June 30, 2008

Motley Fool reporting that load funds underperform no-load funds

The Motley Fool reports in the article Don't Touch These With a Ten Foot Pole that :

"It turns out that load funds consistently underperform no-load funds, even when you back out fees."

Loaded funds are mutual funds that have a commission to buy them up front. So you have to pay a percent of the investment to the broker just to get into the fund. Because there is such a commission they are start with a negative return that you have to dig out from. Its no surprise then that loaded funds would have a disadvantage versus the no-load funds without a commission charge. But what is interesting is that Motley Fool is reporting that research shows that the loaded funds underperform no-load funds even when you take out the impact of the load fee.

So in short.. Stay away from loaded funds.

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