Load, No-Load, 12b-1, what are all these fees?

Question

Some sites say don't invest in load funds, some say their is no such thing as a no-load fund, that they all have fees. I currently have investments in my Roth IRA in Class A Funds, is this good or bad? I am confused by how much the fees are and when they are charged. Which type of funds are the best types to invest in for a retirement Roth IRA?

Answer 1

Jacko is correct in his first sentence. But his 2nd sentence is totally wrong. Load fees are one time entrance/exit fees that go to pay a planner/salesman who helps you in deciding which fund to invest in. No load funds do NOT have "hidden load fees" because they do not depend on salespeople/planners to sell their funds. Pick up any investment magazine like Money, Smart Money, Kiplinger's Personal finance, etc. and look at the ads for mutual funds. Load funds will say something like "speak to your planner to see if we are right for you." No load funds will say something like "call us directly and speak to a service rep for an application. (No load funds do not give free financial advice.). There is a difference between loads and fees. All funds charge annual fees. On average, load funds charge higher fees than no load funds. Besides annual expense fees (cost of running the fund) there is trading costs (check turnover ratio, lower ratio means less trading costs), and some funds (more load than no load funds) charge a 12b-1 fee. This fee was first started to pay for advertising/marketing costs in the hopes that more advertising will bring in more investors so the fixed cost of running the fund would be spread out amoung more people and therefor cost less per person. Now a days, many funds continue their 12b-1 fees even though they have enough investors. They now use the money to pay planners/salesmen each and every year to "continually check on your account to make sure it is still suitable for you". Which type is best for a ROTH IRA? If you know what you are doing, a low fee no load fund, like the ones from 3 of the biggest mutual fund companies, Fidelity, T. Rowe Price or Vanguard are best. If you don't know what you are doing, a planner/adviser is needed and A class funds are best. Be advised if you are investing a large enough sum, usually over $50,000, many load mutual funds will give you a break and charge you less of a load.

Answer 2

Load funds are those with a front-end (ie you pay charge at time of purchase). They are the worst. They are normally A shares so you likely have paid fees. 12b-1 are maketing fees many funds charge during the yr out of fund assets. Not a load - an expense. ETFs are actually the best funds to have as very low expenses. No need for an advisor. EFA PGJ (though China a bit risky now) EWA (Australia still strong) PXJ ADX PEO all better picks than Class A funds. You pay a broker commission as they trade like stocks but then ADX & PEO both sell at 10% or so discount to asset value so still not even paying net asset value instead of paying a load on top oif NAV. Should have asked this pre-buying expensive funds. Move IRA to schwab.com & see how cheap investing can be. [e-mail]

Answer 3

The word "load" refers to a fee charged for entering/exiting a mutual fund, hence the terms front-load and back-load. A no-load fund, simply means has a more hidden method of charging the fees. In any event, the load fees are essentially incentives for sales people and so you as an investor won't even notice the difference. The fund is compelled to charge certain fees in order to remain viable and pay operating costs. The total fees charged are always made known and generally run 0.5% through 4% of the fund performance.
With regard to your other questions, you really need to talk to an advisor to get appropriate answers that will apply to your situation.