Jon: “Thanks for the pointer to X.com. And go to Gomez.com and click on banks to see all of the free money available. You can get $100 from USABancshares.com, just by opening and keeping at least $100 in an account for 90 days. They also have $50 offers from other banks, with similar balance and time requirements.

Kirk Peterson: “As a novice investor just starting to build a portfolio, I have found your mutual fund cost calculator to be an extremely useful tool. However, I am a little puzzled by how much weight to give a more favorable ranking (like Morningstar) versus the higher costs of a mutual fund. For example, if a 104-lb. jockey is racing against a 95-lb. jockey, but the 104-lb jockey is the odds-on favorite (five stars vs. four stars), how should I factor in that information?

“I have always been somewhat baffled by sports analogies, so that might have been my problem. But an alternative analogy didn’t resolve it for me either. I decided to think of your cost calculator analogy not in terms of horse racing, but in terms of drag queens racing to the Saks cosmetics counter during the annual end-of-year sale. But while the 98-lb. drag queen may seem to stand a better chance at making it to the good stuff ahead of the one weighing 325-lb., the latter still might be the more favorable contestant. For example, even though she may not be quite as light on her feet, she may be able to use her girth and weight to knock her competition out of the way in order to get to Lancôme first. Or she could get to the counter after the smaller queen but lure sales associates away not only with the potential for a much larger sale but with her much more fabulous appearance. Am I making this more complicated than it should be?”

Possibly. As between a mutual fund with annual expenses and various handicaps of 1.04% (a 104-pound jockey) and another at .95% (95 pounds), I’d say — who cares? In this case, the difference is slight. And the same is true of Morningstar “stars,” which even Morningstar suggests are not all that predictive. If you’re looking for mutual funds, I would ordinary make it very simple. Namely, find a family of low-cost index funds and allocate your money over their offerings, both here and abroad, in some way that strikes you as sensible and easy to sleep with. When it comes to investing, weighty expenses and taxes will never improve your chances to get to the Lancôme counter ahead of the pack.

Tomorrow: What Every Beneficiary Should Know About Her Dad’s IRA (and the case for naming a charity as the beneficiary, or else converting to a Roth IRA)

 

 

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