The lure of gold is everywhere these days. With the price of gold hovering around $1,300 per ounce, everyone and their brother is rethinking whether or not they should be investing in gold. Is it too late? How much gold should be in your portfolio? We are being bombarded by late night infomercials, celebrity endorsements, television pundits, scrap gold buyers, and a host of other pressure to jump on the bandwagon.

Most readers of the blog should know where I stand on buying gold. I actually wrote a long guest post on The Dough Roller blog about the dangers of buying gold especially on late night TV. I am not a gold fan, and I am not a fan of commodities or precious metals, including gold, comprising of too much of your investment portfolio. All precious metals should make up no more than 5% to 10% of your total portfolios. Gold may look like it is just continuing to go up and up, but it is a horrible long term investing.

Five Reasons Not to Own Too Much Gold…

1. The price of gold declined in 14 out of 20 years between 1981 and 2000. Those are some of the prime investment years to be losing so much money.
2. Gold’s price has already been over $1,000 per ounce three times in the last 30 years.
3. In 1974, the U.S. government changed the law and allowed private citizens to invest in gold on the open market. In 1974, the price of an ounce was about $100. Based on today’s price of approximately $1,100, gold has lagged the overall market and returned only 6.8% per year. The historical stock market return has been approximately 8% per year even throughout the decades you could not legally own a bar of gold.
4. Stocks beat inflation better than gold. Stocks have returned an average of 11.5% between December 1974 and December 1999. Inflation has averaged 4.2% during that time.
5. People argue that gold is a safer investment because it is a real asset. That is a flawed assumption that real assets are safe. Real estate is a real asset as well and look where that asset value went over the past few years. Real assets are no safer than paper assets like stocks in today’s market.

Investing in gold just because it is popular right now is not the right thing to do for your financial wellbeing.  Investors often lose sight of gold’s poor long term historical results or lack thereof. Short time horizons with extreme volatility and market uncertainty do not help the long term investor.  Gold and precious metals should only comprise a small portion of your overall retirement and investment portfolio. Making it a main component will set your financial future up for disappointment.

Related posts:

1. Buying Gold From Late Night Television Or For The Long Term Is A Bad Idea There can be no mistaking that gold is once again...
2. Rebalance Your Investment Portfolio and Asset Allocation Every Year I have to admit that I have not rebalanced my...
3. Famous Quotes About Money and Investing From Warren Buffett “I never attempt to make money on the stock market....

Have you ever had an electric bill that was higher than you were expecting? I tend to cringe every time I get the bill in the mail from my electric company. I have no idea what it is going to be, and I am paranoid that a billing error will cripple my monthly budget. I especially hate the winter because I hate to be cold. So, I do not really mind cranking up the heat in my house, but I dread paying for it.

Like most people, my monthly electric bill tends to ebb and flow based on how much heat or air conditioning my wife and I use in our home. Some months it will be a low as $80, and other months it can be as high as $300. I love comparing my bill with my coworkers in the hopes that I am not as worse off as they are.

So, what is a person to do??

Now that I have been a customer for over twelve months, my electric company let me sign up for an “equalizer” program. Most electric company has them, and of course they all have different nifty names for them. But, they are all the same. My company’s program is a free budget billing service that sets your monthly payments equal every month. It lets you plan your monthly payments and helps you keep your budget balanced and is designed to help you avoid unpredictable monthly electric bills. Your monthly bill is based on the average of your last twelve months. And, this is the amount that will be charged to you every month for the next year or so.

The good part is that your bill will be the same every month, and you can plan better and will not have your budget busted by an outrageous bill one month. The bad news is that some months you will be paying more than your normal monthly payment, but in other months you will pay less than what you had in the past. It will average out much like dollar cost averaging does for investors. For example, in the spring and fall my wife and I do not use much electricity because we leave a lot of our windows open, do not run the air conditioner, etc. So, our bill is usually around $90 during those months. And, this month, our electric bill was about $250 which is typical for my family in the winter and summer months with the AC/Central Heat cranking. When I signed up for the bill smoothing program, our new monthly payment is going to be $130 per month.

