Lower Fees, Higher Returns


charges, or loads, in the mutual fund business. (See sidebar.) Generally, you’ll have to pay some kind of a load if you want a professional’s advice. But some advisors, such as Davis, do without sales commissions and rely upon asset management or hourly fees instead. Thus, instead of paying a $575 load when you invest $10,000 in a fund, you might pay $100 — $200 a year for ongoing guidance, or an established fee for every hour you talk with your advisor.

Davis says the market may be up moderately the rest of this year: “I think the best opportunities may be in large-cap funds. They invest in big companies and many of those companies have retrenched, laying off people. Those companies may find that the economy isn’t as bad as they thought, so their profits might increase, raising the stock prices.” Among the funds Davis would recommend to an investor with a similar investment profile to the Marshalls’ are the Vanguard 500 Index (VFINX) and the Vanguard Total Stock Market Index (VTSMX). Like many index funds, they do little trading and no stock picking so expenses are extraordinarily low, around 0.20% per year, or $20 for every $10,000 invested. He also likes Oakmark Equity & Income (OAKBX), Dodge & Cox (DODBX), T. Rowe Price Equity-Income (PRFDX), Clipper (CFIMX), and Ameristock Focused Value (AMFVX).

Even if you think stocks are ready for a repeat performance of the late 1990s, you shouldn’t overload on any one type of fund. On the other hand, the sorry performance of stocks in 2000, 2001, and 2002 shouldn’t scare you away. “Timing the market is a fool’s game,” says Portnoy. “If you are investing for a period of five years or longer, there are good reasons to stick with equities.” A mix of stock funds and bond funds will likely serve you best, and the payoff may be greater if you seek funds that will spend your money carefully.

The ABCs of Selecting Mutual Funds
If you want professional assistance in selecting mutual funds, you’ll most likely have to pay an advisor or a load (sales charge). Traditionally, a load was paid up front. With an 8.5% load, for example, you might invest $10,000 but only see $9,150 on your initial statement. The other $850 would be the broker’s commission. Up-front loads still exist but they’re not your only option. Most load funds now offer several share classes, commonly A, B, and C share classes.

A shares are the ones with up-front loads. A 5.75% load is common for stock funds. Some initial loads are slightly lower.

B shares have back-end loads. Each dollar you invest goes into mutual funds, but you pay the load over time via higher annual fees. If you redeem B shares early, you may pay a redemption fee, which declines the longer you hold the fund and usually disappears after about six years. The higher annual fees (known as 12b-1 fees) are in place for a number of years.

C shares generally don’t charge an up-front fee


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