ecf_awjb@jhunix.UUCP (William J. Bogstad) (02/24/86)
<-> I recently posted a request for help with investing and received a number of responses. I have shown them to a friend who is a securities broker and she has written the following response. She holds a Series 6 securities license in the State of Maryland and is currently working with First Investors Corporation -- a New York based investment firm. If you wish to respond or get in touch with her, send me a mail message and I will forward it to her. [NOTE: I have not yet made my own investment decisions.] ---[Message Follows]--- I have noticed that there seems to be an overwhelming preference for "no-load" mutual funds in this group. While "no-loads" can be beneficial to one who has a short term investment objective of six months to a year, there can also be pit-falls. I would like to alert you to some of these "hidden loads". Pull out your prospectus and look for these things: 1. Redemption fees: A % of the total value of your balance is subtracted when you sell the fund. 2. Capital Gains: The distribution of capital gains is up to the discretion of the manager of the funds. 3. Dividends: Most "no-load" funds distribute 90% of the dividends to the shareholders. Thus, these companies take 10% off of the top. 4. Custodial Fees: Many funds charge a % of the total value of your account each year. Therefore, if a company charges 2%, over a ten year period that means a charge of 20%. Much more than the 8-8.5% charge of a "loaded" fund. The bottom line is... If you want to do the research yourself and feel confident in making all of the decisions go ahead. If you aren't sure or don't want to spend the time being your own broker; find a broker you trust and his advice will probably center around "loaded" funds. Virginia S. Wesner ---[End Message]--- Bill Bogstad bogstad@hopkins-eecs-bravo.arpa seismo!umcp-cs!aplcen!jhunix!ecf_awjb
boucher@hsi.UUCP (Keith Boucher) (02/25/86)
> I have noticed that there seems to be an overwhelming preference > for "no-load" mutual funds in this group. While "no-loads" can be > beneficial to one who has a short term investment objective of six > months to a year, there can also be pit-falls. I would like to alert > you to some of these "hidden loads". Pull out your prospectus and look > for these things: > > 1. Redemption fees: > A % of the total value of your balance is subtracted when you > sell the fund. Some "no-load" funds do charge a redemption fee but others do not. Some base the redemption fee on the total amount including any capital gains or dividend income while others base it only on the amount originally invested. Still others reduce the percentage over time until there is none. Some have a redemption fee to discourage frequent trading. The redemption fee goes back to fund. In any case there are plenty of mutual funds which have no redemption fee at all. Twentieth Century Select is an example of a no load fund which charges no redemption fee although other members of the Twentieth Century family do. > > 2. Capital Gains: > The distribution of capital gains is up to the discretion of the > manager of the funds. > I do not see any difference between load funds and no load funds with regards to item 2. The manager of the funds has the discretion to distribute capital gains in either case. > 3. Dividends: > Most "no-load" funds distribute 90% of the dividends to the > shareholders. Thus, these companies take 10% off of the top. > > 4. Custodial Fees: > Many funds charge a % of the total value of your account each > year. Therefore, if a company charges 2%, over a ten year period that > means a charge of 20%. Much more than the 8-8.5% charge of a "loaded" > fund. > Many funds do NOT charge a % of the total value of your account each year. The only charge is the expense ratio of the total assets of the fund for management advisory fees and other expenses. Load funds also have expense ratios of the total assets of the fund for management advisory fees and other expenses. The load goes to salespeople in the form of commissions and to other marketing expenses. The management advisor does not get any of the load. Some funds that do call themselves no load however do charge a % of the total value of your account each year. These funds call themselves no load but of course really are no different from load funds and can be worse in some cases. > The bottom line is... If you want to do the research yourself > and feel confident in making all of the decisions go ahead. If you > aren't sure or don't want to spend the time being your own broker; find > a broker you trust and his advice will probably center around "loaded" > funds. > > Virginia S. Wesner It would surprise me if I went to a broker who didn't recommend a load fund. That is what they are in business to sell. A First Investors Representative will of course recommend one of the First Investors Funds. I am willing to do my own research and make my own decisions. I do not have a strong background in economics or finance but I can read magazines like Money or Forbes, or newspapers like the Wall Street Journal or Barrons. To summarize, there are plenty of "no-load" funds around that charge hidden fees and therefore are no better that load funds. BUT, there are plenty of no-load funds around that do not charge hidden fees. There are no fees taken off the investment up front and no redemption fees. A nominal amount usually 2% or less is taken from the funds assets each year for expenses. Load funds also take a % from their assets each year. Performance is the deciding factor when deciding where to invest your money. True no-load funds always do better as a whole than load funds when measuring total performance. Money Magazine periodically will publish the performance ratings of mutual funds (load and no-load) and no-load funds consistently do better. I know of no reason whatsoever to invest in a load fund. All the factors dictate investing in a true no-load fund will be the superior investment. The only people who recommend load funds are the people selling them and of course they are not unbiased. A percentage of the load that is paid will go straight into their pocket in the form of commissions. Keith Boucher HSI New Haven, CT