Of course you can see right away that I am going to be over paying the electric company in the spring and fall and underpaying them in the Winter and Summer. But, it will all even out throughout the life of the program. Another interesting point of the program is that the electric company will continue to read the meter every month, and your monthly bill will show exactly how much energy you used. The actual amount you owed and the difference of what you paid will be shown on your account, and you will eventually have to may any amount that you are over (usually every three months or so). The difference may be a credit or a debit amount.  For my bill every three months, it will be recalculated to reflect the average of your last 12 months actual bills and your deferred balance.

So, of course, it goes without saying that you must still save for any differences that are charged to your account. So, while this program may be a budget saver, if you do not budget for any differences from your monthly fee, you could be in for quite a surprise when your electric company recalculates your account.  So, what else can you do? You should consider making sure that you have a fully funded emergency fund to help you ride the ebbs and flows of your monthly electric bills. That might be the real answer to your budgeting issues.

Related posts:

1. Save Hundreds of Dollars on Your Electric Bill With a Free Home Energy Audit Normally, an in home energy audit can cost $300 or...
2. Are The Assumptions in Your Household Budget Realistic? I recently went back and looked at my family’s monthly...
3. The One Dollar Bill Challenge – A Sneaky Way to Save Money I hate pocket change.  I do not pay for anything...

Hi – this is Mr Credit Card from www.askmrcreditcard.com. Today, I going to write a guest post about what my son has been asking me about the money and the conversations we have had with him. This will obviously not be the last! And also BTW, if you are looking for a new card, please drop by my best credit cards recommendation section.

As a prelude, my eldest son is 10 years old (soon to be 11). Initially , our conversations about money started because my son was influenced by what other kids were wearing or had, what was cool and what was not? Here are a few examples.

Questions that drive us nuts

To kids, money seems to grow in the ATM machines. Whenever you need cash, just go to any one of the machines. Or when you need to pay for your purchase, just use one of those plastic cards which everyone has. No mystery to them at all.

We believe it is never too young to teach them financial matters and emphasize how important it is to learn how to manage them even at a young age. What do you do with your $2 weekly allowance? Should you splurge all your allowance on your favorite toy you were eyeing for a long time ? Should we charge everything to the credit card and worry about how to pay later? Can we afford to take that ski vacation now ?

Below are some of the conversations that we have had with our son.

Where does money come from? One of the first things that Mrs Credit Card and myself try to teach our kids is WHERE money comes from. The reason we decided to explain this to all of our kids is that they keep bugging us to buy stuff. The latest wii game, Nintendo DS!

I used a person that they can identify with – the cashier at MacDonald or at a supermarket check out and the person working at the pizza shop. For simplicity sake, I say they earn $8 an hour, 8 hours a day. Assuming he works 5 days a week, the person (let’s call him John) takes home $320 week. Great! Now, John can go out and buy that Wii he wanted so much and even has left over. Hang on – I tell them. John is renting so he needs to pay rent (say $100 a week). Will he have money left over to eat? I don’t think so. You should see the looks on my kids’ faces. They must think it takes a BIG miracle for them to survive as an adult. Then I continued by listing all the other related expenses – cable TV bills, phone bills, gas, groceries and even doctor’s fees if John gets sick.

So they all agreed those jobs won’t do for them because they all wanted more in life. They don’t mind saving on the rent and continues living with us (GASP) but could not imagine having insufficient money to buy toys and food, in that order. At this point, I take it up a notch and we discuss several career options. Teacher, bankers, music teacher, pro baseball players, rock stars, movie director, entrepreneur and etc. Our conversation got very interesting and I succeeded in planting the seeds of ambition in all three of them.

My Sons wants us to move to a bigger house! When your best friend has the biggest house on the block, it is kinda hard to not want the same thing. A couple of my sons classmates has “huge houses”. Question : Can we move into a bigger house near Aidan? Can we have a pool like the Smiths? Can we buy a house by the beach so we can spend the summer there? How much is our house? Did you pay for this house?

