Overall I agree with what you say about no-loads vs. loaded funds, but better yet I think indexing does better over time. Expense ratio’s very very low.

Why would anyone ever pay a load? Conspicuous consumption? Or just stupid?

ETFs are also encroaching on all mutual funds, with lower expense ratios and they can even be acquired commission-free (zecco).

There is absolutely no truth to the claim that load funds are managed differently – the only difference is that you get charged for the honor of buying their shares. Seriously, where do you get your information Geoff?

As to the strawman you constructed, of course I’d prefer to pay a load if I were going to receive a return that more than offset the additional cost. Anyone would. Can you provide me with clear evidence that opting for a loaded fund results in that sort of outperformance vs. no-load funds?

If you want *proof* that many (certainly not all) funds with a sales load perform better, just go to etrade.com (or whatever your favorite site is) and compare the same funds in no-load, /A, /B, and /C variants. I’m not making the blanket statement that all loaded funds manage their assets differently, but certainly some do.

And no, I don’t guarantee an increase in returns. Nobody does. You’d be an idiot if you assumed that someone can. With greater returns comes greater risk. Past performance doesn’t guarantee future results. Blah blah blah. But there are more financial strategies out there than just “buy and hold”, and those in finance frequently implement them. If a fund manager is really good a picking stocks (winners and losers), market-neutral portfolios are far better investing techniques than going long on every bet.

Again, I’m simply saying the blanket statement that all sales loaded funds are evil is simply untrue and demonstrates a lack of financial knowledge.

There is absolutely ZERO truth to your claim that loaded funds are managed differently than no-load funds, resulting in a higher return.

The sales load is strictly compensation for distribution.

If you compare the funds to their benchmarks or cheaper alternatives, over a long period of time, you will find they are all average. Law of Statistics.

American funds even has a no load share class. Also sometimes mutual fund companies will have no-load versions with entirely different names, like with Davis Funds/Selected Funds. People are generally not aware these alternatives exist because they are not typically available on a commissioned broker’s platform.

Loads and distribution expenses have become the equivalent of an optional tax. There are more than enough, no-load choices available. Why pay more?

Lastly, I think some financial publications must tread lightly and be careful not to alienate some of their advertisers.

“In my opinion, mutual fund sales charges are one of the biggest ripoffs in the investing world. Why should you pay upwards of 5% to buy something that you can essentially get for free from a no-load mutual fund family?”

/A, /B, /C, and (to a lesser extend) /Z funds are managed differently than no-load funds. For instance, in a no-load fund, a fund manager may buy 100,000 shares of GM, believing that despite the current economic crisis impacting the stock value over the next 6-12 months, in 5 years the stock will be up by 25%. But in a fund with a front or back-end sales load, they may also sell GM short this quarter, invest in GM options, or do other things to hedge their positions during the next 6-12 months.

The SEC has calculators for this sort of thing at http://www.sec.gov. If you are investing for 5, would you rather invest in a fund that is no load and earns 7%, or a fund that has a 5.75% front-end sales charge but earns 9%? With a 1% annual management fee, the no load fund will net you $3338 and the /A fund will net you $3790. So by paying the 5.75% up front, you would MAKE $452. If your time horizon is 10 or 15 years, or if the rate of return is greater than 9%, paying the sales load may not be a bad investment after all.

Now obviously if you want to get out in 2 years, or if the rate of return is very similar, a fund with a sales load is NOT a good investment. But the blanket statement that a”sales charges are the biggest rip-offa” just shows how little you really understands.

Great minds think alike?

Loaded funds are ridiculous. Simply baffles me.

Unfortunately, I also believe in guilt by association, and while people like you and me do what’s right, I got tired of apologizing for my co-workers and company when someone else did something wrong. There are several examples of this — current credit crisis to a rogue broker taking advantage of a client.

Now, I don’t have to worry about that any longer, and neither do my clients. I’m a fiduciary and am legally required to put a client’s interest before mine so there’s not a question of whose interests are being served.

Sorry for the rant, and I respect you for doing the right thing within a culture that doesn’t always embrace that. I wish you the best.

@nickel – sorry for hijacking your post

Client’s are not stupid (at least not for long) and they will be loyal if you show them respect and provide only the best solutions that they require.

Typically, if these funds are in a 401k plan, they use the same fund but a different share class to handle the fund’s compensation in a different, less transparent manner.

Costs count big time, and it’s a shame that brokers can still sell these funds to clients.