How To Find Value In No Load Mutual Fund Investing

Posted by Mutual-Funds | Stocks | Sunday 7 March 2010 8:11 pm

What are you thinking when it comes to your no load mutual fund selections? Are you saving pennies and sacrificing dollars?

Are you spending your time looking at expense ratios, analyzing Morningstar ratings and searching for funds with low fees and no 12b1 charges? If you are like most people, you know these things in and out. You’ve spent hours evaluating them, and your chosen mutual funds cost little to purchase and maintain. But they still don’t perform to your hopes and expectations.

So, why is this happening? Because this kind of investing focuses on cost as opposed to value.

Investors with this philosophy have usually interviewed numerous advisors. But instead of trying to find someone suitable with a sensible approach, they only want to know who has the lowest fees. That’s like going to the cheapest auto repair shop and getting the best price, but your car still doesn’t run well.

Then there are the investors who call or email me wanting a recommendation on a no load mutual fund. They want one with no 12b1 charge, but they completely ignore the issue of how the fund might perform.

Both these kinds of investors spend their time trying to save pennies and in the process they are losing dollars. Instead of falling into the penny wise, dollar foolish trap, here are some ideas that will assist you in evaluating the end profit rather than just the short term saving.

1. Shift your focus from penny pinching to looking at the big picture: What can a mutual fund or an advisor do for you, not how much does it cost? Why? If you buy a given no load mutual fund at the right time and it gains a tidy 15% for you over a 6 week period, would you really care about the costs? If a mutual fund?or an advisor for that matter?can give you superior performance and an increase of several percentage points over your bargain price pick wouldn’t you pay an extra 0.25%?

2. Consider finding a fee-based investment advisor who uses a facts-based methodology and has a track record indicating those kinds of returns. For example, in my own practice I used a trend tracking approach to get my clients into the market on April 29, 2003. Plus, our research and homework led us to recommending funds that gained anywhere from 11.50% to 22.00% over the following 6 week period. How did you do during that time? Do you think any of my clients care whether one of these funds has a small 12b 1 charge? Or whether they have the lowest expense ratios in the industry? I know they don’t.

The bottom line is to look at costs as balanced by performance and that’s where you find value. Then seek true value not simple savings, enjoy healthy dollar-level returns and don’t sweat the pennies.

About The Author

Ulli Niemann is an investment advisor and has been writing about objective, methodical approaches to investing for over 10 years. He eluded the bear market of 2000 and has helped countless of people make better investment decisions. To find out more about his approach and his FREE Newsletter, please visit: www.successful-investment.com; ulli@successful-investment.com

How To Evaluate Load Vs. No Load Mutual Funds

Posted by Mutual-Funds | Stocks | Sunday 21 February 2010 4:11 am

If you have been dealing with mutual funds for any length of time, you undoubtedly have faced the question of which is better: Load Funds or No Load Funds. If you are new to investing, load simply refers to the commission paid to the broker selling the fund. No load means there is no commission on the purchase or sale.

Most discussions in the past have centered exclusively on performance comparisons. Even rating services like Morningstar have occasionally chimed in with their opinion. However, rather than focusing only on performance, there are some other issues I consider far more important:

  • Who is selling load funds and why?

  • Who markets no load funds?

  • Which one is right for you?

    Who is selling load funds and why? Most load funds are being sold through brokerage houses, financial planners and Registered Representatives. With few exceptions, most of those folks operate on the basis of selling as much product as possible. They collect their commissions up front, as a back end charge, or both (usually in the range of 5 – 6%). Whether you make money or not is not their primary concern. What matters most to those operating under this approach is how often you buy?and thereby generate new commissions for them.

    Who markets no load funds? No Load funds are either marketed directly by the mutual fund companies or, more commonly these days, offered through discount houses like Schwab, Fidelity, and many others. The advantage to this is that you have an unlimited choice of funds in one place and don’t have to open separate accounts for each mutual fund family that you are considering.

    Most fee based investment advisors, like myself, have independent relationships with such major discount firms and are able to offer clients just about any no load mutual fund available. They receive no compensation from the firm and only get paid by the client at a pre-determined fee arrangement. Under this arrangement, there is no hidden motivation to sell you a particular fund or to try and sell more in order to get a larger commission.

    Which one is right for you? Whether you prefer dealing with someone selling load funds or an advisor getting you into no loads, let me make one thing very clear: You can make money or lose money either way! Why?

    Let?s assume for the moment that there is no difference in performance between the types of funds?some of either kind will do well and some of either kind won’t. What then determines the successful outcome of you buying either a load or a no load fund?

    The key is the advice you?re getting. And the fact is that many brokerage houses and Registered Representatives tend to be more interested in their profits than yours. Their investment advice is generally centered around Buy and Hold or dollar cost averaging and similar financially questionable recommendations. Hardly ever will you receive advice about when and why you should exit the market, either because of accumulated profits or to limit your losses. Getting out of the market is simply not in their best interest, though it may be in yours.

    I must confess that, as a fee based advisor, I am somewhat biased and I prefer no load funds for my clients. I believe that this type of arrangement is best for all parties involved. It allows me to avoid any conflict of interest and to work exclusively for my clients? financial benefit. And the better my clients do, the better I do.

    I am able to choose no load funds and make buy decisions solely on the basis of my mutual fund trend tracking methodology. Following its signals, I can get clients into the market or out of it as often as is necessary to maximize profit or protect assets. And because I work with no load funds, other than a very occasional short term redemption fee, there are no transaction charges no matter how many times we move into or out of the market.

    If market conditions dictate that we stand aside in a money market for an extended time in order to avoid a bear market (as was the case from 10/13/2000 to 4/28/2003), I can advise that because it is in the best interest of my client. I am always thinking about what will benefit my client, not worrying about lost commissions. (Please see my article ?How we eluded the Bear in 2000? at http://www.successful-investment.com/articles12.htm.

    Bottom line: Load fund vs. No Load mutual fund shouldn?t be the issue. Having a methodical plan and reliable advice as to when to buy and when to sell is far more important and will help you to secure a prosperous financial future.

    ? by Ulli G. Niemann

    About The Author

    Ulli Niemann is an investment advisor and has written about methodical approaches to investing for over 10 years. He avoided the bear market of 2000 and has helped countless people make better investment decisions. Subscribe to his free newsletter: www.successful-investment.com; ulli@successful-investment.com