The Real Cost of Investing in No Load Mutual Funds is…

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Apples to apples, no load funds are by far the most cost effective way to own mutual funds, far more cost effective then load mutual funds.

Now, that fact and a subway token will get you on the subway.

Some people decide to buy luxury automobiles, some people are only interested in a car that gets them from point A to point B. Some people only shop when things are on sale, some people are willing to pay top dollar for the highest quality and a brand name.

As a mutual fund investor, you need to decide a few things for yourself:

1. if cost is going to be the overriding factor.
2. whether or not you want to incorporate all the financial services that exist, outside the provincial world of no load funds.

In a vacuum: ‘If-Then’ scenario

IF we lived in a hunkie dorie world, where investment markets moved in an orderly upward fashion, with low volatility and consistent (almost predictable) performance… THEN no load mutual funds would be ideal.

But unfortunately markets don’t do this, as we’ve seen throughout the past decade.

A sense of history

History shows that investing in a diversified equity portfolio should get you a somewhat predictable return over a longer period of time. For instance, the S&P 500 Index has averaged close to 11% a year since its inception in 1926; but most people tend to focus on the returns, forgetting the bumpy ride investors experienced along the way.

My take

Many times when there’s incredible market volatility, a client’s resolve is tested. This is when a good financial advisor earns his keep and can be a valued resource.

At times when clients’ emotions are running high, they may lose perspective and want to make rash investment decisions. They need good advice, put in the perspective of their financial planning goals. During these periods a good financial advisor is worth his (or her) weight in gold.

Since I love using analogies, I think it’s time for another right now…

Have you ever chartered a boat to go on a nice long sail?

When the weather conditions are good, you will barely notice the captain of the boat or the high tech navigation equipment on board. If the seas become choppy, the skies ominous, and the boat begins to get pulled of course, I promise, you will begin to notice the captain and the skill set he brings to the table, especially after you’ve weathered the storm.

Unassisted investing is the real cost of having no loads

With No loads, when market conditions change for the worse, there is no one to turn to, no professional at the helm to advise you. Most of the time, no load investors will not have a financial plan or advisor, from which, to gain much needed perspective in times of crisis.

You must factor all of this in to your decision making process…

Tags: Loads, Mutual Funds, No Loads, Psychology Behind Financial Planning