| Author |
Message |
Mike
Guest
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 Posted:
Wed Dec 15, 2004 10:09 am Post subject:
Load vs No-load Mutual Funds |
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I pay a financial planner to advise me on the investments I should make in
my Roth IRA as well as a regular brokerage account. I currently can't
participate in my company's 401k plan, otherwise I would have him help me
make decisions with that choice as well.
I'm going through my holdings to really try and get a good idea of what I
have. I know it sounds odd -- "how could you buy these funds without
knowning what they are?" I basically rolled a 401k over from a former
employer. We sat down, he had made recommendations, I checked a few
statistics on Morningstar, and off we went.
However, some of the funds I own charge a front load (all are class A). I
obviously did not check my facts enough. Everything I have read tells me
that there is no reason whatsoever to pay a load on a mutual fund.
Is this correct? Are loads a thing of the past?
--
Mike
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Guest
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| Posted:
Wed Dec 15, 2004 12:22 pm Post subject:
Re: Load vs No-load Mutual Funds |
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Mike <michaelloll@nospam.hotmail.com> writes:
| Quote: | I pay a financial planner to advise me on the investments I should
make in my Roth IRA as well as a regular brokerage account. I
|
*How* do you pay that planner? Does he get paid by the
hour, or by a percentage of your assets that me helps you
with, or by commissions?
| Quote: | However, some of the funds I own charge a front load (all are class
A). I obviously did not check my facts enough. Everything I have
read tells me that there is no reason whatsoever to pay a load on a
mutual fund.
|
*Sometimes* there's a good reason to pay a load on a fund.
In particular, that may be how you are paying that planner.
If he's getting paid an hourly fee, then, no, those loads
are probably not necessary and he should be steering you
towards other things. But if he is paid through those
loads - *and* you have been *told* this - then there's
nothing wrong with it. You didn't think he was giving
you all that advice out of the goodness of his heart,
did you?
Loads are not inherently bad or good. They are a means
by which an advisor gets paid. If the adviser is being
paid another way (ie. he's fee-only), then those loads
may well be a waste. But if they are how he gets paid,
then, so long as he's actually earning them by giving
you advice, there's nothing wrong with it at all.
--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting |
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Frank
Guest
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| Posted:
Wed Dec 15, 2004 4:15 pm Post subject:
Re: Load vs No-load Mutual Funds |
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I believe a number of studies have failed to prove that fee based funds
provide superior returns than no-load funds.
Ask your planner to provide a comparison of the recommended funds to
their corresponding index funds. If there is not a reasonable benefit
then consider getting rid of the fee based funds and the planner and
buy index funds.
Frank
Mike wrote:
| Quote: | I pay a financial planner to advise me on the investments I should
make in
my Roth IRA as well as a regular brokerage account. I currently
can't
participate in my company's 401k plan, otherwise I would have him
help me
make decisions with that choice as well.
--
Mike |
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John A. Weeks III
Guest
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| Posted:
Wed Dec 15, 2004 5:18 pm Post subject:
Re: Load vs No-load Mutual Funds |
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In article <Xns95BFE32D53A0DMikeLollXNewsID2004@199.45.49.11>,
Mike <michaelloll@nospam.hotmail.com> wrote:
| Quote: | However, some of the funds I own charge a front load (all are class A). I
obviously did not check my facts enough. Everything I have read tells me
that there is no reason whatsoever to pay a load on a mutual fund.
|
Don't worry so much about the load, but do consider the total cost
of ownership of the mutual fund. Studies have shown that cost of
ownership is not correlated with rate of return, so always look
for the better rates of return over time as compared to lower
costs. These costs include any 12b1 fees, front loads, annual
loads, back-end fees, and the annual management fee charged by
the fund. You really want this to be less than 1% per year.
If you have this in a taxable account, you want to worry about
tax efficiency. Each time the fund turns over a stock, there
is a chance that you have to pay tax on it, even if you don't
take out any money. Index funds are generally much more tax
efficient than actively managed funds.
| Quote: | Is this correct? Are loads a thing of the past?
|
No, not really. You might find that many loaded funds have
a lower annual fee than no-load funds. These things all cost
money to operate, and that money has to come from somewhere.
In addition, your broker/advisor has to make a living, so
there has to be a way for him/her to generate some fees.
BTW, check out "ETFs" while you are at it. These are Exchange
Traded Funds, much like mutual funds, but are traded like stock.
