Q: I don’t know whether to invest my Roth IRA with a load fund company or with a no-load option. What are the pros and cons?
A: A “load” is simply a commission you pay to a broker or financial advisor for helping you buy a mutual fund.
The most common type of load is a front-end load—it’s called that because you pay it up front. It often ranges from about 3% to 6% of contributions. So if you invest, say, $5,000 into a fund with a 5% front-end load, $4,750 would go into the fund, and $250 would be paid to the broker.
You typically pay the load every time you buy shares in the fund.
No-load funds don’t charge this fee. Here, there’s either no advisor involved—or the advisor is getting paid another way, maybe by a fee that you’ve arranged separately.
All mutual funds, regardless of load, also charge an expense ratio: a yearly fee you pay the mutual fund company for running the fund.
Should you pay a load? Great funds (and lousy ones) exist in both categories. If you value the advice you’re receiving, then paying a load may be worth it. Otherwise, you should probably stick with no-load funds, for the simple reason that any fee eats into your overall returns.