Do You Own Load Funds?

Friendly reminder:  For those participating in the online Millionaire Teacher by Andrew Hallam book discussion, chapter 2 reading should start tomorrow.  It will be about the value of time in the investment process.  Commenters are especially welcome.  Now on to the topic of this post.

I run into people all the times whose portfolio is filled with load funds.  And, most don't know (and even those who do don't know) that there is no evidence that paying the extra fees incurred by the load results in superior performance.  To be blunt -  buying load funds is, in most cases, akin to paying the sticker price on a new car.  If that doesn't bother you, then reading the rest of the post is a waste of time.

How can you tell if your funds have loads?  Actually it is easy.  Just go to www.morningstar.com, put in the ticker symbol in the quote box, and you can tell quickly as shown by this example:

CLICK TO ENLARGE

The load for this fund is 2.25%.  How much is paid and when it is paid is an important question and not easily answered.  Some loads are backloads, and a percentage is paid if the shares are paid before a certain period.  Some are paid up front and some are paid as you go - it depends on the class of the share.  All of this is purposely made opaque by mutual fund companies.

As an aside, you may be stymied by not being able to come up with a ticker symbol because you are investing in the proprietary funds of the provider.  In this instance, you have to be a junk yard dog in getting information on the costs you are incurring.  I would recommend asking for any information you are given in writing - this tends to focus the rep on ensuring that he or she is not just talking off the cuff. 

If load funds are held in your 401(k), chances are it could be news to your fund administrator.

The only reliable source of information is the fund provider.  I would suggest getting specific information on how the load works.  This is really important when you go to sell issues or roll over an account.  For example, if you have a backload and you automatically reinvest dividends, then you could pay a sales charge on the reinvested shares when you sell.

My suggestion is to avoid load funds altogether.  If they are all that is offered at your work 401(k), then ask why, unless you want to work until you are in your eighties!