Contrasting No Load Index Funds And Funds With Fees
Mutual funds are commonly thought of as portfolios of stocks that can be subdivided into manageable shares that are purchased by individual investors. A common kind of mutual fund is the index fund, pioneered in the late 70s and based on the idea that the component stocks should be based on a fixed set of stocks such as the Standard and Poor 500. The other kind is the non-index fund that is usually based on some theme, such as real estate or biotechnology companies.
The fact that index funds are made up of a fixed list of company stocks means that they are not subject to a lot of manager manipulation. This is in contrast to the non-index stocks where managers constantly have to make decisions about how to buy into new companies that represent the theme of the fund and how to allocate assets amongst the current component stocks.
Since index funds require so little active management, they are often called no load index funds. This means that there are no excess manager fees on top of the fund fees. The contrast is the loaded index fund that tacks on the extra manager’s fee in the case of the mutual funds. Most market research has shown that there is no real performance difference between average index and non-index funds, leading most people to prefer the no load index funds.
No load index funds should be considered in context with other investment securities or high yield mutual funds.
For one, no load index funds should be matched up against checking, savings and money market accounts. But personal investors who have an interest in achieving a better return than a savings account should think about the money market account. A market money deposit account is kept in mostly very short term financial instruments.
No load index funds should also be compared to government bond funds. An oft-overlooked treasure in the world of finance is the GNMA mutual fund, often eclipsed by the similar companies Fannie Mae and Freddie Mac. The trio are in charge of property borrowing but Ginnie Mae funds stand out for being the most conservative. Most interested people will remember that in the last few years Freddie Mac and Fannie Mae got pounded in the property crash of 2007 and 2008.
Finally, no load index funds should be compared to safe government bonds. The day-to-day activities of a government, for example running a police force on the municipal scale, or the city college system running well on the county level, relies upon loaned money. Such a large scale borrowing has no hope of being done through a typical bank, but must be self-financed via the sale of bonds which are promises of repayment.
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