Best No Load Funds

7 Ways to Pick the Best Noload Mutual Funds and ETFs

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Scientific Criteria for Selecting the Best Mutual Funds and ETFs

People simply want to invest in what they hope will be the best noload mutual funds and exchange traded funds (ETFs). They want selection criteria that can lead to a higher probability of doing better in the future on both a sustained and risk-adjusted investment fund performance basis.

With real lives to lead, people who are not professional investors just want an efficient, but effective fund identification process. They want to pick the best mutual funds and ETFs that will make their investment assets work for them. They do not want to have to “work for” their assets by spending large amounts of time monitoring and repeatedly changing from one mutual fund or exchange-traded fund to another.

Millions of individual investors run futile hamster wheel races pursuing the illusion that the superior past performance of funds and individual securities will lead to superior future performance. The Pasadena Financial Planner has written these articles for those of you who want to stop “chasing your personal finance tail” and get on with your real life. Of course, it is difficult to stop running in a personal hamster wheel, unless you are convinced that there is better approach that you can implement yourself with relative ease. This article and this website should be good news to you, because it provides a better way for you to find the best mutual funds and ETFs.

Low Cost No Load Index Funds and ETFs Simply are Better

Taken as a whole, the vast body of investment research studies show that there really are better approaches to buying and owning mutual funds and ETFs. You do not need to frantically chase fund performance. Performance chasing simply does not work.

The vast majority of individuals who chase fund performance get results that are far worse than a passive approach. Better performance tends to come to those individual investors who calm down and try to understand what has actually been demonstrated to work in the investment research literature.

Below we introduce seven articles on selection criteria can lead you to the best no load mutual funds and ETFs to hold for the very long term. In particular, note that you should use the first six selection criteria first. Only then should you look more closely at a fund’s past performance — and then only for the purpose of eliminating the worst historical performers. Read these seven articles for all the details!

In addition, if you want to use these 7 selection criteria to find the best noload mutual funds and ETFs on your own, you need some automated tools. Free ETF and mutual fund screening tools and free mutual fund databases would be a good thing. To find the best mutual funds and ETFs, of course, you also need access to automated fund screening applications that have accurate and up-to-date data sets. The Pasadena Financial Planner has also written about screening applications that you can use free on the web. Click the Sitemap to find these articles.

The Best Mutual Fund Selection Problem — Solved for Individual Investors

This “Best No Load Mutual Funds” website provides two very key parts of the mutual fund and ETF selection puzzle for individual investors! The 7 scientifically based selection criteria introduced below provide rational fund screening rules.

These 7 screening criteria and the information provided on this website about free online investment fund screening tools can help you to winnow down the tens of thousands of available investment funds. As a result, you can reduce the selection problem down to a much more manageable number of funds for you to evaluate more carefully prior to investing. You do not have to pay high fees to an expensive financial advisor who will tell you to pick expensive funds with better performance that most often will turn out to be mediocre or worse in the long term.

Read the summaries below, and then click on the links for more information about these 7 scientific no load mutual fund and ETF selection criteria.

1) The Best Mutual Funds Have NO Sales Loads and NO 12b-1 Fees

The great majority of investors buy funds through advisors and pay a very, very high price over their lives for doing so. You simply do not need to pay hefty sales commissions (loads and higher annual expense ratios) to financial advisers who will only offer to you those funds that will pay them these hefty sales commissions.

When you pay someone’s sales commission who only tells you about expensive mutual funds, you shoot yourself in both feet. First, you pay for inferior inferior advice. Second, you end up living with fund expenses that kill a substantial portion of the growth of your personal investment portfolio.

All mutual fund sales commissions and marketing fees can be avoided entirely by buying from the many mutual fund families that will sell fund shares directly to the public without such fees. ETFs will inevitably involve brokerage commissions, so always use discount brokers. Then, do not trade ETFs. Instead, sit tight with a very long-term buy-and-hold strategy to amortize these exchange-traded fund trading costs.

