One of the minor problems with working in an industry like investment management is that when you do it long enough, it becomes easy to assume that information that has been basic and common to you for so long has now become so for everyone else. On that note, we received a letter the other day from someone who had invested in load, or commission-based, mutual funds, and wanted to know more about the difference between those and the no-load option, as well as why the no-load will always be the better choice. Once again, we were reminded that important information about this subject is not something about which everyone is aware, and so we want to take this opportunity to talk about it.
Something else to note: Not only does paying the load add nothing of value to your investment in the fund, it actually subtracts value because a portion of your purchase amount went to paying a broker, and not into buying shares of the fund; when you buy a no-load fund, all of your investment is used to buy fund shares.
It bears mentioning, too, that every so often, a proponent of load funds will point to some selectively targeted data that will show a load fund outperforming a similar no-load in some form or fashion. Don’t be swayed; the universe of mutual funds is so large nowadays that any load fund with return X will have a no-load counterpart with a return that’s similar or better.
Given all of this, will no-loads ever completely take over the investment world and make load funds a permanent part of investing history? It’s hard to say, for sure, but it wouldn’t be surprising to see that one day become the eventuality. The point is that right now…today…there’s no reason for you or anyone else to spend one more dime on a load fund. If you are in the market for no-load mutual funds, take advantage of the great fund screeners that are available free of charge at places like Morningstar (www.morningstar.com) to find the mutual funds that best serve your goals and objectives.
James L. Paris and Robert G. Yetman, Jr.
Christian Financial Planner
None of the information contained in the above article is intended to be, nor should be construed as, a solicitation or recommendation to buy or sell any security, or engage in any financial transaction whatsoever. It should be noted that, at any given time, the author(s) may or may not own any of the securities or other financial products mentioned in this column. Furthermore, it is strongly suggested that you seek the advice of an appropriate financial professional before making any changes or implementing any decisions with regard to your personal financial profile.
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