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ATLANTIC HIGHLANDS HERALD
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YOU GET WHAT YOU PAY FOR: In recent years, the subject of "no-load" mutual funds versus "load" funds has stirred passionate debate. Unfortunately, all this sound and fury has produced more confusion than any real insight. It is long past time to dispel the misunderstandings that prevent too many people from making the highly personal and individual investment choices that are best for them. A mutual fund "load" is a sales commission, nothing more and nothing less. The load debate originated in the financial press. "The press has manufactured the impression that it is not very smart to pay a load," says Don Phillips, Editor of "Mutual Fund Values," a newsletter published by Chicago-based Morningstar, Inc., which tracks mutual fund performance. That narrow-minded attitude is similar to insisting that all those who do not repair their own cars are not very bright. In reality, many very intelligent people simply do not have the aptitude, knowledge or time to learn how to keep their cars running. It makes a good deal of sense for these people to pay for the services of a skilled auto mechanic. For the same reason, it also makes sense for many people to buy load mutual funds. The real issue is not load versus no-load. Instead, the issue is the load's purpose and what the load does for investors. The load pays for investment advice, that extra level of service the client receives. Investors who focus solely on whether or not a fund charges a load are doing themselves a disservice. The load is just one of many factors to consider when evaluating mutual funds. These factors include the fund's performance history, the type of fund it is, its level of risk, its total return, all the costs associated with the fund and the fund manager's track record. These criteria must be applied to the more than 3,000 mutual funds available at present, with more funds being developed constantly. In addition to all of these considerations, each investor's individual goals and risk tolerance are also crucial to selecting the appropriate fund or fund family. It soon becomes obvious that most people do not possess the investment skills or financial knowledge to know which mutual fund or fund group best matches their needs and goals. Choosing the appropriate mutual fund can be complex and time-consuming. Perhaps this is why two-thirds of all mutual fund investors buy load mutual funds through a financial services professional. These people value the extra service that the load makes available to them. The load versus no-load debate has prompted many people to assume, mistakenly, that a no-load fund is a no-cost fund. Nothing could be further from the truth. In a future column, we will examine the types of charges that mutual funds can assess and how those should or should not affect the investment decision. Rich Vera, CPA practices at CPA & Financial Services, LLC, located at 971 Leonardville Road, Atlantic Highlands. A full service firm offering Income Tax Preparation, IRS Representation, QuickBooks Support, Notary Public Services, Investment and Brokerage Services, Mortgages, and Prepaid Accounting Services. You can contact him at: Ph: (732) 291-8546 ¨ Fax: (732) 872-6447 ¨ E-mail: CPA@cpafs.com ¨ Visit: http://www.cpafs.com/ The author is a registered representative of H.D. Vest Investment Securities,
Inc. Based in Texas, H.D. Vest provides financial services, including full
service brokerage, professional money management, insurance, estate and
retirement planning. For information, call (732) 291-8546. |
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