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Mutual Funds - 5/1/2008 10:49:09 AM
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OneGoodMethodist
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Can anyone share the pros and cons between getting no load mutual funds, and load mutual funds for my roth IRA? Thank you.
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RE: Mutual Funds - 5/1/2008 12:57:37 PM
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LCannon
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From: Lebanon, OR
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Briefly, no loads use their potential growth to 'grow' in value while you have manage(buy/sell/reinvest)as you want. Loaded mutuals use the 'load'(a % fee usually on withdrawal)to active manage(buy/sell/reinvest)within the fund. My loaded mutuals(American Fund(ICA, EuroPac)/Putman(Voyager, Vista, Investors))pretty well follow the trends in those markets. I have no experience with IRA's since I'm not employed however, as a general rule, 'match the maximum your employer allows' and no more.
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"[Prayer power] hasn't never been taxed to[His]full capacity.
His standing challenge, 'Call on Me and I will answer with great and mighty
things which thou can't imagine." Hudson Tayor
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RE: Mutual Funds - 5/1/2008 1:18:18 PM
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GroupW
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Couple of points:
1) lcannon - I think you are confusing IRA's with 401k's. Of course, you need to have earned income to contribute to an IRA, so I might have misunderstood your comment there.
2) The difference between a loaded fund and no-load fund is primarily how the marketing expenses get paid. A loaded fund charges a "sales fee" that's used to pay a fund distributor or broker. No load funds are typically marketed directly to consumers by the fund sponsor, hence any marketing related expenses are absorbed by the fund itself in one fashion or another. Once purchased, loaded and no load funds are essentially managed the same.
There are advantages and disadvantages to each. What would be recommended to an individual investor would have a lot to do with his propensity to trade in and out of funds, his personal level of investment knowledge, etc.
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RE: Mutual Funds - 5/1/2008 1:43:23 PM
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LCannon
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Well, I lumped IRA/401K together however I got 'match the maximum your employer allows' from Jean Chatsky's advice on IRA. True both mutuals are only in degrees in management and marketing and the holder can manage them however they choose but a loaded fund, generally, is more actively managed within the fund as far as reinvestment.
_____________________________
"[Prayer power] hasn't never been taxed to[His]full capacity.
His standing challenge, 'Call on Me and I will answer with great and mighty
things which thou can't imagine." Hudson Tayor
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RE: Mutual Funds - 5/1/2008 1:58:04 PM
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NoShow
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quote:
ORIGINAL: LCannon
a loaded fund, generally, is more actively managed within the fund as far as reinvestment.
That's not true. Load only refers to the sales charge in the fund and has nothing to do with the management of the fund. A no load managed fund is just as actively managed as a load fund.
quote:
Can anyone share the pros and cons between getting no load mutual funds, and load mutual funds for my roth IRA? Thank you.
A no load allows you to buy a fund with paying a fee, so the pros are you save money. I don't really think there's a con, unless you happen to want to invest in a specific load fund, but don't want to pay a load. Then the con is you don't get to invest in the fund.
Historically, most load funds, do not perform at a higher level, than no-loads, to justify the load.
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RE: Mutual Funds - 5/1/2008 2:09:40 PM
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LCannon
Posts: 1387
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From: Lebanon, OR
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I stand corrected. (Slinking away from this conversation....
_____________________________
"[Prayer power] hasn't never been taxed to[His]full capacity.
His standing challenge, 'Call on Me and I will answer with great and mighty
things which thou can't imagine." Hudson Tayor
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RE: Mutual Funds - 5/1/2008 2:39:52 PM
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Random
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If you are planning to make your own investing decisions, there is no advantage to using load funds. Loads are used to pay for sales expenses, including the fees of the person who recommends the fund.
If you invest online, and make your own selections, there is no reason to pay a load.
_____________________________
Desmond Hume has come unstuck in time.
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RE: Mutual Funds - 5/1/2008 2:56:39 PM
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OneGoodMethodist
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Actually, I know the difference between the two. How, my question is to advice of which one is better. Thank you. :)
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RE: Mutual Funds - 5/1/2008 3:04:49 PM
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NoShow
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quote:
ORIGINAL: OneGoodMethodist
Actually, I know the difference between the two. How, my question is to advice of which one is better. Thank you. :)
Basically, compare performances, being sure to net out any loads. If it's back loaded and you're putting it in a Roth, than the load is basically a moot point (unless your close to retirement\withdrawls). Even on a front load, it only impacts the first years performance in a sense.
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RE: Mutual Funds - 5/1/2008 3:10:25 PM
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GroupW
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Sorry if we got too basic. Ya' never know, so it doesn't hurt to start there, at least.
Depends. Paying the fee on a loaded fund typically provides access to some investment/financial advice & portfolio construction tools (as in modern portfolio theory, portfolio variance minimization tools.) If that has value to you, you might consider a loaded fund.
There are some funds that are attractive to me that have no no-load counterpart, so in some cases to buy that exposure I have to pay the fee.
Since the marketing expenses are there regardless (though lower in no load world) it also depends on how long you typically hold a fund. For very long holding periods, the loaded fund could very slightly outperform since you're not paying the marketing freight throughout the entire holding period. That point can be debated, though, and would be highly dependent on the fund itself.
That's what initially comes to mind as far as pro's / con's. Could probably think of a few more, but I think these capture the essence of the question.
Overall, as an investment professional, I don't typically pay loads though oddly what I currently own is predominantly loaded funds. (I have a loaded fund, and I'm not afraid to use it.)
I do however normally prefer no loads. Again, it depends a bit on your own situation.
Edit: In addition to paying attention to the load, the fund's overall expense ratio can be an even bigger driver of your returns at the end of the day. There isn't a huge correlation in returns between loaded and unloaded funds, but the funds that habitually underperform tend to have very high expense rations. This is one number that people tend to forget to look at and it can be quite damaging to wealth creation over the long term.
< Message edited by GroupW -- 5/1/2008 3:17:21 PM >
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RE: Mutual Funds - 5/2/2008 2:39:09 AM
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blessedinnyc
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quote:
ORIGINAL: OneGoodMethodist
Can anyone share the pros and cons between getting no load mutual funds, and load mutual funds for my roth IRA? Thank you.
The only advantage there might be in getting a load mutual fund is that it gives you access to a better money manager. They rarely charge lower fees overall than no-load funds.
However, a 5% load is rarely worth it. Get a cheap no-load fund; I recommend Vanguard.com; they have expense ratios below 0.4% on funds that routinely rank in the top quartile.
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RE: Mutual Funds - 5/2/2008 9:47:37 AM
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GroupW
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A good point here re: Vanguard.
Their expense levels are way below the industry average. In a world where even the best fund manager has trouble beating his benchmark, having a low expense ratio automatically gives their funds a big advantage over their peers.
And yes, at high load levels it becomes hard to see a reasonable payback. Over 4% really starts to frost my begonias.
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RE: Mutual Funds - 5/2/2008 10:10:07 AM
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NoShow
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quote:
ORIGINAL: blessedinnyc
The only advantage there might be in getting a load mutual fund is that it gives you access to a better money manager.
But that would only apply to specific funds, not all load funds per se.
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