It’s time to learn about mortgages. Ironically, this happened when the mortgage crisis started in USA. I explained that you’ll have to go back to how much you earn, minus your living expenses and savings and the leftover can be set aside for this thing called “Mortgage”. Better to work backwards so you will choose a house which you can pay for month after month. I emphasized to them that a house costs a lot of money and banks can help us by paying it first and we pay back every month – for unfortunately the next 30 or more years of your life. Yes, 30 years. With that I re-emphasized that it has to be paid EVERY MONTH without fail or the bank will take back the house and you have no place to live in. Boy, that was tough.

They looked worried and asked if we’ve ever missed a payment. I also explained to them the difference between renting and paying for a mortgage. At this point, I gently pointed out that it is wise to have a stable job that pays a steady income before you consider getting married because your folks ARE NOT paying your mortgage. And yes, also because they are still paying theirs. Phew, got that out of my chest but I’m pretty sure they’ll need to be reminded. And we also told them that we are “not as rich as his friends parents so we cannot afford a bigger house – and to stop bugging us about it!”.

Credit Card and Banking Conversations. Our kids know that we have a website called askmrcreditcard.com (surprise surprise). So they have asked us many questions about credit cards because we charge everything to our credit cards (we pay in full and it is mainly to earn cash back and travel rewards points!). We hardly write any checks at all except for things like paying their piano teacher. Our kids think we’ve paid for the items already once you swiped that plastic card. They are always fighting to swipe it & sign it at the stores. “How can I get these cards, Mommy and when can I get it?” asked my 10 year old. They also see how we go to the Bank of America “drive through teller” and withdraw cash. So naturally they have all asked me and Mrs Credit Card about ATMs.

Once again, I talked about the money that he gets when he starts working. The money can be directly deposited into a bank or a check given to him which he has to convert into cash or deposit it into the bank and gets cash out by ATM machine or through the teller. However, it is not safe to carry around so much cash (you might be robbed, you might lose it etc), banks started to offer ATM cards where you are given a special password for you to access your funds. They also offer credit cards.

I explained that we use credit cards simply as a tool to pay for stuff because we do not like carrying cash around. We also explained that credit card companies send you a monthly statement detailing your charged expenses and gives you a deadline to pay. And that you had to pay in full. Right or wrong, we told our kids that we had to pay our credit cards in full every month – both personal and business credit card. We did not bother about explaining the concept of carrying a balance etc.

We explained that the cycle starts again with the money you earned which gets deposited into your bank account and some money is deducted for mortgage and some money is deducted for credit card bills, some money is deducted for phone bills & etc. Therefore, you need to make sure you have enough in your bank account every month to pay for these and it boils down to spending only what you can afford.

You need to earn the right to buy fancy stuff. My eldest son used to keep bugging me about buying new stuff. When baseball season started, he wanted a new baseball glove. He obviously wanted a batting glove! He even asked me to buy him a “first base glove” if he is chosen to play first base! BUY BUY BUY!!! It drives me nuts.

I always say no to him and always told him that he had to earn the right to these things. Last season, his team won the championship! He only got a couple of hits and many walks. So I reminded him that his “batting gloves” did not help him hit. I told him that wearing a glove does not make him a better baseball player. He later found out that there were a couple of MLB players who do not wear gloves! So now he understands. During his soccer tryouts, he had a teammate with the fanciest gears but was the worst player. So I think he is slowly getting the idea that having the latest gadgets or fancy stuff does not make you a better person or (at least in sports a better player). But having said that, he is still influenced by friends. His latest craze is Northface winter jackets!

Giving. Last but not least, I also stressed to them the importance of “giving” – to church, to charities and to people in need. “To whom much is given, much is expected.”

To End This Post. At the end of the day, I am glad we talked about money matters with our 3 young kids and I am pretty sure that’s not the end of our discussion. Soon, we have to make a decision about getting kids their cell phones. Eventually, we have to face the issue of co-signing for their credit cards when they go to college. I’m not sure if I look forward to that!

