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Sunday, 29 October 2006

Six Things I Really Hate About PF

The six things I find most annoying in the realm of Personal Finance*:

1. Paying high fees and trailing commisions for mutual funds and insurance. The commision paid out of your first year's insurance premium is especially high (like up to 50%). And it seems that you generally can't even avoid such fees by buying "direct" from a fund or insurer.

2. That the "standard" fee structure for exotic investments such as Art Funds and Hedge Funds is 2/20 (2% MER plus 20% of any "surplus" performance, say above 6%) - since when does achieving a return of 7% justify a fee of 2.2%?

3. Mutual funds closing down when they perform badly for a few years (so that they can "bury" the bad performance figures). Often I'd like to have kept the investment open, and wait for an expected turn-around in the long-term (example: asian funds during the asian meltdown)

4. Small companies that need additional finance not giving their existing shareholders the opportunity to kick in more funds and retain ownership. eg. the company goes into administration/bankruptcy, sells out to a private investor for almost nothing, or accepts funding from a private investment company at an exhorbitant interest rate (often the interest is capitalised and eventually is paid out via a large issue of new shares to the investment company, which dilutes the existing shareholders stake tremendously).

5. Upper management costs - I've read that up to 10% of the profit of listed companies is spent on remuneration for the top 5 staff! I've nothing against reasonable payments, but there're too many examples of CEOs getting paid huge sums for mediocre performance, and then getting massive "golden handshakes" to terminate their contract "early". And don't get me started on payment of performance bonuses when a company is doing badly.

6. That 90% of what you read and see in the media about money and investments is absolute gibberish - and 90% of the audience has no idea.

* I haven't counted annoying things that were my own stupid fault, or just bad luck, such as investing in a stock that has lost money.

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