This investment fund selection criterion is very simple. Zero is the maximum amount of front-end load and back-end load fees that you should to pay. Zero is the maximum marketing or 12b-1 fee you should pay. Just say no.

2) The Best No Load Mutual Funds Have VERY LOW Management Expenses

Lower investment management fees are better. Lowest is best, and the lowest means passively managed index mutual funds and ETFs. Since there are numerous funds with annual expense ratios below .25%, look there first.

The higher the annual fund expense ratio the more you should question why you should pay such higher expenses. Paying more tends to lead to inferior rather than superior performance net of you overall investment costs and capital gains taxes.

3) The Best Noload Mutual Funds Have VERY LOW Portfolio Turnover

Lower portfolio turnover is better. Higher turnover increases hidden fund transactions costs, which tend not to be recouped through better performance. Look for single-digit and very low double-digit annual portfolio turnover rates in the no load index funds and ETFs that you purchase.

4) Avoid Large Actively Managed Mutual Funds

When they trade their overly large portfolio positions, large actively managed funds tend to affect securities market prices negatively. This can only drag down their net fund performance. The more they trade, the worse it tends to get. High trading costs suck value out of the mutual fund portfolio, and these costs are on top of the management fees that you pay directly.

High turnover by large funds should be a big red flag to you. If you avoid actively managed funds altogether, then your concerns about excessive fund size can be greatly reduced. Very large index funds need to manage their trading impact, but their turnover is far lower than actively managed funds.

5) Choose Mature Mutual Funds

The ETF and mutual fund industry throws a whole lot of new fund spaghetti on the wall to see what will stick. IF a new fund has a lucky streak, individual investor assets and “advised” assets come running their way. This is new fund success — at least success for the fund company.

However, when you invest in a very new fund, and it fails to grow, the fund is very likely to die or to be eaten. Rarely do lousy young mutual funds and ETFs fold and refund money. Why confess incompetence and give back assets that could still yield fees?

When new funds do no attract enough assets, these “failed” funds (and your invested and diminished assets) most often will get merged into other funds. Unfortunately, new failed funds tend to get merged into larger funds with noticeably inferior historical performance.

Fund companies do not want to take any of the luster off the of their currently hot funds. Therefore, your money gets tossed into a bigger dog or just average fund. To avoid participating in this frenetic new fund infanticide process, only pick funds that have been in business for at least a few years.

Three years is probably enough. Mutual funds are like dogs in some respects. They grow up in just a few years. However, if they get caught in traffic at the wrong time on “The Street,” they may get run over or be eaten by a bigger dog.

6) Avoid Very Small Mutual Funds

Small funds cannot operate efficiently. They need a minimum critical mass of assets to fund required management expenses. Simply avoid very small funds. One or two hundred million dollars is probably the minimum. A higher minimum would also be fine, since there are still many larger funds to choose from that would meet these other criteria.

7) Screen Out Inferior Mutual Fund Performance

Evaluate the historical investment performance of mutual funds and ETFs, but only AFTER using other screening criteria. Superior or average past fund performance tells you ABSOLUTELY NOTHING about how a fund will perform in the future. Pay attention to the fine print in the prospectus that says that past performance does not indicate future performance, because this has been shown to be true.

Ignore all the fund industry’s selective marketing of only their past winners. Individuals need to move beyond their naive and flawed notions about historical investment performance.

Modern, highly competitive, and real-time securities markets are auction price setting mechanisms that force the mass of smart and not-so-smart professional and amateur investors to accept largely average returns over time. Only very poor past performance tends to indicate potentially sub-par performance in the future, and that is probably due to higher costs. Therefore, eliminate only the worst of historical performance during fund screening and choose from the remainder — despite whether a fund has had superior, average, or even somewhat below average performance in the past.