boucher@hsi.UUCP (Keith Boucher) (02/26/86)
> I have noticed that there seems to be an overwhelming preference > for "no-load" mutual funds in this group. While "no-loads" can be > beneficial to one who has a short term investment objective of six > months to a year, there can also be pit-falls. I would like to alert > you to some of these "hidden loads". Pull out your prospectus and look > for these things: I decided to pull out my prospectus for the following four funds: 1. First Investors Discovery Fund - March 1, 1985 2. IDS Strategy Fund - May 28, 1985 3. Strong Total Return Fund - January 1985 4. 20th Century Select Fund - March 1, 1985 The following is a summary of the information in each prospectus. > 1. Redemption fees: > A % of the total value of your balance is subtracted when you > sell the fund. Strong Total Return Fund and 20th Century Select Fund charge no redemption fee at all. First Investors Discovery Fund charges no redemption either but their is a clause in the prospectus stating that they reserve the right to charge a 1% redemption fee if it is necessary to sell Fund assets to meet the redemption request. They then state that they do not intend to charge this fee. Sometime in the future they may change their policy and charge this fee. IDS Strategy Fund charges a redemption which declines the longer the money is in the account according to the following schedule: Year 1 - 5% Year 2 - 4% Year 3 - 4% Year 4 - 3% Year 5 - 2% Year 6 - 1% Year 7+ - 0% Only the money originally invested is subjected to this redemption fee. For example if one invests $1,000 on 1-1-85 and through dividends and capital gains the value increases to $2,000 on 1-1-86 then the redemption fee applies only to original $1,000 even if the whole $2,000 is withdrawn. > 2. Capital Gains: > The distribution of capital gains is up to the discretion of the > manager of the funds. All four prospectuses state that they will follow IRS regulations and distribute dividends and capital gains to the shareholders. > 3. Dividends: > Most "no-load" funds distribute 90% of the dividends to the > shareholders. Thus, these companies take 10% off of the top. The prospectus for three of the four funds states that 100% of the fund's income will be distributed to the shareholders. Only First Investors Discovery Fund's prospectus differs. This prospectus states that at least 90% of the income will be distributed to the shareholders but says nothing about all 100% of the income being distributed. Of course, it also says nothing about not distributing 100% of the income. > 4. Custodial Fees: > Many funds charge a % of the total value of your account each > year. Therefore, if a company charges 2%, over a ten year period that > means a charge of 20%. Much more than the 8-8.5% charge of a "loaded" > fund. None of the four prospectuses says anything about deducting shares from your account each year. All four prospectuses mention deducting a % from the average daily net assets of the fund for management advisory fees and other expenses. This % is listed below for the time period given. 1. First Investors Discovery Fund - 1.23% Year 1984 2. IDS Strategy Fund Equity Portfolio - 1.38% 5/14/84 - 3/31/85 3. Strong Total Return Fund - 1.3% Year 1984 4. 20th Century Select - 1.01% 11/1/83 - 10/31/84 The up front load for each fund is as follows: 1. First Investors Discovery Fund charges a load for any investment: $10,000 or less 8.5% $10,000 - $25,000 7.75% $25,000 - $50,000 6.25% $50,000 - $100,000 5.50% The % goes down to 1.5% for $1,000,000 and up. 2. IDS Strategy Fund charges no load up front but charges a redemption fee as described above. 3. Strong Total Return Fund charges a 1% load up front. 4. 20th Century Select charges no load up front or no redemption fee. It is a true no load fund. > The bottom line is... If you want to do the research yourself > and feel confident in making all of the decisions go ahead. If you > aren't sure or don't want to spend the time being your own broker; find > a broker you trust and his advice will probably center around "loaded" > funds. > > Virginia S. Wesner > The bottom line is what is the difference between the funds as far as what it will cost you. There is really no difference between the four funds with regards to the four points made above except the redemption fees that IDS Strategy Fund charges. The income distribution and management advisory fees and other fees are fairly close. The real difference is the load that you pay up front or that is charged upon redemption. You can go to a broker and invest in a load fund that he or she suggests or you can invest in a no-load fund and save yourself the up front or back end costs. That seems to be the only difference. The decision is up to you but my advice would be to do a little research and deal only with no-load funds. You will be better off in the long run. I am not a licensed broker but I am a person who has tried it both ways with my own hard-earned money and am thoroughly convinced that the only way to go is the no-load way. Keith Boucher HSI New Haven, CT