-john-
--
======================================================================
John A. Weeks III 952-432-2708 john@johnweeks.com
Newave Communications http://www.johnweeks.com
====================================================================== |
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Chris Thomas
Guest
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| Posted:
Thu Dec 16, 2004 10:03 am Post subject:
Re: Load vs No-load Mutual Funds |
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In article <john-F9062E.10364615122004@news.mpls.visi.com>,
john@johnweeks.com says...
| Quote: | Is this correct? Are loads a thing of the past?
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Not as long as there are suckers willing to spend their hard earned
money on totally unnecessary fees such as loads. Among thoughtful
investers, yes. I have many friends that invest. Not one of them
would ever consider a load fund. Neither would I.
| Quote: | No, not really. You might find that many loaded funds have
a lower annual fee than no-load funds. These things all cost
money to operate, and that money has to come from somewhere.
|
The load goes into the broker's pocket. None of it goes to the fund,
so it in no way helps the fund.
| Quote: | In addition, your broker/advisor has to make a living, so
there has to be a way for him/her to generate some fees.
|
I am willing to pay a broker for doing a service for me, like
providing me with the benefit of years of experiece. I am not
willing to pay for someone to buy funds for me, something that I can
do with a few internet clicks.
/Chris |
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Mike
Guest
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| Posted:
Thu Dec 16, 2004 10:03 am Post subject:
Re: Load vs No-load Mutual Funds |
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BreadWithSpam@fractious.net wrote in
news:yobacsfpxbm.fsf@panix2.panix.com:
| Quote: | *How* do you pay that planner? Does he get paid by the
hour, or by a percentage of your assets that me helps you
with, or by commissions?
|
Initially I beleived it was a fee-based relationship, but I have come to
realize that it is based upon commissions. Other than a $40/year
custodial fee for my Roth IRA (which is waived if I have like $50k or
something), I pay nothing else. So it has to be commissions. I am
confirming this with him.
I am not implying that my FA intentionally mislead me. I cannot recall
our initial conversation. And to be honest, I was not quite as
knowledgable as I am now (which is still not that much). I'm trying to
learn from my mistake.
And too his credit, if he is paid via commission, he has recommended
some funds which are no-load, so I don't necessarily think he is a bad
person.
| Quote: | *Sometimes* there's a good reason to pay a load on a fund.
In particular, that may be how you are paying that planner.
|
Other than paying for the planner, how are paying loads good? It is a
fee on your investment. How can that be good? I wouldn't even use
compensation as justification that they are good. It is a fee. The
price of doing business, if I buy loaded funds.
| Quote: | If he's getting paid an hourly fee, then, no, those loads
are probably not necessary and he should be steering you
towards other things. But if he is paid through those
loads - *and* you have been *told* this - then there's
nothing wrong with it. You didn't think he was giving
you all that advice out of the goodness of his heart,
did you?
|
Does this mean that if he is paid via commission, that he should only
recommend loaded funds?
And no, I did not think he was giving me advice for free. But it is
just as naive to think that I wouldn't try to maximize my benefit from
him. So if I can buy no-load funds from him, maybe I should.
| Quote: | Loads are not inherently bad or good. They are a means
by which an advisor gets paid. If the adviser is being
paid another way (ie. he's fee-only), then those loads
may well be a waste. But if they are how he gets paid,
then, so long as he's actually earning them by giving
you advice, there's nothing wrong with it at all.
|
I agree that they are neither good or bad in that sense. But if two
funds are equal except that one charges a load, then I don't want to buy
the loaded fund. So if I have to, based upon my agreement with my FA,
then I need to move my money elsewhere.
--
Mike |
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Mike
Guest
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| Posted:
Thu Dec 16, 2004 10:03 am Post subject:
Re: Load vs No-load Mutual Funds |
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"John A. Weeks III" <john@johnweeks.com> wrote in
news:john-F9062E.10364615122004@news.mpls.visi.com:
| Quote: | Don't worry so much about the load, but do consider the total cost
of ownership of the mutual fund. Studies have shown that cost of
ownership is not correlated with rate of return, so always look
for the better rates of return over time as compared to lower
costs. These costs include any 12b1 fees, front loads, annual
loads, back-end fees, and the annual management fee charged by
the fund. You really want this to be less than 1% per year.
|
Based upon the 2003 expense ratios for all the funds I hold, the average is
1.58% (from Morningstar)... but this doesn't take into account sales fees.
So is this the 1% you are talking about?
