See breakpoints. When brokers sell mutual funds, they charge different commissions based on how much you buy. For example, on a $25,000 sale and your commission might be 4%, but the commission rate on a sale of $100,000 might be 2%.
A "breakpoint sale" means brokers sell mutual funds at a dollar amount just under the breakpoint to earn a larger commission. So they might sell at $99,800 to help avoid that $100,000 breakpoint that would mean the lower 2% commission.
P.S. It's illegal.
Related or Semi-related Video
Finance: What are Different Types of Mut...20 Views
finance. a la shmoop. what are the different types of mutual funds? alright
well first of all if you haven't watched our video on mutual funds already, well
go ahead and do that first. it was directed by Steven Spielberg and we need [mutual funds video link]
to amortize the million bucks we spent on it to hire him. is he really doing
sharknado seven now? anyway mutual funds. there are actually more of them than
there are individual stocks. and like hairstyles mutual funds are available in
a wide variety of options. why? because investors want to buy slices
and dices and combinations of stocks and bonds to fit a ludicrously large and
complex set of needs. and with the handy dandy help of computers slicing and
dicing is really easy today. there are really two categories of mutual funds.
bond funds and equity funds. and lots of them are combined as well ,like half
bonds half stocks you know the Centaurs of the finance world.
well those funds live at either end of the short term risk spectrum like here [stock spliced with bond]
and here. the short term riskiest funds are high gross mall cap companies often
technology-related little engines who could who pay no dividend and trade at
high price to earnings ratios. the least risky are short term bond funds which
live way over here like a dead body in a lake tied to a cinder block. they don't
go up much. most mutual funds live somewhere here in the middle of the pure
stock only or pure bond only ends. so what's a standard mix of stocks and
bonds in a mixed or balanced fund? well maybe 50 50 75 25 90 10 something like
that .there is no standard. so let's start with some extremes. bond funds are
shockingly just a collection of bonds. boring. they pay a bunch of interest they
come due in a wide range of eras or durations like six months in the future
to 30 years in the future to even a hundred years in the future. yep Disney
has a bunch of century bonds they famously launched along with Nicky
announcing that he was getting a bellybutton ring. note that bonds carry
many different dials that get turned from interest rates to call provisions
like how soon the bond which is in theory a 30-year bond could be called
back by the issuer if rates get cheaper in its future you know stuff like that.
well as far as dials go a duration is another
one of them. like how long until the bond comes due .well short-term bond funds
tend to be extremely safe and short in term and generally carry bonds which
come due within a year or less. and some bond funds with super short durations
like less than 90 days are for the most part considered extremely safe. and the [least risky bonds on a graph]
industry buzzword here is money market fund. and yes it's like there is a market
for money. some bond funds are able to take on a lot of risk or at least
relatively more risk than other bond funds. but generally speaking the
riskiest of the bond mutual funds is meaningfully less risky than a very
conservative safeish all equity mutual fund. and one key thing to think about
when you think of risk here there's risk of losing your money of course. debts
that are due tomorrow are relatively safe when compared with debts due 30
years from now. a lot can happen in 10,000 plus days. if you invest in a
risky equity take a stock it's not like one in a million odds it goes bankrupt.
risky equities go bankrupt all the time. but bonds yeah it really is more like [short term and long term debts compared]
one in a million kind of odds that they go fully bankrupt. if you invest in the
safest of bond funds like government bond funds which only keep Treasury
bills and notes and other forms of what they call government paper you know
things backed by The Full Faith and Credit of the US government to tax it's
hard working money earning taxpaying citizens, well you suffer what is called
inflation risk. if you only invest in super safe stuff and compound at 2% a
year when you could have taken some risk in a blend of bonds and stocks while the
risk is that your investment performance underperforms the rate of inflation we
all live under. that is if you're banking on your bank savings account and 2% or
something like that working for you when you're old, you'll never get to your
financial promised land. inflation will make your retirement savings nut worth [man complains that he may apply at McDonalds]
less and less. if you only made like 2% a year for all that time inflation might
have been 3% a year and you actually lost wealth or buying power relative to
what everything actually costs. let's jump to the perspective of taking equity
risk in just buying an all equity no bond index or mutual fund that
basically tracks the performance of the overall stock market think the S&P 500.
over long periods of time like decades the overall stock market has
historically compounded at about 10 percent a year with dividends reinvested.
but it's a hugely volatile Beast. some years the markets up 20 percent other
years it's down 10, but over time it goes up Lots. if you held only cash in a
savings account you'd be very safe but only get a 2% return over time. you'd
have paid a huge price for that safety. how much? well in fact we give up 8% a [year to year returns on a list]
year in compounding and after 27 years of saving well you end up with 1/6 the
amount you'd have saved had you taken that 8% a year extra risk. remember the
rule of 72? you divide the interest rate you're getting into 72 and that's the
number of years it takes to double. so 8 into 72 is 9 it means that in 27 years
you double your nut 3 times. got it? so equity risk is not a bad thing over time
there was a time and a place and generally speaking if you have lots and
lots of time to compound your investment well historically the stock market is a
great place to be. alright moving fully onto equities now the short-term
riskiest equity funds are generally those which invest in growth. that is
they invest in companies which generally don't pay a dividend, so there's no
cushion as to how low the stock can go if they hit a speed bump in their growth [ high risk stock companies explained]
trajectory. a given stock trading on hopes and dreams and momentum of the
promise of curing cancer can be trading at $200 a share one day only to discover
in the next day's FDA trial results that well it's only succeeding in growing
hair on the knuckles of Norwegian women. and while the next print of the stock is
closer to 10 bucks a share, so you can lose your shirt quickly on any one stock
so when you think about investing with risk spread among many long-term bets
you think about the diversity and range of investments you make when it comes to
risky stocks as being leans into growth the areas in the future of the world. so
the would be cancer curing knuckle hair growing stock is just one stock and a
big fat basket of growth stocks in a mutual fund. so don't let the fall of
just one stock and a bath of hundreds terrify you too much. and
note that we've made a big deal of short-term risk here instead of just
risk. why? because over time investing in growth stocks has been a really good
thing in America. the S&P 500 is growthie. let us gaze lovingly at what nine to ten [men do business, exchanging money]
percent of your compound growth looks like over a hundred ish years.
if you extracted the non dividend paying portion of it the growth year portion of
the S&P 500 has grown it's somewhere between twelve and fifteen percent a
year for a very long time. compare that with a median bond fund growth scenario
of four to six percent. huge gaps over time in varied investment turns yes, most
investors don't marry entirely one flavor of investment, they like to spread
the wealth between bonds and stock. almost literally. so how do you decide
between bonds and stocks? well generally speaking old people tend to lean more
toward bonds because they can't take much more risk. and young people toward
equities. yeah why well time. if you're on the way out the door, so to speak you
don't want to do anything too risky you just want to play it safe and keep a
roof over your head in your twilight years. if you're young well you've got
the luxury of taking big risks failing starting over again if need be so you [young man crashes and burns on a bicycle]
can more safely invest in equities because over time, well growth will bail
you out of mistakes. you make when you're young and in the scheme of things
investing in equities is not even in the top hundred riskiest things you'll do
when you're young. [list of risky things gets checked off]
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