How to Evaluate Load vs. No Load Mutual Funds

If you have been dealing with mutual funds for any length of time, you undoubtedly have faced the question of which is better: Load Funds or No Load Funds. If you are new to investing, "load" simply refers to the commission paid to the broker selling the fund. "No load" means there is no commission on the purchase or sale.

Most discussions in the past have centered exclusively on performance comparisons. Even rating services like Morningstar have occasionally chimed in with their opinion. However, rather than focusing only on performance, there are some other issues I consider far more important:

  • Who is selling load funds and why?

  • Who markets no load funds?

  • Which one is right for you?

    Who is selling load funds and why? Most load funds are being sold through brokerage houses, financial planners and Registered Representatives. With few exceptions, most of those folks operate on the basis of selling as much product as possible. They collect their commissions up front, as a back end charge, or both (usually in the range of 5 - 6%). Whether you make money or not is not their primary concern. What matters most to those operating under this approach is how often you buy-and thereby generate new commissions for them.

    Who markets no load funds? No Load funds are either marketed directly by the mutual fund companies or, more commonly these days, offered through discount houses like Schwab, Fidelity, and many others. The advantage to this is that you have an unlimited choice of funds in one place and don't have to open separate accounts for each mutual fund family that you are considering.

    Most fee based investment advisors, like myself, have independent relationships with such major discount firms and are able to offer clients just about any no load mutual fund available. They receive no compensation from the firm and only get paid by the client at a pre-determined fee arrangement. Under this arrangement, there is no hidden motivation to sell you a particular fund or to try and sell more in order to get a larger commission.

    Which one is right for you? Whether you prefer dealing with someone selling load funds or an advisor getting you into no loads, let me make one thing very clear: You can make money or lose money either way! Why?

    Let's assume for the moment that there is no difference in performance between the types of funds-some of either kind will do well and some of either kind won't. What then determines the successful outcome of you buying either a load or a no load fund?

    The key is the advice you're getting. And the fact is that many brokerage houses and Registered Representatives tend to be more interested in their profits than yours. Their investment advice is generally centered around Buy and Hold or dollar cost averaging and similar financially questionable recommendations. Hardly ever will you receive advice about when and why you should exit the market, either because of accumulated profits or to limit your losses. Getting out of the market is simply not in their best interest, though it may be in yours.

    I must confess that, as a fee based advisor, I am somewhat biased and I prefer no load funds for my clients. I believe that this type of arrangement is best for all parties involved. It allows me to avoid any conflict of interest and to work exclusively for my clients' financial benefit. And the better my clients do, the better I do.

    I am able to choose no load funds and make buy decisions solely on the basis of my mutual fund trend tracking methodology. Following its signals, I can get clients into the market or out of it as often as is necessary to maximize profit or protect assets. And because I work with no load funds, other than a very occasional short term redemption fee, there are no transaction charges no matter how many times we move into or out of the market.

    If market conditions dictate that we stand aside in a money market for an extended time in order to avoid a bear market (as was the case from 10/13/2000 to 4/28/2003), I can advise that because it is in the best interest of my client. I am always thinking about what will benefit my client, not worrying about lost commissions. (Please see my article "How we eluded the Bear in 2000" at http://www.successful-investment.com/articles12.htm.

    Bottom line: Load fund vs. No Load mutual fund shouldn't be the issue. Having a methodical plan and reliable advice as to when to buy and when to sell is far more important and will help you to secure a prosperous financial future.

    © by Ulli G. Niemann

    About The Author

    Ulli Niemann is an investment advisor and has written about methodical approaches to investing for over 10 years. He avoided the bear market of 2000 and has helped countless people make better investment decisions. Subscribe to his free newsletter: www.successful-investment.com; [email protected]

    In The News:

    Can These Markets Be Trusted?  The New York Times
    And the No. 1 Stock-Fund Manager Is…  The Wall Street Journal

  • The Stock Trading Plan - Why You Must Have One To Trade Successfully

    This is the continuing story of our two imaginary traders,... Read More

    Peer Groups

    Whenever I see mutual fund comparisons in the trade publications... Read More

    Perfect Storm

    Having lived aboard a sailboat for 2 years I was... Read More

    Gurgle Gurgle

    Caught in a whirlpool and being sucked under. No life... Read More

    Downdraft

    For the year 2000 we have seen hundreds of mutual... Read More

    What is a Mutual Fund?

    Ever wondered what is a mutual fund? A mutual fund... Read More

    A Triple Dipper: How to Make 3 Profits on 1 Stock Trade

    This is a rather simple strategy with which I am... Read More

    Economists

    In today's volatile and confusing stock markets everyone is searching... Read More

    Take The Time

    You must take the time once a month to review... Read More

    War Market

    There is no question that the stock market is being... Read More

    VIX

    No, this is not a symbol for some Latin number.... Read More

    Outsourcing

    It's about time someone spoke the truth concerning outsourcing. The... Read More

    Your Trading Objective: Why is that so Important?

    You've decided to try your luck at trading stocks or... Read More

    The Surgeon General

    The Surgeon General of the United States says that smoking... Read More

    It Cant Be Done

    Wouldn't it be nice if you were only in the... Read More

    Red, Green, Yellow - or - Stop, Go, Go Very Fast: Which Describes Your Online Trading?

    Ever notice how behavior in one area of life can... Read More

    Market Globalization

    Just 30 years ago the stock market was a shadow... Read More

    The Stock Market - How Just One Question Will Tell You All You Need To Know About Your Stock Broker

    Last time we looked at the real performance of the... Read More

    Look Out The Window

    Quick, look out the window. It's raining. No, the sun's... Read More

    Its A Duck

    If it walks like a duck, quacks like a duck... Read More

    Stock Options Trading Strategies - Lean

    Professional stock options traders use the term lean to refer... Read More

    Is the Stock Market for You?

    Many people would like to diversify their portfolios to expand... Read More

    A Funny Thing Happened on the Way to the Stock Market

    On the 40 year journey through the turmoil of a... Read More

    Robert Rodriguez Weathers the Stock Market

    Robert Rodriguez likes to buy stocks at their lows. When... Read More

    Online Broker Trade History Not Doing the Job

    Let me start by saying that...Most online brokers do not... Read More