Dumb Investing Ideas

Excerpts from Barry Ritholtz's Washington Post Article of July 5th.  I mainly post this to show an affirming opinion to my views and things I have seen in client accounts before they move over to me.
===================

Mutual funds held at the mutual fund company. This head-scratcher is hard to understand. For some unfathomable reason, people hold mutual funds at the underwriting company instead of at any ordinary brokerage account. Of course, these are the “A Shares,” with commissions typically approaching 5.75 percent (or higher).

This is an insane amount of money to pay for a mutual fund when you can shop around and probably find a very similar fund for 80 percent less. Or find the rough equivalent in an ETF index fund with a 0.15 percent expense ratio, and pay $8 to buy it.

It amazes me that it’s 2014 and we are still discussing A-shares.

Apparently ethics are still an optional aspect of parts of the finance industry.

===================

Tax-deferred products sold in IRAs and 401(k)s. An entire universe of investments has one purpose: to provide a return without generating a taxable event. Think municipal bonds (or municipal bond mutual funds), or insurance products such as annuities or whole life insurance.

All of these products are priced to generate an equivalent after-tax basis return. In other words, you get less in terms of yield, but on balance can come out ahead. Putting these products into tax-deferred accounts defeats their reason for existing, and instead creates an investment that is built to underperform.

I don’t know how this happens, but it does.