That dripping sound may be your centavos oozing away from you in unexpected ways, according to “Money Leaks and How to Plug Them,” a recent article by CNNMoney.
Although the writers narrow in on everything from car insurance to your dog groomer’s bill, the following is of interest to investors:
“What to do if you’re forgetting … you still have cash in your money-market fund earning 0.01%
The leak: Up to $94 on $10,000 in savings
The plug: Money funds are paying an anemic 0.01% on average, yet savers still have $2.6 trillion sitting in them, says the Investment Company Institute (see below). Why!? Move your cash into an online savings account, such as those offered by Ally Bank (0.95%) or Discover (0.8%).”
… high-turnover mutual funds
The leak: Larger trading costs that eat into your returns
The plug: The funds that replace their holdings the most frequently have only a 31% chance of outperforming the market, says Russel Kinnel, director of mutual fund research at Morningstar: ‘You’re better off steering clear.’
“The brokerage and other costs that managers ring up by moving in and out of stocks on a regular basis don’t show up in the expense ratio. So check your fund’s turnover rate at Morningstar.com or in the prospectus. If the entire fund turns over 1 1/2 times (150%) or more a year, it’s too much.”
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Now here’s the earlier-mentioned, see-below part of this post. The above article, like many others, including several in recent issues of BetterInvesting Magazine, cited statistics from the Investment Company Institute. Quoting from the institute’s own website, the ICI is the national association of U.S. investment companies, including mutual funds, closed-end funds, exchange-traded funds (ETFs) and unit investment trusts (UITs). If you’re into statistics about all of the above, this is the place to find them.
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