Related posts:

1. Use a Credit Card to Pay for Everything, Every Single Purchase My wife and I use our American Express charge card...
2. 83 Money Moves To Make Before You Are 30 Years Old Lets face it…there are some things that you need to...
3. The Ten Best Money and Investing Decisions I Have Ever Made   Going back to school for a Masters Degree Setting...

The S&P 500 index returned an average of 8% per year from 1998 to 2008. According to a study conducted by the research firm, Dalbar, investors only averaged 2% annually from 1998 to 2008 though instead of the full 8% because they tried to time the market. Using a buy and hold investing philosophy would have helped investors earn the market average, but the allure of getting rich fast though timing is too seductive for most investors. Many investors also panic when stocks take a dip. They end up buying at the top end and selling at the low which is of course counter intuitive to the age old adage of “Buy Low, Sell High”.

We have seen similar episodes in the most recent market crash as well. People are inherently risk adverse and prone to panic selling when the market takes a dip. Investors showed that they also fibbed on the risk tolerance worksheets and quizzes that we all took in the past before the crash. Most investors said that they could stomach a steep short term decline in stock prices because they were in stocks for the long haul. The recent exodus of money out of the markets has proven that theory wrong. It has proven that we were not truthful to ourselves and our investment advisors. Billions of dollars have been taken out of the stock market at the absolutely worst time, when stocks were down, and sat on the sidelines out of fear when the markets began to rise again.

People find themselves “fighting the tape” and buying and selling their investments at the worst time when they cannot take the swings emotionally. They feel like they are missing out of the market’s eventual upswing as well and pile back into the market chasing the ticket tape. The real problem with timing the market is that you have to be right twice, when you buy and when you sell.

So, what is a good investor to do?

Dollar Cost Averaging. The beauty of dollar cost averaging is that when shares are expensive, you buy fewer of them, and when shares cost less, you buy more.  Over time, the costs of your various purchases and the number of shares you own average into what will be a lower cost basis for the shares. Dollar cost averaging will help you keep from trying to time the stock market’s ups and downs. There is no reason to try and time the stock market when you are investing consistently using dollar cost averaging.

Ignoring The Market. Now that the stock market is rebounding off of the recession’s lows, there are a lot of television pundits and writers out there talking about all of the gains recently. The worst thing you can do is stare at the television news following the constant ups and downs of the stock market. If you are a long term investor, the best thing you can do is ignore the stock market. Do not turn on the television, stay away from CNBC (even though they are great), do not read the newspapers (blogs are ok), etc. Take a break from watching the market. Do not check your portfolio balances. Do not see where your stock closed. Ignoring the market will help curb your craving to try and time it.

Practice Timing If You Must. Do you have a great investing idea? Are you just dying to try your hand at timing the market? I can understand the allure of quick riches. If you absolutely must try, I would recommend trying a “stock market” game to practice trading. I have been using UpDown.com for almost a year now to practice trading. You can challenge other people or just play against yourself and the market. The best part about UpDown is that they pay you a portion of their advertising revenues if you can beat the S&P 500 index. This graph is my results over the past few months trading at UpDown. You can see that while I have been close to the index, I cannot consistently beat it.

Related posts:

1. Beware of the Stock Market as a Self-Fulfilling Prophecy In many ways the stock market is a self-fulfilling prophecy....
2. Why Dollar Cost Averaging Makes Sense and Works For Investors Dollar cost averaging is one of the best secrets in...
3. Predicting the Bottom of a Stock Market Crash – Famous Predictions and Economic Indicators Predicting the bottom of a stock market crash is...

A lot of people who are feeling the tightening of their wallets usually think about ways to cut costs. Can you do without premium cable? Can you stop eating out or cut it down to once a month? Many people forget that there are two sides to the personal finance equation. If you cannot squeeze another drop out of your budget, maybe you need to think about adding some income to your situation.

Here are five ways to earn extra money without taking on a full time second job.

Tender Loving Care. Consider providing in home care to young children or to the elderly.  Especially for the elderly, at home day care is a demanding need for families.  Often caregivers are needed on nights and weekends, which is a great opportunity to work around your typical weekday schedule.

