how does investment firms like morningstar work?
I want to get an accout at morningstar or some other online investment co. I know there's a fee, but after that, is a monthly bill and do you have to keep tabs on the market and let your rep. know if you want to buy or sell, or do they do it automatically based on the market? Thanks.
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Answer by Yada Yada Yada
Most investment firms like Morningstar, Fidelity, Vanguard, etc make their money on fees. If they have a fund with $ 10 billion in it and only charged 1% management fee, that's still $ 100 mill they would get just for that fund.
For those like Edward Jones and Morningstar who also manage your funds for a (let's call it portfolio) fee, that's another hefty fee on top of the management fee that's embedded into each of the funds that they put your money in.
So what that means is that even if they performed as well as the market (and remember over 75% of mutual funds don't even outperform the S&P), that you'd lose money on the portfolio fees. The portfolio fee you pay will vary based on how much in assets they manage. Typically, a good counselor will learn about your goals, etc before putting your money into various assets. Most will take your money and put it into x funds and basically leave them there until YOU call.
Most are not experienced investors, but hired sales people who make commissions based on the amount of business they manage.
Personally, I'd try to educate myself a little on investing and do it yourself, but it is up to you. At a minimum, use ETFs instead of mutual funds as they have much lower management fees, even IF you use an investment counselor/company.
Hope that helps!
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City Year Boston Investment Community Breakfast - 2012
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December 7, 2012
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