expensive. Funds that are doing poorly don't deserve the average management expense of 1.1% to 1.4% of assets. In fact, I suggest a sliding fee scale for underachievers.

Why should I pay Kemper Total Return (KTRBX) 2% of my money for 5-year returns of just 9.5%? The S&P Index returned 15% in that time, and the average C-grade domestic hybrid outpaced KTRBX as well. What's more, that's without a 4% sales charge, a 2% management expense and a .75% marketing fee. Puh-leez!

Whether it is a redemption fee, a broker commission or the cost of portfolio management, understand what you're paying for. You have the means to determine if you're getting genuine value or expensive excuses.

Doug Fabian is president of Fabian Premium Investment Resource and editor of the company's four subscription-based newsletter products. For more information on these services and the highly rated Fabian Plan, including how it can help you attain your goals of growth and income using today's best no-load mutual funds, visit the Fabian web site at http://www.fabian.com/.