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Bear Market Defense

Bear Market Defense

An entrepreneur asks, “Is there anything I can do to defend myself against lower investment returns when the market slumps?”

Happily, the answer is yes. First and foremost, control what you can, and one important factor here is expenses. This is because as the stock market goes down, costs take a bigger cut out of return. For example a 1.5% expense ratio from a 10% return leaves 8.5% left for the investor. But, 1.5% from a lower return, say 7%, leaves only 5.5%. Note that the expense ratio is the same, but because of the lower return in the second example, the investor puts much less in his/her pocket. Obviously, what you pay in expenses can make a big difference in your return, and even more so when the market is down.

How to figure what you paying in expenses:

• The average managed mutual fund expense ratio is 1.3%. Money management fees for a private investment advisor or equivalent usually run 1-2% and can be higher. Index funds charge much less, about 0.20%.

• Is there a load? If you are in a managed mutual fund, did you pay a load up front or will you be paying a load at the back end if you don’t keep the fund long enough? Either of these factors increases your total monetary outlay.

• What about 12b-1, a little recognized tacked on charge? If you are in a managed mutual fund, check to see if you are paying a continuing 12b-1 expense, the purpose of which is for the fund to market their product to obtain more clients. Although the yearly charge is small, often 0.25%, when it compounds over time, the debit from your return becomes substantial.


There are sophisticated cost calculators on the web that can help with the number crunching. One is from the Financial Industry Regulatory Authority (FINRA). It offers side by side expense ratio comparisons for mutual funds and exchange traded funds (ETF’s) including the effect of loads (share class designation).

Perhaps the extra expense would be alright if it was justified by better market returns, but statistics indicate this is not the case. Only 20% of managed mutual funds outperform their relevant index in any one year, and over time the results are even poorer. Is there any reason to think that private money managers do any better?

As Warren Buffet says, “Chains of habit are too light to be felt until they are too heavy to be broken.” This applies to investors who ignore fees when the market is up, but can’t afford to ignore them when the market is down. It is the foolish investor who doesn’t pay attention to one of the few things he/she can control in any market whether it is down or up.

Adapted from Bear Market Defense published by Physician’s Financial News Live: July 9, 2008.





Bear Market Defense - To learn more about this author, visit Shirley Mueller's Website.

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With nearly two decades in the advertising and design business, with clients like Domino's Pizza, General Motors, Direct TV, Pedigree, Wolfgang Puck, Higher Octave Music, Hollywood Celebrity Products, Disney, and Paramount, as well as thousands of entrepreneurs around the world define, structure, communicate, and position their business for greater profits, BrandU(R) co-creators Kim Castle and W. Vito Montone discovered that entrepreneurs could experience the same power that big brands command for a fraction of the cost with the world's only process-based results-drive Integral approach to business creation. BrandU(R) is helping entrepreneurs grow with the power of extreme clarity from idea...to brand...to market(TM) and helping one million entrepreneurs become successful and whole so that they can make a difference in the world. Are you one of them? If you want to experience clarity all the way to the bank(TM), get started now at http://www.brandu.com. - Visit Kim Castle's Website


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Shirley Mueller
(Visit Shirley's Website) Shirley M Mueller turned every doctor's fear - inability to invest his or her hard earned money wisely - into her greatest passion. While practicing medicine, she handled seven family investment accounts. When she retired from medicine in 1995, she worked for seven years in the investment industry. Now, she writes regularly for Physician's Financial News, a money management internet publication directed at doctors. Dr. Mueller also educates, both one on one and publicly, about how to effectively self-invest using a simple and effective three-step approach. Recently she gave lectures regarding this topic at Indiana/Purdue University. Mueller specializes in client-managed investment portfolios for which she provides unbiased information. She is not associated with a firm for whom she has to promote a party line. Her fee is hourly, not a percentage of assets.

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