Net of costs, four and five star funds are no better than three star funds and probably no better than even two star funds. Eliminate the bottom one-tenth to one-third of funds on a historical performance basis and choose from the remaining nine-tenths to two-thirds without stressing their past performance. Instead, choose no load index funds with very low costs and turnover.

Passive, low cost, noload index mutual funds usually have higher risk adjusted performance

If you evaluate the investment research literature, you will find that buying passive, low cost, noload index mutual funds and ETFs are far more likely to lead to higher risk adjusted investment performance over the long run. You can help to break the cycle of frequent fund buying and selling. You can get off the performance chasing hampster wheel that the securities industry wants you to keep running on for your entire life.

Securities sales people and financial advisors get paid more, when you pay more. That is why they shamelessly tell you that you must “pay more to get better performance.” This is complete rubbish. The investment research literature says the opposite. Pay less and get more.

Push the button — get some cheese. Tell naive investors to pay more — get some expensive cheese and some big bonuses. That is why rats and financial sales people keep hitting their buttons. When rats push the button, they get cheese. When financial salesmen push the button, they get paid very well.

Unfortunately, you end up being the one who pays them. If they really understand the investment research literature — and most securities sales people do not — then they just hope that you will never figure it out. Or, you might not realize the problem until years later, when your personal investment portfolio is much smaller than it could have been.

However, if you have already figured out the problem, then these 7 selection criteria offer you a better solution and a relatively easy way to pick the best mutual funds and ETFs. Become a proactive and extremely cost-conscious consumer of financial and investment products today!

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The Best No Load Mutual Funds and ETFs

How to Select the Top No Load Mutual Funds and ETFs

Given the extremely large number and variety of stock - equity, bond - fixed income, and equity mutual funds and ETFs, investors need a rational basis to select among them. For example, there are over 60,000 different mutual fund investment share classes sold worldwide. Some mutual funds and ETFs must be better than others, but which ones are they? How can you tell before the fact?

Without scientific selection criteria and a good understanding of which factors are more or less likely to increase your long-term risk-adjusted investment returns, you will make erroneous decisions based on false assumptions. The most obvious mistake that individuals make is to extrapolate past performance into the future. Superior past performance has simply not been shown to be a reliable predictor of superior future performance.

Low Costs Lead You to the Best No Load Fund

Financial industry sales people and investment advisors promote high cost mutual funds with superior past performance, because they are easier to sell to naive investors. Furthermore, most investment advisors and financial sales people themselves do not know any better. The financial services companies that they work for do not teach them about the findings of the investment research literature.

Instead, they teach their “financial advisors” how to sell investment products quickly — whether or not these investments really are the best mutual funds and ETFs from the point-of-view of their clients. The cycle of performance chasing goes on endlessly. In the process, it damages the long-term financial success of millions upon millions of individual investors around the world.

Mutual fund sales loads and 12b-1 marketing fees reduce your long-term investment performance. These investment sales commissions dramatically reduce the size of your long-term investment portfolio. The true costs of mutual fund sales loads and mutual fund 12b1 fees are far larger that most investors understand. Furthermore, financial advisors and commissioned securities sales people almost always promote mutual funds and ETFs that are more expensive. You pay more to buy these funds and you pay more in the long run, because mutual funds with sales loads and 12b1 fees are more likely to come up short in comparison with low cost no load index funds.

Buy Low Cost No Load Mutual Funds and Hold Them for Years

Investors want to select the best bond and equity mutual funds and ETFs to hold for a long duration. Most would also like to invest additional amounts automatically into these funds over time without worrying about whether they do or do not own the best mutual funds available. Most individual investors do not want to spend their precious personal time constantly figuring out which other mutual funds to switch to. (Note that a minority of investors very actively and repeatedly switch between mutual funds. Dalbar’s studies have show that the long-term performance of frequent switchers is simply terrible, when compared to long-term buy-and-hold investors.)

