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Category: Wall Street/Investing

ETFs vs. Funds: How to Choose What's Best for You

posted by Jeff Brown, Personal Finance Blogger at 8:14 AM on 11/05/09

Jeff BrownCharles Schwab, the discount brokerage, made a bit of news this week by offering eight new exchange-traded funds, or ETFs. That wasn't such a big deal in itself, since the ETF business is booming with new offerings from just about every mutual fund firm and brokerage. But Schwab has upped the ante by allowing its customers to trade the house-brand ETFs for free - without paying the $12.95 brokerage commission for trading other types of stocks.

Now that's interesting. Commissions have been one of the few drawbacks to ETFs, because they can chew up accounts of investors who want to add modest sums frequently. That $12.95 is 6.5 percent of a $200 purchase, for example. You wouldn't want to pay that every month. With an ordinary mutual fund, as opposed to an ETF, you can buy and sell with no fee if you deal directly with the fund company.

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Mutual Fund Fees: How to Pay 30 Percent and Never Know It

posted by Jeff Brown, Personal Finance Blogger at 1:16 PM on 11/03/09

Jeff BrownYou don't mind paying 1 or 2 percent in annual mutual fund fees? Okay, how would you feel about 10, 15 or 20 percent? Maybe even 30 percent?

Numbers like that would get most investors' attention - if they were real. In fact, they are. I'll get back to that in a moment.

What brings this up is news of a U.S. Supreme Court case involving investors' complaints about high fees. They are unhappy that the Oakmark family of mutual funds charges individuals twice what it does institutions like insurance companies and pension funds.

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Jones v Harris and Your Mutual Fund Fees

posted by Darren Gersh, Washington Bureau Chief at 3:31 PM on 11/02/09

Power Town
For the last couple of weeks, we've been having a huge national debate over what to pay people.

Ken Feinberg, the Treasury's Special Master, has weighed in on bailed -out banks. The Federal Reserve is getting into the act, asking banks to explain the relation between pay practices and risk.

Today it was the Supreme Court's turn to dip a toe into the national discussion.

The case at hand is Jones v Harris Associates. Jones and two other plaintiffs are individual investors. Harris Associates is the sponsor of the Oakmark Funds and the investment adviser, a common feature of the mutual fund industry. To manage the conflict of interest between the adviser and the fund it operates, the law requires compensation be set by an independent board of trustees representing the fund.

The shareholders in this case argue Harris' fees are excessive because they are twice as high as those charged to institutions for virtually identical advice. Harris -- and the mutual fund industry -- argue the advice and services are very different, justifying the higher fees.

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The 401(k): Don't Believe the Hype

posted by Jeff Brown, Personal Finance Blogger at 10:51 AM on 10/29/09

Jeff BrownIf someone made me America's personal-finance dictator, I'd scrap the 401(k). These workplace retirement plans are inequitable, as some companies offer good ones, some bad ones and others none at all. Fees are often too high. And even the better plans often don't provide enough investment options.

Instead, I'd like to see the Roth IRA opened up to allow 401(k)-sized contributions - $16,500 a year instead of $5,000. (Or $22,000 and $6,000 for people 50 and over.) And I'd like to see the Roth's income limits lifted, so anyone could have one.

Roth's don't offer tax deductions on contributions, as 401(k)s do, but Roth withdrawals are tax free, while money taken out of 401(k)s is taxed as income, at rates as high as 35 percent. Most importantly, with a Roth you can invest in just about anything you want, not just a set of funds picked by the boss.

But since I'm not running things, the best I can do is suggest ways to make the traditional 401(k) work best.

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Despite Bad Decade, Stocks Still the Best for the Long Term

posted by Jeff Brown, Personal Finance Blogger at 12:38 PM on 10/27/09

Jeff BrownLife, as we all know, is unfair. You can shun cigarettes all your life and still get cancer, while your chain-smoking uncle lives to 100.

It's the same with investing. What's one to say to the stock-market investor who did everything right - diversified, used indexed funds, stuck with it for the long term - and got hammered anyway?

A disturbing story in The New York Times, relying on research by Morningstar Inc, the market-data firm, points out that people who invested in a Standard & Poor's index fund 10 years ago have lost money, while folks who bought diversified portfolios of government bonds made 8.1 percent a year. In fact, the S&P 500 has underperformed long-term government and corporate bond categories over the past 20 years, largely because stocks did so poorly over the past 10.

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Light at the End of the Earnings Tunnel?

posted by Suzanne Pratt, Senior Correspondent at 6:36 PM on 10/26/09

Suzanne PrattAfter a very long earnings recession (defined as consecutive quarters of declining/negative earnings growth), there is finally an end in sight. So far Q3 results, while still negative, look decidedly better. While market pros are happy about the improved profits, they are mostly jazzed that the numbers are beating expectations. This is one of those funny inside Wall Street nuances. Its not so important what the company earned as it is what everyone thinks it will earn. In other words it's all about "expectations." In Q3 companies are surpassing those expectations....and in some cases by a lot.

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The "Too Big To Fail" Saga Continues

posted by Stephanie Dhue, Correspondent at 5:48 PM on 10/26/09

Stephanie DueNot too long ago, few people worried about financial firms being "too big to fail," but with hundreds of billions of taxpayer dollars going to bail out Wall Street, that's changed.

House Financial Services Committee Chairman Barney Frank (D-Mass.) is working with Treasury officials on a new proposal to give the government more authority to take over troubled financial firms. The proposal is still being worked on, but what we know so far is that it would give the government powers to seize troubled financial firms, throw out their management, change terms of existing loans and wipe out shareholder stakes.

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Year-End Fund Investing: Hold Off to Avoid a Tax Sting

posted by Jeff Brown, Personal Finance Blogger at 12:56 PM on 10/22/09

Jeff BrownMy post on Tuesday dealt with selling money-losing investments by the year's end for tax reasons. It's a good idea, but doing so presents investors with a new dilemma: what to do with the proceeds?

That's easy: reinvest them - as soon as possible.

The hard part is choosing the new investment, and if you don't watch out you can get stuck with an unwelcome - but avoidable -- tax bill when you buy mutual fund shares late in the year - around now.

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Let There Be Light

posted by Scott Gurvey, New York Bureau Chief at 4:15 PM on 10/21/09

Scott Gurvey>"The Securities and Exchange Commission took a step that may halt expansion of the fastest- growing stock networks in the U.S. with rules to improve transparency in so-called dark pools."

That's the lead line in a Bloomberg newswire story today.
Bet you don't swim in dark pools yourself. Only the biggest fish get to do that. Dark pools are off-exchange platforms that investors use to avoid revealing who they are and what they are trading. All the better to execute the trade without moving the price, which trades reported on the ticker tape tend to do. But the tape is for individual investors, who believe the markets are transparent and fair. There's one born every minute.

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Tax Planning? Ugh! Hold on -- It Really Pays

posted by Jeff Brown, Personal Finance Blogger at 1:20 PM on 10/20/09

Jeff BrownToday's topic: taxes.

Hey, don't click away so fast. Taxes -- for most people -- don't have to be as mystifying as they seem. And year-end tax moves can really save you money come April. Honestly. There are just a few basic things to keep in mind.

Don't get me wrong: tax issues can be very complex for the well-to-do, and for people who own businesses. But for most people - those of us whose tax bills come from ordinary income and a few investments - tax matters play only a small role in most financial decisions. The main concern is to be sure not to pay more -- or less -- than we owe when the day of reckoning comes. For the most part, tax issues influence when you will do things you're going to do anyway, like selling a money-losing investment or billing a customer for a freelance job.

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