Tis The Season. Market yourself for part time seasonal jobs such as lawn care in the summer, raking leaves in the fall, and snow removal in the winter.

Temporary Jobs. There are temporary jobs all around, even for the college educated. The Census Bureau is currently hiring for part time temporary positions for the 2010 Census.  For more information visit their website at www.2010.census.gov/2010censusjobs   

Use Your Talents. If you have skills as a writer or photographer consider doing freelance work.  If you have musical ability consider teaching piano or singing lessons.  For those blessed with the ability to cook and bake, consider catering or selling your homemade goodies.

Overtime. Where better to make extra money than at the job you already know how to do?  With a shrinking workforce, fewer people are available when times get desperate.  If your employer offers paid over time consider taking advantage of such an opportunity. Also, is there an opportunity to consult in your field?

Do not always consider you costs when you are in a tight squeeze financially. Boosting your income can be the extra help that you need.

This is a weekly featured post on Own The Dollar from Sara Peak, a Certified Financial Planner and a veteran of the finance industry. In addition to her monthly “Money Matters” column in Kentucky Living magazine, she also writes about money and personal finance topics on her blog.

Be sure to look for more great featured articles every week from Sara.  If you have a question or topic that you would like for her to discuss, please contact us.

Related posts:

1. Seven Simple Tips to Save Money on Health Care Costs Money is tight now as everyone knows. And, with rising...
2. Buying Only American Goods Costs You Money – Buy The Best! There is a lot of patriotism and pride with buying...
3. See How Your Net Worth Stacks Up By Age and Income Don’t you always wonder how much money you have compared...

I have to admit that I have not rebalanced my investment portfolio in years. I always seem to forget to mark a date on the calendar to look at my asset allocations and the balance that I have between stocks and bonds, their investment locations (foreign or domestic), and their capitalization.

Money Magazine and the Schwab Center for Financial Research recently found that $100,000 invested over 37 years in a 60/40 split between stocks and bonds would have ended with a balance of $2.5 million in your account without ever touching it again. But, if you property rebalanced your portfolio every year, you could have earned an extra $400,000 with all other things being equal. Asset allocation means dividing your assets on a percentage basis among different broad categories of investments, including stocks, bonds, and cash. Asset allocation is a strategy for reducing the risk associated with investing.

Rebalancing your investments can make the difference to your financial health. As we have all seen, some assets classes do better than others in some years while others have better years in the economy. One year small cap shares may be on a tear and other years might be best for international stocks. If you aim for a set balance between your asset classes and types of investments, then you might eventually be out of whack if you do not rebalance your portfolio.

Rebalancing your portfolio helps you trim down your holdings in the winners of your portfolio and buy the lower cost chares of other investments (stocks, bonds, and mutual funds) that have not done as well in the past year or so. For example, let’s say that you have a stock portfolio that is comprised of 50% large cap companies, 30% in mid size, and 20% in small caps. For simplicity sake, you have a portfolio worth $100,000.  If one year small caps have a gangbuster year and large caps are lagging, your portfolio might end the year with $40,000 in large caps, $30,000 in mid caps, and $30,000 in small cap stocks. Your asset allocation weights are now off. You have a 40%, 30%, and 30% split instead of your target split of 50%, 30%, and 20%. So, selling your winners and buying your “losers” will help rebalance your portfolio and put you back on track with your correct allocation percentages. It also reinforces the investing principle of buying low and selling high.

But, when should you rebalance? A lot of people like to rebalance right after the first of the New Year. A lot of mutual funds rebalance right as they are closing their books before the financial year ends.  I personally like to rebalance my portfolio on my birthday in hopes of remembering to actually do it, but as I have said before, I am notoriously bad about remembering to rebalance. What about you? When do you rebalance? How do you remember?

Related posts:

1. Buy Individual Stocks With Only a Small Percentage of Your Investment Portfolio I love buying individual stocks.  I am definitely a financial...
2. Invest In Stocks Instead of Bonds and US Treasuries For Better Rates of Return I am not a big fan of bonds and bond...
3. Infamous Investment Scams and How to Protect Yourself From Them In today’s financial crisis, stock market scams are alive and...

