Should I Invest in Load Funds?
As with most investment decisions, the answer is "it depends." A load fund is generally a non-traded mutual fund, normally sold directly to investors by a large group of stock brokers, insurance agents, and other financial consultants. For this service, usually the investor pays a low markup or closing fee.
For many investors, paying a small fee to buy a large amount of stock or mutual funds makes good business sense. After all, buying a large number of shares allows investors to reduce their risk while also increasing their potential for profit. But "anytime" it is called for to buy shares, some investors choose not to use a no-load fund. This is true for most high-risk investments such as forex trading, options, bonds, stocks, and more. For these types of investments, there are many reasons why you should avoid load funds.
One reason is because most stock funds pay their own sales markup. Stock funds are set up to take advantage of existing broker relationships and to have sales assistants take care of the day-to-day management of transactions. Because there is no middleman or other outside costs associated with buying and selling stock funds, they are often less expensive than other investment vehicles, including index funds. But even if you don't mind paying sales charges, you'll still end up saving money by avoiding load funds.
Another reason is because there is typically no minimum balance requirement. Some stock fund investments will require you to make an initial deposit and then maintain your account balance to a certain level until you've reached your minimum balance. Other funds may allow you to start out with just a dollar in your account and increase it as you wish. This means that you'll pay more for every dollar invested, but also means that you won't be required to pay sales charges on the shares of stock underlying the fund.
There is also a psychological advantage to investing in no load funds. In our current economy, we've become so used to having options that our money has become an investment commodity, available for buy and sell at a moment's notice. When there is no obvious safe haven, people are more likely to sell their stocks for less money. If you hold onto your stocks for a little while, you will also have some money in your pocket to cushion the shock of a bad market shift.
Lastly, when you think about whether or not you should invest in stock funds, you need to think about your tolerance for risk. Some investment opportunities carry a higher risk of loss than others. If you don't like big losses, load funds are probably not the best option. On the other hand, if you want to keep your money in the stock market for the long term, they may be perfect for you.
So there are several factors that you need to take into consideration. First of all, they are not always guaranteed to be good investments. You could end up losing money if the market takes a turn, even if you have been able to maintain a balanced portfolio. The main advantage, however, is that you will be diversified, so you will likely make a profit on most of your investments.
You should also keep in mind that you need to have a specific amount of spare cash to invest. If you don't, you will have to wait until your next payday. If you're planning on using your savings, however, you may as well stick with the plan and invest in load funds. They have proved their value time again, so you know they can work for you.
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