Interesting Article on American Funds

[Sachin]

For those of you who own American Funds mutual funds, this is an interesting read:

http://yahoo.businessweek.com/magazine/content/05_08/b3921102_mz020.htm

Sachin

[stopper4]

The risk is that American's funds will get so big that they become little more than index funds and can no longer justify charging investors steep initial fees of up to 5.75% -- of which brokerages typically get five percentage points or more -- to buy a fund.

:eek:

And I was annoyed when Vanguard let Fidelity beat them for the lowest cost S&P 500 index, from .18% to .10%!

[Sachin]

You're confusing front-end load (American Funds) with expense ratio (Vanguard, Fidelity).

Sachin

[Pathogen]

You're confusing front-end load (American Funds) with expense ratio (Vanguard, Fidelity).

Sachin
For us laymen and beginners, what's the difference?

[VFish]

For us laymen and beginners, what's the difference?Front end loads are basically sales commissions while expense ratios are management fees (the cost of running the fund and paying the managers). All funds have expense ratios, not all funds charge a load.

[Sachin]

Think of front-end loads as the cover change, and the expense ratio as the price per drink.

Basically, some funds require you pay up to even purchase their shares. They claim this is ensure they have quality buyers who don't churn assets, but it's all profit for them. Generally speaking, loaded funds don't outperform no-load (no cover) funds, but there are cases.

If you want a specialized fund (natural resources, international, some industry specific, etc.) you may have to pay a load to get a decent fund.

There are also back-loaded funds, where you pay when you sell. Imagine having to pay when you leave the club. :eek:

http://www.investopedia.com/terms/f/front-endload.asp

Sachin

[Pathogen]

Thanks for the easy explainations, Sachin and VFish.

Also, congrats on the wedding Sachin. I'm going to assume that was a recent event for you. There's no finer institution for those of us lucky enough that find the person of our dreams.

[Sachin]

Thanks. It's been all bliss for the 11 days we've been married. :D

Sachin