Load or No-Load Funds?

Are you better off with a load fund or a noload fund? Here are some facts.

The Morningstar Study

Investors in no-load funds are more fickle than those who buy through an advisor, according to a Morningstar Study (The Virtues of Commitment, 11/7/97 Morningstar Principia Commentary). For the three years studied, the net cash flows (an indicator of buying and selling) of no-load funds were 40% more volatile than load funds.

Remember, volatile net cash flows make it more difficult for the fund manager to generate a satisfactory return. The fund manager will need to trade more (increasing turnover expenses and taxes) and is forced to
sell into a down cycle (when fund shareowners are cashing out).

The Dilemma

So are you better off with load or no-load funds? Load funds might perform better, for the reasons cited by Morningstar. But they have a significant drawback. Load funds charge you a hefty fee – in the order of 6%, right up front. Back-end funds are no better and, in fact, are usually worse. They charge a fee when you sell the fund. In addition, they charge you an additional fee of approximately 1% each year. Therefore, whether you buy a front-end or back-end mutual fund, the mutual fund family collects their fee.

The alternative for most investors might be no-load funds because these high fees are avoided. But no-loads tend to be more volatile and their performance can suffer, as explained in the Morningstar Study. Further,
no-load funds are not available through stockbrokers since the broker would not receive any remuneration. You are on your own if you select no-load funds.

Do-It-Yourself Investors

If you are doing your own research, we suggest that rather than selecting funds based on load vs. no-load, you should consider some of the many more important criteria impacting the fund performance. All other things being equal, select the no-load fund. You won’t be guaranteed a better return, but at least you won’t be paying a 6% fee before you even start putting your money to work.

Load Funds Without Loads

Sherwood Investment Services is in a very enviable position. We are able to purchase the load funds as if they were no-load funds. The load funds we recommend for our clients are purchased and sold without any loads, commissions, or hidden fees – saving our clients approximately 6%. Therefore, we evaluate both the load and no-load funds and select the best of the very best load and no-loads.

Please contact us for more information about selecting quality, low-cost mutual funds.

Contact Us

We're not around right now. But you can send us an email and we'll get back to you, asap.

Not readable? Change text. captcha txt
About Redmond Financial Advisor - Eric Linger