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TRUMP UNIVERSITY WEALTH BUILDING 101

• I prefer to use funds that take below-average risk compared with the
others in its particular fund category.
• Are the funds cheap to buy and hold?

There are some 60 categories of funds ranging from large-company value
to small-company growth to emerging markets to high-yield bonds, accord-
ing to Morningstar, the investment analysis company. Since some types of
investments are always doing better than others as conditions evolve, you need
to realize that a fund’s category will probably have more impact than any other
factor on its performance during shorter time periods. An average fund that
employs an investment style that’s currently strong—undervalued non-U.S.
stocks, say—will usually outperform an excellent fund whose holdings are
currently out of favor. Until conditions change, that is, which they always do.

Pay Attention to Fees

Low expenses stack the profi t odds in your favor. Over many years, low-cost
and high-cost mutual funds have performed roughly the same as a group. It’s
up to you to control your costs. (By the same token, low fees are no guarantee
of good performance.)
When you pay a commission or extra management fee, you needlessly
lose a chunk of your investment. Never forget that funds sold by brokers,
insurance agents, most financial planners and other salespeople always carry

some sort of extra cost, in order to compensate the person selling you the
fund. This might be an upfront charge, or load ; a redemption charge, which is
deducted from your proceeds when you sell the fund; and/or a hefty manage-
ment annual fee, some of which is used to pay the fi nancial advisor.
A good rule of thumb is to stick with no-load (sales charge) funds if you’re
comfortable making your own investment decisions, or if you rely on a
fee-only financial planner or investment advisor. Avoid redemption fees. Look

for annual expenses of under 1.5 percent for stock funds. For bond funds, low
expenses are even more important because bonds tend to return much less
than stocks over time. Stick with no-load bond funds that carry annual
expenses of well under 1 percent.

Benefits of Exchange-Traded Funds

Now let’s look at exchange-traded funds (ETFs), the most popular invest-
ment vehicle that Wall Street has introduced in recent years. There are about

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