To make more money, you can invest what you already have. If you don't know much about investing and aren't interested in studying a ton, you could consider investing in mutual funds to get your share of investing in.With mutual funds, you can get excellent variety and diversification because a whole bunch of people invest their money together. This way, the manager of the fund can buy a larger variety of stocks, bonds, and/or other investments.You can't get much simpler than mutual funds, either. It involves virtually no research aside from choosing a good fund. All the company research is done by the fund manager who is in charge of the fund.There are two things to keep in mind when looking to make the most money possible. First of all, you must get as high of a return as possible. Second of all, you must cut back on expenses, and you can do this with no load funds.With load funds, you will pay fees. You will have to pay some charge or commission to be in the fund. As I mentioned, fees are not good and the more you have, the less money you'll make.You don't have to pay any fees or charges with no load mutual funds, hence, the name 'no load'. This means more money in your pocket because you can invest the money and not give it to someone else.You may not realize how much more money you will get from this. Sure you get to keep that money, but you are also investing that money which earns more money itself. It all begins to compound and build more and more.Sometimes managers of load funds will claim that they can get you a return that is above average. Maybe they can this year but maybe next year they lose money. Historically, they don't earn any more than a basic index fund which means you should go no load and make more money.
Paying a load is akin to throwing away most or all of the supposed advantage you get from having a salesman choose a fund for you. If it's true that asset allocation accounts for 95 percent of investment results over long periods of time, then only 5 percent is left over as a reward for having the "right" fund and the "right" manager. But even if a salesman could help you pick that "right" fund, paying him a commission of 5 percent wipes out the benefit.
When you pay a 5 percent load you lose the opportunity to invest 5 percent of your money forever. When you buy a load fund, the money that goes to the salesman goes to work for him, not for you. When you invest in a no-load fund, all your money goes to work for you.
And load percentages are always higher than the quoted figures. For example in a $10,000 investment if $500 goes to the sales organization then $9,500 is invested on your behalf. Funds are allowed to call this a 5 percent commission. In fact, you invested only $9,500, and the $500 load amounts to a commission not of 5 percent but of 5.26 percent on your real investment.
Load amounts are higher than they look. The effect of your commission grows over time. If you avoided a $1,000 commission by investing in a no-load fund, over 25 years you would wind up with nearly $11,000 more if your money compounded at 10 percent. In other words, the $1,000 load would, in effect, be an $11,000 load.
The broker who chooses a fund for you may have a reason to prefer that you buy a poorer-performing fund instead of a top-performing one. Studies show that funds operated by brokerage houses (naturally, they are almost exclusively load funds) have poorer average performance than independent load funds. Yet a broker often earns exotic trips and other perks, in addition to a higher percentage of the commission, for selling house funds. So if you buy a load fund from a broker, at least insist on getting one that is not managed by that brokerage house. You'll then get more objective guidance-and hopefully better performance.
On average, load funds charge higher expenses than no-load funds. These are the expenses that all funds take out of their assets, whether their investors pay loads or not. In a study that covered thousands of funds, Morningstar found that the average load fund charges its investors significantly more than the average no-load fund. Expense ratios among equity funds averaged 1.1 percent for no-loads and 1.6 percent for load funds. Among bond funds, the average was 0.6 percent for no-load funds and 1.1 percent for load funds. Those differences may seem small. But unlike a load, a fund's expense charge hits you year after year after year. The longer you own a high-expense fund, the deeper it reaches into your pockets.
What should you do if you already have a load fund?
You shouldn't necessarily sell that fund. The reasons for avoiding load funds cease to apply once you already own one. The reason is simple: Once you pay the load, your money is gone. Getting out of the fund won't get it back. Therefore, if you are already in that position, there is no particular advantage to sell that fund just because of the load.
You shouldn't necessarily keep the fund, either. If the fund has a back-end load, that provision may give you an incentive to leave your money in that fund. Sometimes, back-end loads are structured so that the longer you leave your money in the fund, the lower the load. You should study the prospectus to find this out, or have somebody help you with it. Or call the fund and ask about your options.
Don't keep a fund just because of its back-end load. Even if you keep a back-end-load fund long enough to avoid most or all of the load, the salesperson still got paid the commission. The fund found some way to extract that money from you to cover its commission cost. This could account for some of the higher expenses that load funds levy on their shareholders. And, of course, you may be hit with annual 12b1 fees to cover marketing costs. If this is the case, then you may be paying those fees again and again, every year you own the fund.
In summary, the presence of a load is not reason enough to sell or keep a fund. The decision depends on the details of the load, your own circumstances and needs, and the quality of the fund itself.
Both Asher Ryan & Michael Saville are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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