Written by Financial Advisor Hans Smith | January 3, 2023
Investing in mutual funds for retirement can be confusing, especially when it comes to fees that aren’t always clear. When reviewing statements from prospects at other financial firms, it’s not uncommon to see Class A share mutual funds held within the investment accounts. Class A shares charge investors a front-end load sales commission, typically ranging between 2.0%-5.75% of the initial investment.
In our view, placing clients in Class A share mutual funds is a practice that is unnecessary, costly to the consumer of investment advice, and nontransparent. Class A share mutual funds are products that are often designed to benefit your advisor and their financial firm, but not you as the investor.
Clients pay substantial fees up front when an advisor purchases Class A shares for their portfolio. For example, if you plan to invest $10,000 in a Class A share mutual fund, you might have to pay an up-front fee of about 5.75% ($575). That’s why it’s called a front-end load. As a result, your initial $10,000 investment would be reduced to $9,425 on day one.
From the start, A share mutual funds put you behind. In the early 1900s, when the first mutual funds launched, the only funds available were load funds, so investors had no other option. Nowadays there are plenty of low-fee index funds that are less expensive and more tax efficient, providing an excellent option for investors to obtain their fair share of market returns.
Don’t hesitate to reach out if you’d like a complementary review of your current portfolio and an assessment of the fees you are currently paying.
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