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titan22

Load vs. No Load Mutual Funds

By definition "load" funds have a sales charge of some type and "no-load" funds have no sales charge. However, the actual distinction of so-called no-load vs. load funds is blurred because of the variety of fees and expenses in various funds. Frequently, so-called no loads have significant total expenses. Also, the load on funds decreases dramatically with break points. Break points are a decreased fee for a larger investment. The more you invest the less you are charged. Often No load fees do not come with an advisor. You are left to make your own selections with no help from anybody.

Each mutual fund must include in its prospectus a table that shows "shareholder transaction expenses" and "fund operating expenses" allocated to the shareholder. This table also includes a section that shows the amount of total expenses that a shareholder would incur on a $1,000 investment, assuming

1. a 5% annual return, and
2. redemption at the end of the period for 1-, 5- & 10-year periods.

This table does help make expense comparisons from one fund to another. However, the tables reflect only the maximum sales charge for the smallest investor and assume only a 5% return. A different set of assumptions could result in substantially different figures

Why Pay a Sales Load? Well, it comes down to simple math and compounding interest. All the funds have an annual management fee. No load funds have a lot higher annual fee, sometimes up to 3% fee. Loaded funds are usually in the area of 1%. Imagine the difference this will make on a long term investment. We will use an example below of how this fee is applied and used. For our example we will do a one time investment of $500,000 over a 20 year period. Below is a comparison of load vs. no load funds.

Investment Load Annual Fee Term Return Total Asset
$500,000---$7,500---1.15%---20 yrs.---10%---$2,649,379
$500,000------0------2.65%--20 yrs.---10%---$2,034,816

In the end that 1.5% difference in management fees is huge. It relates to a difference in $636,896. Now, not all of us have that much to invest right away. But many people who have a 401(k) to rollover do have large amounts of money to invest.

There are also other benefits of loaded funds. You will have a registered and licensed investment advisor that adds to the value. The investment advisor can help you with:

* Determine investment objectives
* Select the products, allocation, and "packaging"
* Stay the course even when volatility makes the client uneasy

There are several benefits to both load and no-load mutual funds. These are just the basics. Feel free to ask more questions about the options associated with mutual fund and retirement investing.

titan22

2 years later I look back and wonder if I was trying to sell loaded funds.

Basically it all comes down to personal preference. There are a lot of ways to get cheap mutual funds out there on the open market. you can get a million funds through an online discount broker. Your options will be great and more diverse, but you will have less help from a specialist. If you want to do the research and learn about what your money is doing, it is a great way to go.

I work for a full service brokerage right now and can't use an outside firm. I have been investing long enough and have the training to know what to look for in a mutual fund and retirement plan. If you want hands off, you are very likely going to be paying an up front fee for the convenience of having a trained investment professional help you. If you want to take the time and learn, then I would highly recommend using an online broker.