| A load is simply a charge for buying (or | | | | |
| sometimes for selling) shares in a mutual | | | | Operating expenses are all the costs |
| fund. That chunk of money, which can go as | | | | associated with running the funds and are |
| high as 8.5 percent, will come straight out | | | | deducted directly from the assets of the |
| of your investment, with all or part of it | | | | fund. They can include management fees to |
| going to the broker or advisor who sold you | | | | compensate the fund managers, a distribution |
| the fund. | | | | fee (also called a 12b-1 fee) for marketing |
| | | | expenses, and other fees to cover shareholder |
| "When I first began investing I needed advice | | | | services, such as mailings and the fund's |
| and paid for it by buying funds with loads. | | | | toll-free phone service. |
| It always took a while for a fund to make up | | | | |
| for the cost of the load." --DSB "I've bought | | | | The expense ratio is the total of all the |
| both load and no load funds. The loads are | | | | operating expenses, expressed as a percentage |
| well worth it for the advice I get because I | | | | of the fund's total assets. |
| cannot afford to pay an advisor an hourly | | | | |
| fee." --Jennifer W. | | | | Low-cost index funds might have expense |
| | | | ratios as low as .2 percent, while a |
| "I have never bought a load fund because I | | | | high-cost actively managed fund might have an |
| want to keep 100 percent of my money working | | | | expense ratio as high as 2.5 percent. |
| for me. The catch with no-load funds is that | | | | |
| you have to do the work." --Forrest H. | | | | At first glance, it may be easy to brush off |
| | | | a higher-than-average expense ratio, but |
| Be sure you're clear about what you're | | | | don't underestimate the difference it can |
| actually paying for when you pay a load. | | | | make. For example, let's say you invest |
| | | | $10,000 for ten years and get annual returns |
| It is not to get a fund with a superior | | | | of nine percent before expenses. If this |
| return-there is no evidence that load funds | | | | money is in a fund with an expense ratio of |
| perform any better than no-load funds. | | | | 1.8 percent, your money will grow to $19,741. |
| Rather, you're paying for assistance in | | | | If the money is in a fund with an expense |
| selecting the fund. With thousands of no-load | | | | ratio of just .4 percent, however, your |
| funds to choose from, I personally see no | | | | investment will grow to about $3,000 more, or |
| reason to ever pay a load for a fund, unless | | | | $22,744. |
| you absolutely must rely on a | | | | |
| commission-based advisor. | | | | To compare fees between different funds, read |
| | | | each fund's prospectus. All fund prospectuses |
| It's important to understand that all funds | | | | are required to present a complete |
| carry some costs that lower your returns. | | | | description of fees in standardized, |
| Look at these very carefully because a fund | | | | easy-to-read tables. |
| with high costs has to perform better than a | | | | |
| low-cost fund just to stay even. My quick | | | | Also, the Securities and Exchange Commission |
| guide will help you understand the range of | | | | has an excellent calculator that helps with |
| fund fees. | | | | expense comparisons on its Web site at |
| | | | www.sec.gov. |
| Shareholder expenses are paid for directly by | | | | |
| each investor in the fund. | | | | THE BOTTOM LINE: Historically, load funds |
| | | | have no advantages over no-load funds when it |
| They can include sales charges (for load | | | | comes to investment performance. However, |
| funds), redemption fees when you sell shares, | | | | load charges may be a necessary evil when |
| exchange fees for transferring money from one | | | | dealing with a financial advisor because that |
| fund to another, and annual account | | | | advisor deserves to be paid for his or her |
| maintenance fees. | | | | time and expertise. |