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Subject:  Loaded Funds, IRA Date:  2/19/2011  10:38 PM
Author:  HELJinCT Number:  68490 of 75384

Hello all.

Turning to you once again. I work for investment companies, but I am a technology expert, not an investor. For years I had my 401k on cruise control. Essentially it was in a 401k account that had Fidelity mutual funds within, and I simply spread out my allocation across the 12 or so funds they offers. At 36, I was mostly equity, split between various strategies, with some fixed income as well.

Now, as I am with a new employer with a new 401k account started up, I am rolling my 401k into an IRA with Merrill Lynch. The check has already been cut from my former 401k account and is en route to the new Merrill account. The financial advisor came via recommendation of other co-workers who use him (also not investment experts, but technology experts like myself).

So my new ML advisor sent me a package today of his proposal for my investment plan. So I began skimming through, and I am as green as it gets on this stuff, but my warning lights are going off.

He has me split out between about 8 different funds, and each one seems to have management fees and a load, and deferred fees for leaving within a year, and so on and so forth.

I had been thinking that my money would be mostly in no load generic mutual funds, since I thought those were good enough without the management fees? Another fund in the list seems to only have 3 and 6 month performance numbers, and nothing else. Does this mean it's a brand new fund, am I a guinea pig here?

The thing is, I realize I am out-gunned in any conversations I may have with this guy, as this is his domain and not mine. He's going to have great arguments as to why his strategy is my best bet. Also, if I try to choose my own adventure, I could really muck it up. I had been hoping for an advisor that was really going to help ME out and not just his own pockets, but I never really thought that could happen (only way to get that kind of service is if your friend is an experienced advisor and helps you plan for free).

Here are some funds and numbers:

Loomis Sayles Strategic Income Fund
Mgmt: 0.606
Rule 12b-1: 1.000
Other: 0.106
Total: 1.713

PIMCO Unconstrained Bond Fund
Mgmt: 1.050
Rule 12b-1: 1.000
Other: 0.002
Total: 2.052

Ivy Funds: Ivy Asset Strategy New Opportunities Fund
Mgmt: Couldn't find a reference?
Rule 12b-1: Couldn't find a reference?
Total: Couldn't find a reference?
Fund Inception: Appears to be May 2010
Manager: Jonas Krumplys
1 yr return: N/A
6 month returns: 23%
3 month returns: flat
Yr to date: -2.5%
Redemption Fees on sells/exchanges: yes
Held less than 5 days: 2%

Federated Equity Funds: market Opportunities Fund
Total Fees: 2.6%
Average Return (flat or negative over last 5 years, last strong year was 2003??? Portfolio seems to be largely cash?)

Prudential Jennison Natural Resources Fund
Total Fees: 1.898
Now looking at the returns on this fund, it seems like they are regularly strong. They lost big in 2008 ( -53% ), but they were up 71% in 2009, and up 45% in 2007. They seem to have been up between 19% and 71% every year since 2002 except for the loss in 2008, their only year below +19%. The numbers read like a successful hedge fund. 10 yr return is 426%. thoughts?

In conclusion, these funds are all over the place, and I really know very little about them. I do see that they all have annual fees in the 1.5 - 2.5% range. Is that normal? My gut tells me that its steep.

I think there is a load up front, in addition to an annual mgmt fee and such. This up front load of 1% would be a few thousand off the top. Is that unreasonable? Do I have to worry about the compounding effect of these fees year over year, or is it as simple as saying "fund makes 10%, I pay 1%, so net is 9%?)

Thanks, sorry for being all over the place. I'm in a strange place as I calculate numbers on credit default swaps and equity swaps through code all day for a living for hedge funds, yet fail to have a complete understanding of how my own retirement should work and what to watch out for when it comes to financial advisors like this guy.
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