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Please Stop Paying Commissions for Loaded Mutual Funds!

the fine print

There’s nothing to see here. Please move on.

“Getting and spending, we lay waste our powers.”
–William Wordsworth

I’ve been there. I’ve suffered from the siren song of a chart pornist who wants to show you beautiful charts that somehow convince you that paying a 5.9% front load on a mutual fund ensures that, somehow, some way, the mutual fund is going to outperform the market. “We’ll have money when the market tanks,” the chart pornist sings his siren song, “so we can buy even more when everyone else is running away!”

In theory, this approach would work if a) it was impossible to value cost average, b) NOBODY else did it, and c) the loads weren’t so high that they didn’t cripple your investment ability, giving everyone else such an enormous head start that it’d take a ton of down days followed by a record-setting up day before that strategy could work.

But, this is the real world, not the one that the “investment advisors” who work at strip mall “financial planning” firms like to present to you as reality. Even the great Dave Ramsey, whose work at getting people out of debt I admire greatly, has an endorsed local provider (ELP) network whose advisors make their living off of charging commissions for investing in mutual funds. He claims that his investments gain 12% on average, except that front loads take 5.9% off the top, and, active management comes replete with its own risks that effectively relegate active mutual fund investing to the realm of rolling loaded dice.

However, up until now, I’d struggled to find any hard data to support my gut feeling that paying a mutual fund load and disproportionately high fees was akin to lighting your money on fire.

Until now. Thanks to Sandi Martin at Spring Personal Finance in Barrie, Ontario, Canada, I have found the data. Craig Israelsen in Financial Planning Magazine did a study of front loaded mutual funds compared to their non-loaded mutual fund equivalents.

Before I dig into the results, let me take a moment to remind everyone what a mutual fund load is and how you can find these loads.

First, let’s answer the initial question:

What is a mutual fund load?

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Jason Hull is a Fort Worth fee only, hourly financial planner who serves clients in Fort Worth, TX and Dallas, TX as well as serving clients nationwide.

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Hull Financial Planning is a Fort Worth, fee-only hourly financial advisor. The cities we serve in the Dallas-Fort Worth area include: 

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Hull Financial Planning, 2939 Crockett St. #315, Fort Worth TX 76107, (817)476-0584

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Comment   |  6 years, 5 months ago from Fort Worth, TX