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Load Funds and Costs

We noted earlier in the chapter that more than 80 percent of fund purchases involve load funds, with investors giving up part of their initial investment as a sales charge. According to the statistics, the average front-end load fund has a 1.33 percent annual expense ratio, whereas the average no-load fund has a 1.09 percent annual expense ratio.[6] What difference might this make over a long period?

[6] The source for these statistics is John Waggoner, “Loads vs. No Loads. It's a Toss-Up,” USA Today Web site, Money section, March 1, 2002. Waggoner's columns on this Web site are very informative and insightful, and are highly recommended.

Let's use the previous example of $10,000 invested in either of two funds, one with an annual operating cost of 1.33 percent and the other with an annual operating cost of 1.09 percent. Each fund is assumed to earn 11 percent per year before expenses are deducted. Assume someone holds the investment for his or her working life of 30 years, and then cashes out. The difference in ending wealth, starting with $10,000 (shown in Figure 18-3), is almost $11,000.


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