October 2, 2013
Why are no-load index funds the wise choice when investing your money? Where do you go to get them? Why?
Why are no-load index funds the wise choice when investing your money? Where do you go to get them? Why?
No load index funs are a wise choice because the shares are sold without a commission or sales charge. The reason for this is that the shares are distributed directly by the investment company, instead of going through a secondary party. This is the opposite of a load fund, which charges a commission at the time of the fund’s purchase, at the time of its sale, or as a “level-load” for as long as the investor holds the fund. Vanguard is a great place to get the no-load index funs because you aren’t paying for a second party and there is no commission.
You are pretty darn close, Macala. Just as you stated, no-load index mutual funds eliminate commissions (load = commission). You simply bypass the salespeople (financial brokers and advisors, insurance agents, etc.) who take a chunk of your money while adding nothing to the return (actually, they subtract plenty from it).
The other item that makes index funds so appealing is the very low expense ratio (the fees you pay the investment company). At Vanguard.com you can easily keep your yearly fees below 20 basis points, which equals .20%. You can do this by investing in many of the broadly diversified index funds or selecting the Target Date Retirement Funds that hold index funds.
Why? Macala covered this pretty good. By keeping your costs low you will increase your returns over time, thereby beating the vast majority of investment professionals. Research study after research study provides the evidence to this matter. This guy also recommends them.
Most investors, both institutional and individual, will find the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals. – Warren Buffett