No-load mutual funds are often touted as the
only way to go. You may hear that loads reduce your investment principal, limit
your flexibility and eat up your profits. But what exactly is a load?
As unattractive as it may sound, all a load is, really, is a
sales commission paid to a broker or financial adviser who helps you make decisions
and invest your money.
Loads are only part of the picture
The Mutual Fund Investor's Center lists a total of 20,362 mutual funds, of which 6,049
have loads and another 3,870 have "low loads." Altogether, that makes about 49
percent of the total number of funds. And the Investment Company Institute reports
that more than $36 billion of net new cash was invested in load funds in 2006.
If loads are always a bad idea, why do they seem to be so popular?
Loads are just one part of the investing picture, and a savvy investor will consider
all costs of an offering, including loads (which come in a variety
of types, some of which might actually jibe with your strategies and goals),
management fees and trading costs, as well as all potential returns, before making
a decision. Click on this chart for a rundown of the different types of loads,
and their pros and cons.
If you want to avoid loads, you have
two choices: Do all your own investing or compensate your adviser in some other
way. The first is certainly an option, and it's what many
of the experts have in mind when they tell you to stick with no-loads. After all,
do you really need a highly trained market analyst to tell you to buy an index
fund? No, that's why we have index funds -- so casual investors can benefit from
the market without specialized knowledge of individual stocks.
Asset allocation or bust
But what if your investment goals
and strategies are more complex than that?
"Asset
allocation is the No. 1 factor in total return over time," says John Magadini,
a financial adviser with M.L. Stern & Co. in San Francisco. Suppose you're investing
not in index funds, he explains, but in sector funds that focus on specific industries.
Your technology sector funds go way up (or way down) and suddenly they're representing
a disproportionate part of your portfolio. A good adviser will stay on top of
this kind of change and let you know when and how to make adjustments in your
portfolio. Bob Emmer, a financial planner in Mill Valley,
Calif., believes that many people do need assistance with financial management
-- even some who don't realize they do. "Cocktail party tips
are only on the buy side," he points out. "Nobody tells you when to get out."
If you have an adviser managing your trades, he deserves to be paid. But should
you pay a load when you're buying directly? "Of course not," says Emmer. "The
fund company would just keep the money and you'd be paying for a service you didn't
get." The key question you need to ask yourself, he says: Is this person adding
value? Loads are one way, though not the only one, to pay
for investment assistance. Your broker or adviser selects and purchases an appropriate
fund for you and gets a commission of several percent of your investment. Not
an inherently bad thing; lots of people work on commission. | 