--
Mike |
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Mike
Guest
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| Posted:
Thu Dec 16, 2004 10:03 am Post subject:
Re: Load vs No-load Mutual Funds |
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"Frank" <franksplace2@email.com> wrote in news:1103120454.936095.319340
@f14g2000cwb.googlegroups.com:
| Quote: | Ask your planner to provide a comparison of the recommended funds to
their corresponding index funds. If there is not a reasonable benefit
then consider getting rid of the fee based funds and the planner and
buy index funds.
|
Thanks for the advice! I am definitely going to try to compile this
information.
--
Mike |
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HW \"Skip\" Weldon
Guest
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| Posted:
Thu Dec 16, 2004 10:13 am Post subject:
Re: Load vs No-load Mutual Funds |
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On Thu, 16 Dec 2004 04:03:37 CST, Mike
<michaelloll@nospam.hotmail.com> wrote:
| Quote: | And too his credit, if he is paid via commission, he has recommended
some funds which are no-load, so I don't necessarily think he is a bad
person.
|
I would not equate sales loads with good or bad - it's merely an issue
of compensation. If you go the no-load route, you should expect to do
some work (beginning with learning about investments and personal
finance) yourself. And your time is worth something also.
It would be unusual for a retail broker to recommend no-load
investments. Can you recall the names of any such recommendations?
-HW "Skip" Weldon
Columbia, SC |
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Guest
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| Posted:
Thu Dec 16, 2004 2:58 pm Post subject:
Re: Load vs No-load Mutual Funds |
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"HW \"Skip\" Weldon" <skip5700removethis@hotmail.com> writes:
| Quote: | On Thu, 16 Dec 2004 04:03:37 CST, Mike
michaelloll@nospam.hotmail.com> wrote:
And too his credit, if he is paid via commission, he has recommended
some funds which are no-load, so I don't necessarily think he is a bad
person.
It would be unusual for a retail broker to recommend no-load
investments. Can you recall the names of any such recommendations?
|
Moreover, were they really no-load funds or where they
"no-load" funds in the unfortunately common usage where
they pretend that 'B' shares or 'C' shares are no-load
when they really aren't. What those two classes of
shares don't have is a *front*-end load - but they do,
absolutely, have loads and those sales fees do go to
the broker.
So, yeah, can you recall the names of those no-load
recommendations?
Another thing to bear in mind is that in some instances,
one *does* pay a commission in order to buy a no-load
fund. It's very common in the "fund supermarkets" at
various brokers. If you wanted to buy, say, a no-load
fund like any Vanguard fund from within your Fidelity
account, you'd pay a "transaction fee". This is not
really a load, nor is it really a commission (though
I guess that if one buys a Vanguard fund through a
full-service broker, it would be a normal commission).
But it is not a terribly unreasonable thing inasmuch
as the brokerage needs to get paid for what they do
and many thrifty funds (ie, again, Vanguard) refuse
to pay the high fees to the brokerages that brokerages
require in order for the funds to be in their
No-Transaction-Fee programs. Recently, a couple of the
brokerages actually raised what they charge funds in
the NTF programs and several fund companies actually
pulled out of the programs because they thought the
terms were too expensive.
--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting |
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Douglas Johnson
Guest
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| Posted:
Thu Dec 16, 2004 5:37 pm Post subject:
Re: Load vs No-load Mutual Funds |
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"John A. Weeks III" <john@johnweeks.com> wrote:
| Quote: | Don't worry so much about the load, but do consider the total cost
of ownership of the mutual fund. Studies have shown that cost of
ownership is not correlated with rate of return,
|
Actually, cost of ownership is inversely correlated with rate of return -- on
average, the higher the cost of ownership, the lower the rate of return. Of
course, there are exceptions in individual funds.
| Quote: | If you have this in a taxable account, you want to worry about
tax efficiency. Each time the fund turns over a stock, there
is a chance that you have to pay tax on it, even if you don't
take out any money. Index funds are generally much more tax
efficient than actively managed funds.
|
Turnover also contributes to cost of ownership. This is highly visible in the
tax burden, less visible in the expense ratio, and nearly invisible (but very
real) in the slippage.
"Slippage" is the cost of buying and selling a stock including the bid-ask
spread and the effect of moving the market by trading significant quantities of
stock. Slippage does not include commission, which shows up in the expense
ratio of the fund. The cost of slippage reduces the fund's raw return (before
deducting expenses and loads).
Bottom line is that funds with lower turnover ratios tend to perform better than
funds with higher turnover ratios. Of course, there are exceptions in
individual funds.
