Ask the Dollar Diva By Dorothy Rosen • Bankrate.com

Mutual fund fees

Dear Dollar Diva,
I have just opened an aggressive mutual fund and need some help on the fees involved. The fund is in a long term Roth IRA. It charges 4.5 percent of everything I invest. I am having monthly installments placed into the fund. Is this fee average, or am I paying too much?

-- William

Congratulations on setting up a systematic investment program that allows you to take advantage of an awesome investment tool called dollar-cost-averaging. It's smart to question the 4.5 percent up-front fee; it takes a big bite out of your investment dollars. This fee is called a front-end load. It's a sales commission that goes to the person or financial institution selling you the fund. As a general rule, the Dollar Diva prefers no-load mutual funds; but if you're a new investor and the financial professional recommends a good fund that's going to work for you, it's worth the commission.

Fund Performance

Assuming the fund is from a reputable financial institution, the bottom line is the fund's performance: Is it better or worse than comparable funds? You get this by measuring your fund's performance against it's appropriate benchmark, or index. An aggressive growth fund is generally riskier than a plain vanilla growth fund, so you would expect it to perform better than the Standard and Poor's 500 index over time.

The prospectus you were supposed to read before you bought into the fund tells you what index it expects to beat and how often it's done so in the past. Future performance is only available through a crystal ball.

Since the name of the game is performance, if your fund's performance after fees is better than the index most of the time, it's probably a good fund. To get the most out of your investment, you need to know a lot about your mutual fund and a lot about the competition; and that means research. Before you get started, take a few minutes to learn the mutual fund lingo. For a quick tour of the terms, see "BRM-101: Top 10 mutual fund terms."

The prospectus is the best place to get information on a mutual fund, but if you've never read one, it can be overwhelming. So as a warm up, the Diva recommends you get a free Quicktake Report from Morningstar, the mutual fund guru. It's written in plain English. Here is some of the information you'll find:

• Fees, including loads and expense ratio.
• Performance, measured against funds in that category, and the S&P 500 index.
• Risk rating.
• Return rating.
• Top holdings in the fund.
• Fund Manager, how long he's been at the helm.

Load vs. no load

To make the most of your future investment dollars, keep your eyes open for a no-load, aggressive-growth fund that historically provided returns as good as or better than your current load fund. The Diva likes to compare on a one-year, three-year, five-year and 10-year basis. You can find no-load funds on the Web sites of the financial institutions that offer them, such as Janus, Fidelity, Vanguard and T. Rowe Price.

Here's another research trip to take. The Morningstar Quicktake Report you pull up on your fund has a link called "Compare investment style returns." It will take you to listings of other funds with an investment style similar to your fund. If you see one that looks interesting, you're one click away from a Quicktake Report on it. If it still looks good, go to the fund's Web site for more information and a prospectus.

You are on the right track by making installment payments to your Roth IRA, so keep it up. There's no hurry, and you don't want to make a change just for the sake of making a change. If your fund is a good fund, the 4.5 percent commission is money well spent. If you can do better with a no load, you'll switch when you find the right one.

Since you're money is in a Roth now, you can sell without worrying about tax consequences. But don't sell one load fund to go into another load fund -- doing that on a regular basis is the road to financial ruin. And check out the redemption fees. You're never going to get your up-front 4.5 percent back, but you don't want to pay a redemption fee as well. Unless the fund is a real dog, it may be better to hold off selling until you can do so without having to pay any back-end fees.

Your investment professional earns his 4.5 percent by helping you select a fund, and by helping you with any questions you have on the products he sells. After you've done your homework, call him with your questions. If you find a couple of no-load funds that look better than your load fund, ask him to explain why his recommendation is better.

DOROTHY ROSEN has a master's degree in finance, with a specialization in accounting, from the Kellogg Graduate School at Northwestern University in Evanston, Ill. Rosen has more than 15 years of experience in the financial arena, serving in Illinois and Florida as a certified public accountant, financial consultant, expert witness and educator. She is owner of Dorothy Rosen, CPA, a public accounting firm that serves individuals and small businesses.