Don’t Invest In High-Fee Mutual Funds
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Whether you’ve invested in mutual funds for years or are just starting out, finding the right fund for you is a delicate balancing act of fees, returns, and your personal finance goals. As you review all the information, keep in mind whether a mutual fund is no-load, or has a front-end load, back-end load, or level load.
A front-end load means you pay a fee up-front, when the funds are purchased. In other words, if you buy into a 5% front-end load, then 5% of your money will go towards fees and 95% will become your investment. A back-end load works with equal logic: you pay your fees when your shares are sold. The amount you pay is generally dependent on how long you hold the funds; the longer you invest, the lower your fees. If you hold on the mutual fund for long enough, you will usually pay nothing. A level load, also known as a low load, is very similar to a back-end load, but the time frame in which you pay your fees is shorter.
By now, you may question which type of mutual fund is right for you. Namely, are the advantages of a high-end load big enough to outweigh its initial payout? According to George Mannes, of Money Magazine, front-end load mutual funds are not your best choice. Mannes instructs us to look at it like a race: like surrendering 5% of your investment, if you give someone a 5 minute head start, you’re starting at a disadvantage. The longer the race, the better your chance of catching up, but why elect to give yourself a handicap?
There are over 2000 no-load mutual funds out there right now, so your best bet is to search for one that best meets your needs. If you can’t find one that you like, only then should you take a look at those enticing, but high-fee funds.
photo via: sxc
Tags: invetings | mutual funds | stocks
This entry was posted on Friday, March 14th, 2008 at 5:03 am and is filed under Investing. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.