-- Doug |
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John A. Weeks III
Guest
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| Posted:
Thu Dec 16, 2004 5:37 pm Post subject:
Re: Load vs No-load Mutual Funds |
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In article <Xns95C0DDEBAB2ABMikeLollXNewsID2004@199.45.49.11>,
Mike <michaelloll@nospam.hotmail.com> wrote:
| Quote: | "John A. Weeks III" <john@johnweeks.com> wrote in
news:john-F9062E.10364615122004@news.mpls.visi.com:
Don't worry so much about the load, but do consider the total cost
of ownership of the mutual fund. Studies have shown that cost of
ownership is not correlated with rate of return, so always look
for the better rates of return over time as compared to lower
costs. These costs include any 12b1 fees, front loads, annual
loads, back-end fees, and the annual management fee charged by
the fund. You really want this to be less than 1% per year.
Based upon the 2003 expense ratios for all the funds I hold, the average is
1.58% (from Morningstar)... but this doesn't take into account sales fees.
So is this the 1% you are talking about?
|
Yes. I'd suggest doing some research on this. Look at your
funds that cost more than 1%, then try to find equivalent funds
that have expense ratios of less than 1%. If it makes sense,
do the switch. Saving a percent here and there really adds up
over time, especially when the market seems to be going sideways
year after year.
-john-
--
======================================================================
John A. Weeks III 952-432-2708 john@johnweeks.com
Newave Communications http://www.johnweeks.com
====================================================================== |
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HW \"Skip\" Weldon
Guest
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| Posted:
Thu Dec 16, 2004 6:09 pm Post subject:
Re: Load vs No-load Mutual Funds |
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On Thu, 16 Dec 2004 08:58:02 CST, BreadWithSpam@fractious.net wrote:
| Quote: | It would be unusual for a retail broker to recommend no-load
investments. Can you recall the names of any such recommendations?
Moreover, were they really no-load funds or where they
"no-load" funds in the unfortunately common usage where
they pretend that 'B' shares or 'C' shares are no-load
when they really aren't. What those two classes of
shares don't have is a *front*-end load - but they do,
absolutely, have loads and those sales fees do go to
the broker.
|
That was my point. Here we have the OP giving a broker a pat on the
back for having recommended no-load funds. I suspect that nothing of
the sort happened - that in fact the recommendations were B or C class
funds and the OP either misunderstood or was mislead. Hence my
request that he identify the "no-load" recommendations.
Again, there's nothing wrong with loaded funds - except in instances
where the investor has not received proper disclosure in language
he/she understands.
-HW "Skip" Weldon
Columbia, SC |
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Bob Johnson
Guest
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| Posted:
Thu Dec 16, 2004 6:28 pm Post subject:
Re: Load vs No-load Mutual Funds |
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Your comments on low fess and low turnover seem to help make a good
case for index funds, which do a good job at both. Personally, I just
go for an ETF (like iShare 500 IVV), pay my $10 brokerage commission
once to get .09% management fees. Works for me.
Best Regards,
Bob Johnson
http://www.goldsheetlinks.com
http://www.coinsheetlinks.com |
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Mike
Guest
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| Posted:
Fri Dec 17, 2004 10:01 am Post subject:
Re: Load vs No-load Mutual Funds |
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BreadWithSpam@fractious.net wrote in
news:yobu0qmfg0z.fsf@panix2.panix.com:
| Quote: | "HW \"Skip\" Weldon" <skip5700removethis@hotmail.com> writes:
On Thu, 16 Dec 2004 04:03:37 CST, Mike
michaelloll@nospam.hotmail.com> wrote:
And too his credit, if he is paid via commission, he has recommended
some funds which are no-load, so I don't necessarily think he is a
bad person.
It would be unusual for a retail broker to recommend no-load
investments. Can you recall the names of any such recommendations?
Moreover, were they really no-load funds or where they
"no-load" funds in the unfortunately common usage where
they pretend that 'B' shares or 'C' shares are no-load
when they really aren't. What those two classes of
shares don't have is a *front*-end load - but they do,
absolutely, have loads and those sales fees do go to
the broker.
|
All of my fund shares are class A. Some documentation I just read makes
me beleive my RYPCX (see below) shares are class C. Which would be very
odd since my FA and I both agreed class A was the way to go for me.
| Quote: | So, yeah, can you recall the names of those no-load
recommendations?
|
I posted them in response to another post, but here it is again.
Legg Mason Value Prime (LMVTX)
Royce Pennsylvania Mutual Fund (RYPCX)
Although now that I check morningstar more closely, it seems RYPCX has a
redemption fee of 1%.
--
Mike Loll |
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