You know that old saying “You get what you pay for?” With investing your money, just like everything else in life, sometimes it’s true, and sometimes it’s not true. Today I want to write about Load vs. No Load mutual funds.
Mutual funds are broadly grouped as Load or No Load funds, indicating whether or not a sales fee, called a load, is charged just to invest in the fund. Load fees generally range from 2% to over 8%, but it they are usually around 4 to 5%. You can imagine what this does to your performance if a chunk of money this size is taken out right at the beginning of the investment.
Numerous studies have been done on whether the performance of Load funds is better than No Load funds. From what I have read, No Load funds usually win out, especially since an investor begins with more money initially put into the fund and, therefore, more money to compound over the investment period. Like most studies, the results are usually affected by who funded it.
Sometimes a fund will not have an up front load, but will impose a load fee if you leave the fund within a certain time period, such as a year or more. These are referred to as back-end or deferred loads. At least in this situation, you have had all of your assets invested, rather than 95% invested, as would be the case with an up front, or initial load fund that charges a 5% load.
Always know what sales charge, if any, you are paying to get into a mutual fund, or any investment, for that matter. Expenses reduce the amount of wealth you have to compound over time. And, just like a new pair of shoes, paying more for a mutual doesn’t necessarily mean it will be a better performing investment.