Benefits of Mutual Funds
Professional Money Management
Economies of Scale
Load vs. No-load
A front-load fund charges an upfront commission, while a no-load fund does not. A back-end load is only charged on amounts withdrawn (subject to conditions of the fund and length of ownership).
An expense ratio is the annual fee charged to manage the mutual fund. Often times the annual expense ratio of a load fund is less than that of their no-load counterparts. Although these fees are fully disclosed in the funds prospectus, they often times go unnoticed because they are deducted from the funds performance each and every year. To complicate matters even further, most fund families have introduce C shares which are considered level loads, in order to offer a similar pricing structure as the no-load families.
It is our strong opinion that it is much more important to consider the cost of owning a fund over time than the cost to purchase the fund initially.
In all the above mentioned text we have discussed fees only and have not even considered performance. The cost to own a fund should be reasonable, but should be only one of the factors used when considering an investment.
Active vs. Passive Management
Active management attempts, through research and available market data, to purchase quality holdings and avoid the biggest losers. The goals of actively managed funds may be to outperform the market, have solid performance with less risk, or both. They rely on quality managers, analysts, and research to accomplish these goals.
At WWK, we are strong proponents of active management and are dedicated to researching and monitoring the funds that we believe have the best chance to accomplish the goals of strong performance and risk management. We do this through our Investment Selection Process.
A variable annuity is a long-term financial vehicle designed for retirement purposes. In essence, a variable annuity is a contractual agreement in which payment(s) is/are made to an insurance company, which agrees to pay out an income or a lump sum amount at a later date.
Investments in variable annuities are placed into subaccounts which are similar in many ways to mutual funds (i.e. the returns are variable). Although they are both professionally managed investment accounts, shareholders of a variable annuity purchase units instead of shares. Investments in variable annuities will fluctuate and values upon redemption may be less than the original amount invested.
One of the most important features of a variable annuity is the ability to defer taxes on the growth or earnings of your investment. These contracts are typically used with non-qualified money. This benefit was more beneficial under the tax laws prior to the enactment of the Economic Growth Tax Reconciliation Relief Act (EGTRRA) which lowered the taxes on long-term dividends and capital gains. If these tax breaks are repealed, variable annuities may again become a more attractive tax shelter.
Because variable annuities are offered by insurance companies most contracts offer some form of guaranteed death benefit. These benefits provide a minimum payout for the heirs of the variable annuity contract. Bear in mind that the guarantee to make such payment is based upon the claims-paying ability of the issuing insurance company and that variable annuities are not guaranteed by FDIC or any other government agency and are not deposits or other obligations of, or guaranteed or endorsed by any bank or savings association.
Recently, there have been a number of changes in the rules surrounding pension plans and the liabilities they can have on a company. As a result, many companies have eliminated their plans. This has increased the demand for the “living benefits” offered through variable annuities. Due to the many different features that variable annuities offer, it is imperative to understand ALL of the costs and limitations associated with your variable annuity contract. There are contract limitations, fees, and charges associated with variable annuities, which include, but are not limited to: mortality and expense risk charges, sales and surrender charges, administrative fees, and charges for optional benefits. Early withdrawals may be subject to surrender charges, and taxed as ordinary income and, in addition, if taken prior to age 59 1/2 an additional 10% federal income tax penalty may apply. Withdrawals reduce annuity contract benefits and values. Costs and contract flexibility vary widely from one insurance company to another!