News & Ideas

No-Load Mutual Funds: Give Yourself a Head Start


Load or no-load mutual funds? There’s a big difference!

By: Robert F. Abbott, freelance writer and author

no load mutual fundsAmong objective observers of mutual funds, no-load funds get an overwhelming thumbs-up.

‘No-load’ is simply the industry’s way of referring to funds that carry no sales fees. On the other hand, a ‘load fund’ requires that you pay a sales commission when you buy, a ‘front-load fund’, or when you sell, a ‘back-load fund’.

Often, mutual fund sales people will tell you the sales fee is needed to compensate them for the time they spend setting up your account, or even ‘educating’ you about funds. You don’t get something for nothing, as the saying goes.

But, in the case of mutual funds, paying a load often means paying twice. You routinely pay a management expense ratio to the company that set up the fund, and that usually covers all the administrative and trading costs.

From an investors’ perspective, a sales load takes a serious bite out of returns, reducing the amount you take home. That’s a real problem with a ‘front-load’ fund, which reduces your starting capital. In turn, it’s that much less capital available to compound over time, and compounding is one of the most important vehicles by which your investment grows.

So, it’s not surprising to see articles like this one from Zacks, that shows no-load funds outperforming their loaded counterparts…

Best Performing No-Load Mutual Funds in Q3 of 2015

The list of best-gaining mutual funds for the quarter is dominated by no-load mutual funds….

Now, some load funds do well, and even very well. They find a place in lists like the one referenced above. However, the odds are more in your favor if you start with no-load funds. It’s simply a matter of the math giving you an important edge, and edges play a very important part in making your investments winners.

Robert Abbott

Robert F. Abbott has been investing his family’s accounts since 1995, and in 2010 added options, mainly covered calls and collars with long stocks.In his other writing, Abbott explores how the middle class has come to own much of big business through pension funds and mutual funds, what management guru Peter Drucker called the Unseen Revolution. In Big Macs & Our Pensions: Who Gets McDonald's Profits?, the first of a series of booklets on this subject, he looks at the ownership of McDonald’s and what that means for middle class retirement income.In an eclectic career, Robert Abbott was a radio news writer and announcer, a newsletter writer and publisher, a farmer, a telephone operator, and a construction worker. When not working, he has been a busy volunteer, which includes more than a decade of leadership roles at the Airdrie Festival of Lights, one of North America’s leading holiday light displays. He lives in Airdrie, Alberta, Canada.