Loaded Funds OK?

Sarah should not exclusively buy loaded mutual funds, but she doesn’t have to avoid them either.

QUESTION: Sarah asks how she should invest in mutual funds.  Are loaded funds ok?

ANSWER: Only look into mutual funds with a track record of at least five years, preferably 10 years, and research the mutual fund families carefully. 

A loaded fund simply means it pays a commission to a mutual fund broker.  There are two types of expenses that come out of your mutual fund investments: the commission and the annual maintenance fee.  A loaded fund is okay.  You should not exclusively buy loaded funds, but you don’t have to avoid them either. 

There are actually several advantages to loaded funds.  For example, lower annual maintenance fees are common with loaded funds, which means you can actually save money by getting a loaded fund over a mutual fund that’s not loaded.

Here are a few tips for the best way to pick a mutual fund:

1.    Look at the average annual return since the fund started. 
2.    Look at the expenses of the fund.  To find this look at the expense ratio, which includes the mutual fund's management fees, advertising fees, administrative costs, and other daily operating costs.  Just make sure you’re looking at it over a five to 10 year period because that’s how long you should have the mutual fund.   
3.    Make sure the mutual fund company has a team of experts who are knowledgeable in picking the stock and portfolio mix.  That will make the track record of the mutual fund families all the more valid. 

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