I usually do not talk too much about the specifics about my personal life, but I wanted to take just a minute to thank everyone for their support and patience while I was helping out with earthquake relief in Port-au-Prince, Haiti. To say that it was a moving experience spending these last six weeks down there is an understatement. The amount of devastation just cannot be put into adequate words.

Looking at the rubble in the Caribbean capital made me think about a few things with respect to money and emergency funds. And, I also thought about what we can and should do to prepare as best as possible for the worst case scenario in our lives.

Cash Is King. How much cash do you have incase a disaster happens? What if a working ATM were not readily available? What if there were no power for days at a time? When I was growing up in Charleston, South Carolina, we went without running water and power for almost two weeks in September 1989 after Hurricane Hugo hit the city. Anyone who has been to a third world country or a Caribbean island knows that cash is about the only currency in operation. Many people in that area of the world do not use and recognize the power of credit cards. Cash is king, and you will need some of it to operate with immediately afterwards should a disaster strike.

Emergency Funds Are Very Important. According to a study from Principal Financial Group, 56% of American workers have an emergency fund set up in help them when times are tough. Almost 30% of them also say that their emergency funds could cover more than six months of living expenses, should they need it. Many of us consider an emergency fund if we get laid off or hit with a big, unexpected expense, but do an actual emergency is a prime reason to have an account that bares its name.

Inflation & Capitalism Are Alive and Well. A 20 oz. Coca-Cola cost the equivalent of 75 cents before and immediately following the earthquake. By the time that I left the country on the 25^th of February, a soda was double that price. Surveys conducted by several Non-governmental Organizations (NGOs) suggested that the price of commodities such as rice skyrocketed immediately after the earthquake in Haiti, but eventually the prices stabilized and returned to a level of only 20% to 30% higher than pre-earthquake levels. Capitalism was also alive and well in Port-au-Prince. Many enterprising Haitians have found out that they can support themselves and their families very well by selling good to the thousands of Americans who have flooded into the tiny country to help. There is definitely a stimulus of American greenbacks floating around the capital.

The disasters in Haiti and now the recent earthquake in Chile are two huge wakeup calls to look at our own situation. Hurricane Katrina was no different either. Would you be ready if a disaster struck you in your hometown? Do you have enough cash and supplies ready incase of an emergency?

Related posts:

1. Some Ideas of How To Help And Donate To Haiti Earthquake Victims Just like Hurricane Katrina, there is an outpouring of donations...
2. Weekly Round Up: Great Personal Finance Blog Postings Here are some of my favorite personal finance blog postings...
3. Kiplinger’s Personal Finance Lists Over 50 Simple Ways to Save $18,250 a Year In the new issue of Kiplinger’s Personal Finance Magazine that...

As of today, I’m enjoying a 15.4% annualized return on twenty different loans with Lending Club.  Lending Club is an awesome peer to peer lending investment website where you can lend money without a bank straight to individuals who need it the most.  The beauty of the service for investors is that you can earn a great interest rate on your investments.

For those of you who are not familiar with Lending Club, there are usually about 180 loans on the website at any given time waiting for lenders like you and me to come along and fund them.  And, you can search through them all by several criteria. 

Check out my review of Peer-to-Peer Lending, what it is, and how to get started.

My portfolio of loans primarily contains a mix of Grade C, D, and Grade E loans.  I do not waste my time with conservative A or B class loans which do not pay very much interest.  One of the most important things is picking out which loans to invest in.  Here are some of my lending criteria that I use when choosing loans with great returns.  While savings accounts, money market funds, and certificates of deposit are paying minuscule rates of return, I continue to be quite happy with my Lending Club experience and the excellent return that I have been earning.

Related posts:

1. My January 2010 Lending Club Performance Update – Earning a 15.4% Annual Rate of Return As of today, I’m enjoying a 15.41% annualized return on...
2. My December 2009 Lending Club Performance Update – Earning a 15% Annual Rate of Return As of today, I’m enjoying a 15.33% annualized return on...
3. My August Lending Club Performance Update – Earning a 15% Annual Rate of Return As of today, I’m enjoying a 14.97% annualized return on...

