Four Reasons Why Personal Finance Experts Should Troll Banks And Mutual Funds

1) MUTUAL FUNDS IN THE PHILIPPINES TEND TO OVERCHARGE YOU.

The fund needs to profit at the expense of charging you. We call it the Management Fee. Management Fee is the percentage of the total amount of investment per year. For example, a particular mutual fund charges a management fee of 1%. If you have Php10,000, Php100 will be deducted every year. The problem with management fees in the Philippines is that inordinately expensive. In the US for the actively-managed fund, the management fees are 0.5% to 1%. While in the Philippines, the management fees range from 1% to 2%. In fact, some companies charge 2.5%. In US the average price of the index fund is 0.2% while the cheapest price of the index fund in the Philippines is 0.5%. The rate in the Philippines is horrible. The index funds in the US invest 500 stocks to 3,000 stocks and charge 0.4% only. While in the Philippines only invest 30 stocks and charges 0.5%. This rate is important because it drags on the growth of your money. For example, in a year the annual stock increase is 4%, the bank gets 2% and you get only 2% profit per year. Your profits will automatically half into two. Very few financial advisers point out the fact that consumers are being overcharged. Financial advisers must do something and troll the particular banks.

2) FANTASY OF MUTUAL FUNDS THAT FUND MANAGERS CAN BEAT THE MARKET.

Mutual funds are expensive because they are actively-managed funds. The problem of the index is Index Funds beats actively-managed funds in the long run. There was a study that showed that over a 15-year period only 8% of actively-managed funds beat index funds. The same thing happened here in the Philippines. There are other studies that statistically zero chance of beating the index in 20 years. Even Warren Buffet, people tags as the great investor, admitted to himself that he cannot beat the index. Now if Warren Buffet cannot beat the index what makes you think a Filipino fund manager can? The problem with our own financial advisers is that very few of them tell you this information and very few of them troll the bank. They should tell the banks to stop offering expensive actively-managed funds that apparently drained our savings. The cheapest index fund in the Philippines is run by the First Metro Pacific Exchange Traded Fund which charges 0.5% but it still a highway robbery.

3) MUTUAL FUNDS MAKE IT DIFFICULT TO FIND OUT THEIR FEES.

When you invest in funds there is a prospectus showing the performance and investment. You must ask this question: How much is the cost? Some prospectus hides or intentionally not include the amount of cost. And sometimes it is there but in the fine print. AXA Fund management is the best example of this.

4) THEY RARELY TELL YOUR BEST INVESTMENT OPTION FOR RETIREMENT. Your best primary best option lies in the government such as SSS or GSIS and PERF. The Personal Equity Retirement Fund (PERF) which is launched by BSP (Banko Sentral ng Pilipinas). The PERF allows you to invest in the stock market like mutual funds and allows you to do in tax-free. The problem with PERF is that currently, only 2 banks administer it, the BPI and BDO.