Turnover is the frequency of the buying and selling rate within mutual funds and individual stocks. Every time there is a transaction inside your mutual fund, costs are incurred—whether you have approved the sales and purchases or not. Active money managers who buy and sell frequently within mutual funds create higher costs for investors than money managers who buy and rebalance, like the Free Market Funds, which have a turnover rate of zero to twenty percent.
Otto and Grace are missionaries in a foreign country and have a retirement plan through their church—a large worldwide organization with many missionaries and staff. An investment analysis on the church’s retirement plan revealed it as one of the worst actively traded investments we have ever analyzed! It had high turnover, high risks, high costs, and gave the missionaries high stress.
The annual turnover rate of one of the mutual funds within the annuity was a disastrous 1,178%. That means their money manager bought and sold all of their mutual fund’s holdings more than eleven times in one year, and seventy-eight percent were bought and sold twelve times. Their investment’s costs could be into the double digits. These costs are paid to the investment company before the investor receives any appreciation.
If companies are unaware of the truths about what they are offering their employees, they must seek clarity and knowledge, and change their behaviors. The nonprofit and corporate world needs help understanding that there is an alternative stress-free way to invest. Excessive trading and costs are difficult to justify, as they rob you of your returns. Mutual fund money managers need to be held accountable for these abusive costs, committed at the investors’ expense.
It is important that you know your mutual funds’ turnover rates. High rates create excessive costs. Always ask your advisor about the turnover rates of your mutual funds, or look them up at www.finance.yahoo.com/funds.
Written by: Maria J. Wordhouse Kuitula and Phyllis J. Veltman Wordhouse, free market wealth and stewardship coaches, co-authored the book Stress-Free Investing, available at Amazon.com. Maria is the president of Wordhouse Wealth Coaching and may be reached at 616-460-6518 or [email protected]. For QUESTION LISTS and INVESTOR EDUCATION VIDEOS, go to www.WordhouseWealthCoaching.com. © Wordhouse Kuitula 2013.