Many investors still rely on a stockbroker to help them invest their money in individual stocks and mutual funds. It is very important to understand how these brokers earn their income. Unlike most Certified Financial Planners (CFP) who earns a flat fee or commission based on their recommendations to their customers, stockbrokers earn a commission based on trading stocks for their clients in their accounts. Many of the clients using this legacy stock purchasing system tend to e wealthy and leave a portion of their nest eggs entrusted with the stockbroker to trade on their behalf as the broker sees fit and as often as needed.

To break it down by the numbers, many stockbrokers service one hundred or so clients with recommendations and trades. Many brokerage houses pay stock brokers around 40% of the trade commissions earned. So, doing the math and working backwards, a stockbroker who earns $100,000 per year in income from those clients needs to generate $2,500 per client in commissions alone to earn that 60% for the “house” and 40% for the broker to reach that annual figure of $100,000 income per year from 100 clients. If a firm charges $20 as a commission per trade (a low estimate for a full time brokerage house), a stockbroker needs to trade 125 times in your account per year to make his income target. That is a huge amount of turnover and jumping in and out of stocks for one person. That is definitely not a buy and hold strategy.

I am not necessarily saying that this technique of hiring a stockbroker is right or wrong for wealthy clients. But, investors need to be aware of what they are paying people that work for them. That $2,500 is coming directly out of the investor’s pocket. That’s not chump change by any stretch of the imagination. $2,500 compounded annually at 8% will net you over $500,000 over a 40 year span. That’s just a little something extra to think about when you are handing over your money to other people.

Related posts:

1. You Need To Read Annual Reports and SEC Filings When Investing In Stocks Before you invest in any company, you should know as...
2. Buy Individual Stocks With Only a Small Percentage of Your Investment Portfolio I love buying individual stocks.  I am definitely a financial...
3. How to Make Money Buying a Stock at its 52 Week High – A Short Squeeze Usually buying stock at its 52 week high is a...

Lets face it…most actively traded mutual funds are pretty much the same. There is a herd mentality. It does not pay for a mutual fund manager or the mutual fund’s parent company to stray too far from its predetermined investing style and the major index that it follows. Most large capitalization (Large Cap) mutual funds invest in the same small set of companies. Most of these companies are listed in the big indexes like the Standard and Poor’s 500 (S&P 500), etc. It is much easier to match or come close to beating an index if you and your mutual fund are quasi-indexes of it in their own right. It is safe to go with the herd in this case, and that is why so many mutual funds do it and look a lot alike.

But, there is one great indicator of mutual fund success that most people forget about. Many investors are wrapped around the axle about past performance, and they do not pay enough attention to a mutual fund’s expenses. Burton Malkiel and Charles Ellis make a great argument to buy share in mutual funds with low expenses in their new book, “The Elements of Investing”. Because many mutual funds are a lot like, you can increase the profit in your pocket by picking funds that minimize their expenses, fees, and turnover rates. A 401-k plan with a 1.5% annual expense rate can expect to earn 20% less over the course of an investing lifetime than a mutual fund with an expense ratio of just 0.5%.

The book’s authors found that there is a direct correlation between low fees and a mutual fund’s performance over a long time horizon. In their study, the fees charged and the fund’s turnover rates dragged down the rates of returns of the average mutual fund over a 15 year span. The higher the fees you pay on average, the lower your rate of return. When mutual funds look more and more alike and start to resemble more of the index they follow, a fund’s costs may be one of the deciding factors that will help you get over the top with your investing dollar.

Related posts:

1. The Top Ten Traits of a Great Mutual Fund You Should Invest In Picking a great mutual fund can be a little tricky...
2. Top Eight Characteristics of a Great Mutual Fund – Revisited For a Turbulent Stock Market and Economy Several months ago when I was just starting to blog,...
3. Protect Yourself From Style Drift In Your Mutual Funds A good mutual fund is usually one that sticks to...