mazlack@ernie.berkeley.edu.BERKELEY.EDU (Lawrence J. &) (02/26/86)
>> 1. Redemption fees: >> A % of the total value of your balance is subtracted when you >> sell the fund. > >Some "no-load" funds do charge a redemption fee but others do not. Some >base the redemption fee on the total amount including any capital gains or >dividend income while others base it only on the amount originally invested. >Still others reduce the percentage over time until there is none. >Some have a redemption fee to discourage frequent trading. The redemption >fee goes back to fund. In any case there are plenty of mutual funds which >have no redemption fee at all. Twentieth Century Select is an example of >a no load fund which charges no redemption fee although other members of >the Twentieth Century family do. I wouldn't call a fund with a redemption charge a "no-load" fund. I think that the proper terminology is "back-end load". >> 2. Capital Gains: >> The distribution of capital gains is up to the discretion of the >> manager of the funds. > >I do not see any difference between load funds and no load funds with >regards to item 2. The manager of the funds has the discretion to >distribute capital gains in either case. > >> 3. Dividends: >> Most "no-load" funds distribute 90% of the dividends to the >> shareholders. Thus, these companies take 10% off of the top. Actually, statements 2 & 3 are in conflict. As it turns out, most funds - load or no-load - distribute at least 90% of their dividends to avoid paying taxes. They have to do this to qualify as something called "A Regulated Investment Company". If any dividends are retained, they do not become investment manager profit, but they are added into the asset base of the fund. > >> 4. Custodial Fees: >> Many funds charge a % of the total value of your account each >> year. Therefore, if a company charges 2%, over a ten year period that >> means a charge of 20%. Much more than the 8-8.5% charge of a "loaded" >> fund. It appears that you are refering to management fees here. It turns out that BOTH load and no-load funds charge management fees. The management fees are usually set as a maximum of the total assets of the fund. This percentage can and does vary from fund to fund. However, it is true that >Some funds that do call themselves no load however do charge a % >of the total value of your account each year. These funds call themselves >no load but of course really are no different from load funds and can be >worse in some cases. >> The bottom line is... If you want to do the research yourself >> and feel confident in making all of the decisions go ahead. If you >> aren't sure or don't want to spend the time being your own broker; find >> a broker you trust and his advice will probably center around "loaded" >> funds. >> >It would surprise me if I went to a broker who didn't recommend a load fund. >That is what they are in business to sell. ........................... I think that if you aren't willing to put in some time, you should just buy CDs. Trusting brokers is like trusting used car salesmen. Their interest is to SELL you things. They make their money by the commision that they get from you. If you loose money, they still get to buy their yacht with your money. >To summarize, there are plenty of "no-load" funds around that charge hidden >fees and therefore are no better that load funds. BUT, there are plenty >of no-load funds around that do not charge hidden fees. There are no >Performance is the deciding factor when deciding where to invest your money. >True no-load funds always do better as a whole than load funds when >measuring total performance. Money Magazine periodically will publish the >performance ratings of mutual funds (load and no-load) and no-load funds >consistently do better. The reason that they do better is that they do not have to overcome the initial loss. If we use a one year time period and a 8% load, the load funds will have to be (100/92) better than the no-load because the load is taken off before the money is invested. And, as on average, load funds perform no better than no-load, you lose. > >I know of no reason whatsoever to invest in a load fund. All the factors >dictate investing in a true no-load fund will be the superior investment. >The only people who recommend load funds are the people selling them and >of course they are not unbiased. A percentage of the load that is paid >will go straight into their pocket in the form of commissions. >
ekrell@ucla-cs.UUCP (02/27/86)
Numerous studies have demonstrated that there is no correlation whatsoever
between a fund's performance and the amount, if any, of its load or sales
charge.
The 12b-1 "hidden loads" are becoming more popular these days. This is a
maximum annual percentage taken from the fund to cover sales and promotion
expenses. The annual fee ranges from 0.06% to 1.25%. Most of them are
less than 0.3%, which is really less than the existing range of variance
of management fees among different funds, so up to now, these hidden loads
are a minor consideration in choosing a fund.
