Investment Newsletters: Outsourcing Fund Managers

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Last week I asked whether investment newsletters were worth it (the jury is still out), but when I talked to some people about it yesterday (the same co-worker), I had a revelation. When you sign up for an investment newsletter, what you’re actually doing is outsourcing the job of manager for your personal retirement or investment fund.

If it’s only $199 for the subscription to the Motley Fool’s Hidden Gem newsletter and you’re planning on putting $10,000 into it, you’re looking at an actively managed fund with a minimum expense ratio of 1.99%. Once you start adding in your own trading expenses, that numbers gets bigger, but essentially that’s your expense ratio (especially if you start trading with Zecco, thus taking out the buying and selling fees) if you want to compare it to some actively managed funds.

While it won’t compare to the low low expense ratios of an index fund but remember that you’re not really comparing your newsletter fund with an index fund, you’re (well, the newsletter is) actively managing its holdings.

{ 5 comments, please add your thoughts now! }

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5 Responses to “Investment Newsletters: Outsourcing Fund Managers”

  1. broknowrchlatr says:

    Here is another look at that. When you look at a fund, the fund managers are usually making a lot of money but they are held to results. With a newsletter, they are not making as much and they get a lower, but steady income.

    So, you are paying an expense for what will more likely be substandard performance.

    A good fund manager makes decisions to sell and buy something else or hold. A newsletter has to print something, so they are essentially telling you to rebalance every time.

    When it comes to stocks I have no idea what I am doing [and most people would say the same if being honest with themselves]. So, taking well managed funds with a strong history is the way to go for me.

  2. alex says:

    You would think that at such high prices, there would be a side market going for fund newsletters.

    I know that my reservation price for such a newsletter would be far lower than the $199 membership fee.

  3. Steve says:

    Another plus is that if you do your homework you can earn a much higher return with a quality newsletter than with funds. Mainly because you have a lot more possible investment opportunities since on a relative basis you have a lot less to invest and therefore don’t face the constraints a mutual fund with a large amount of assets under management faces.

  4. Zook says:

    I have always been curious as to using a newsletter to actively trade. Do they simply TELL you to sell SBUX on July 1 and get into JNJ on July 6? How do they work?

    And I have always wondered what the REAL rate of return is for folks with say….$10K. You buy a newsletter for $200, you trade with Scottrade [for the sake of discussion, forget Zecco] and pay say $10 commissions. You pay to have your taxes done at the end of the year to figure out your gains. Do they tell you what to start with at the end of every year so everyone is on the same page? If you join in July with $10,000 dollars, do you immediately put your money to work, or do they have you start slowly? How long does it take to become fully vested and the question of all time……….After you chose NOT to renew the newsletter, THEN WHAT?

    I am not saying its 100% a bad idea, but to be in and out of funds based on news that THOUSANDS if not more are getting just seems odd to me. They do work for some though.

  5. Willard Van Haitsma, Jr. says:

    You can get a lot of different ideas from these letters. Also most of them not all have a money back feature if not satisfied. You could use this kind of like credit card arbatrige. Sign up and then cancell before the deadline. I have found some good ideas there but be carefull. Also you can fallow your own agenda not some money managers.

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