--
Eduardo Krell UCLA Computer Science Department
ekrell@ucla-locus.arpa ..!{sdcrdcf,ihnp4,trwspp,ucbvax}!ucla-cs!ekrellbrett@ucla-cs.UUCP (02/28/86)
> I know of no reason whatsoever to invest in a load fund. All the factors > dictate investing in a true no-load fund will be the superior investment. > The only people who recommend load funds are the people selling them and > of course they are not unbiased. A percentage of the load that is paid > will go straight into their pocket in the form of commissions. > > Keith Boucher HSI New Haven, CT I agree. As a matter of fact, all Vanguard mutual fund portfolios are available with no sales commissions. (I think they mean no redemption fees as well when they make this statement). So, choosing a "group" of no-load mutual funds which you can exchange to/from without ever having to worry about loads makes life a little easier. Then all you do is worry about individual mutual funds performance within that group. I'll bet you could do even better with that strategy than on most loaded funds. I found knowing a whole group of funds is "no-load" is really very helpful as investment strategies change. I'm not sure if Vanguard is unique in this respect. Anyone know? -- Brett Fleisch University of California Los Angeles LOCUS Research Group 3804-f Boelter Hall Los Angeles, CA 90024 Phone: (213) 825-2756, (213) 474-5317 brett@LOCUS.UCLA.EDU {...sdcrdcf, ihnp4, trwspp, ucbvax}!ucla-cs!brett -------------------------------------------------------------------------
ekrell@ucla-cs.UUCP (03/01/86)
Brett Fleisch writes: > >I agree. As a matter of fact, all Vanguard mutual fund portfolios are >available with no sales commissions. (I think they mean no redemption >fees as well when they make this statement). True except for their new Specialized Portfolio group (Energy, Health Care, Gold, Service Economy and Technology funds) which do have a 1% redemption fee (however, you can switch among funds in the group and to money market funds without any penalty). >I found knowing a whole group of funds is "no-load" is really very helpful >as investment strategies change. I'm not sure if Vanguard is unique >in this respect. Anyone know? There are other no-load fund families like T. Rowe Price, Scudder, Stein Roe, Value Line and a couple of others, but the variety of funds in the Vanguard Group (over 30) makes it unique. -- Eduardo Krell UCLA Computer Science Department ekrell@ucla-locus.arpa ..!{sdcrdcf,ihnp4,trwspp,ucbvax}!ucla-cs!ekrell
mazlack@ernie.berkeley.edu.BERKELEY.EDU (Lawrence J. &) (03/03/86)
>> I know of no reason whatsoever to invest in a load fund. All the factors >> dictate investing in a true no-load fund will be the superior investment. >> The only people who recommend load funds are the people selling them and >> of course they are not unbiased. A percentage of the load that is paid >> will go straight into their pocket in the form of commissions. >> >> Keith Boucher HSI New Haven, CT > >I agree. As a matter of fact, all Vanguard mutual fund portfolios are >available with no sales commissions. (I think they mean no redemption >fees as well when they make this statement). >So, choosing a "group" of no-load mutual funds which you can exchange >to/from without ever having to worry about loads makes life a little >easier. Then all you do is worry about individual mutual funds performance >within that group. I'll bet you could do even better with that >strategy than on most loaded funds. I own/have owned several different Vanguard funds. None of them had either a front-end or back-end load. Another advantage that Vanguard has is that it has comparatively low management fees. The only disadvantage that I have experienced is that their service is not so great. But, if your management fees are low, they have to save someplace. ....Larry Mazlack mazlack@ernie.edu
berner@Navajo.ARPA (William Berner) (03/11/86)
In article <9492@ucla-cs.ARPA> brett@ucla-cs.UUCP writes: > >I found knowing a whole group of funds is "no-load" is really very helpful >as investment strategies change. I'm not sure if Vanguard is unique >in this respect. Anyone know? > >-- >Brett Fleisch No, they aren't unique. I own shares in three funds from United Services, all of which are no-load. Several groups of funds are no-load. A good way to tell is to look in the Wall Street Journal under mutual funds. For each fund, there is are three numbers, an NAV (net asset value), an offer price, and an NAV chg. The funds with an offer price listed as "N.L." are no load, that is, the offer price is the same as the NAV. +-------------------------------+-------------------------------+ | Bill Berner ARPA: berner@su-score.arpa | | School of Engineering | | Stanford University UUCP: !glacier!navajo!berner | | Stanford, CA 94305 USA | +-------------------------------+-------------------------------+
wfi@rti-sel.UUCP (03/12/86)
In article <12132@ucbvax.BERKELEY.EDU> mazlack@ernie.berkeley.edu.UUCP (Lawrence J. Mazlack) writes: >I own/have owned several different Vanguard funds. ... >The only disadvantage that I have experienced is that their service is not >so great. But, if your management fees are low, they have to save someplace. I'm a new investor, and Vanguard is one of the companies I've been looking into. What is it about their service that isn't so great? What kind of service from a company like Vanguard would you consider first rate? I guess I don't understand what 'service' means in this context. -- Cheers, Bill Ingogly
mazlack@ernie.berkeley.edu (Lawrence J. Mazlack) (03/15/86)
>>I own/have owned several different Vanguard funds. ... >>The only disadvantage that I have experienced is that their service is not >>so great. But, if your management fees are low, they have to save someplace. > >I'm a new investor, and Vanguard is one of the companies I've been >looking into. What is it about their service that isn't so great? What >kind of service from a company like Vanguard would you consider first >rate? I guess I don't understand what 'service' means in this context. > A fair question. I like Vanguard. But, to get information out of the telephone people is difficult (meaningful informaton). Also, to get them to correct things is sometimes a slow process. They are also a little slow on disbursements.