Also, buy-and-hold mutual fund and ETF investors usually are much less concerned about short-term fluctuations than they are about achieving their longer-term investment capital appreciation goals. Such investors want to use mutual screening or selection criteria to identify the best mutual funds and to minimize the need for frequent changes due to inferior mutual fund performance. Individual investors are better served, if they understand what the scientific investment literature says about potential selection criteria. Therefore, a series of articles the Pasadena Financial Planner discusses fund selection criteria that have a firm basis in scientific investing. Click on the Sitemap link to find them.

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Avoid Very Small Mutual Funds and ETFs

If you are going to invest in actively managed mutual funds, then these funds need to have a sufficiently large asset base to fund the necessary securities research and analysis.

If an active fund is too small, then fund securities research, analysis, and management quality can suffer or fees could grow. Passively managed index funds and ETFs do not have the significant overhead that actively managed mutual funds have associated with personnel to evaluate investment alternatives.

Because of their much lower analytical costs, the minimum size of passively managed index funds and ETFs can be far less of an issue, when compared with an actively managed mutual fund. Nevertheless, both actively managed mutual funds and passively managed mutual funds have to cover their marketing, sales, legal, customer service, and other costs - many of which will benefit from the financial economies of scale related to the amount of assets under management.

To amortize the management expense ratio that is necessary to manage properly a mutual fund or ETF each year, a minimum total asset base is required.

To illustrate, an actively managed $100M stock mutual fund with a 1% management expense ratio yields $1 million annually for securities research, analytic expenses, and other fund management costs. In the grand scheme of what it takes to run actively managed mutual funds each year, $1M is just not a lot of money. Therefore, it would be reasonable for you to set your minimum asset selection criteria at several hundred million dollars or even higher for any diversified investment fund — particularly those that are actively managed mutual funds.

If the maximum management expense ratio you are willing to pay each year is lower than 1%, then the required asset base would need to be proportionately higher. If the expenses of a particular “style” of active fund, such as emerging markets stocks, tend to be significantly higher, then you would want an even larger asset base over which to spread securities research and other portfolio management costs.

While the investment research literature indicates that passive index mutual fund strategies lead to better net performance on average, The Pasadena Financial Planner does not expect that actively managed mutual funds will disappear. Therefore, if you still are going to invest in any investment fund and particularly actively managed funds, then you should want them to have a sufficiently large asset base to fund the necessary research and pay all other administrative costs. If a fund is too small, then fund management quality could suffer and/or fees will increase.

However with actively managed mutual funds, the problem is not that there is no “gross” value added. On average, fund management professionals make a modest positive contribution before their expenses. They may be doing so at the expense of amateurs who are poor portfolio self-managers.

One major problem with active professional mutual fund management is that, on average, they charge substantially more than they return in improved performance.

The average active mutual fund management team does not make a sufficiently great incremental performance contribution to overcome their more substantial added costs. Furthermore, there is no reliable way to tell future mutual fund management winners versus losers from among all active professional mutual fund managers. Therefore, in “net” rather than “gross” terms for individual investor portfolios, it is far more likely for active managers to trail rather than exceed a passive market index return.

There are significant differences in costs between actively managed mutual funds and passively managed index funds. By not attempting to beat the market, which most often will meet with failure, no load index funds can dramatically reduce costs and taxes and improve the odds of better net returns. While there are some areas of specialized expertise in index fund management, properly managing an index mutual fund depends largely on having a very efficient trading operation to track the index and an efficient customer service operation.

No load mutual funds and ETFs do not have the significant overhead that actively managed mutual funds do associated with securities research, and therefore, the need for expensive securities research analysts is greatly reduced.

Because of their much lower costs, the minimum size of a passively managed index fund is less of an issue than it is with actively managed mutual funds. Nevertheless, individual investors still need to be concerned about index funds that are too small.

With no load mutual funds, The Pasadena Financial Planner suggests that you screen for no load index funds using the maximum management expense ratio that you will personally willing to tolerate. If no load mutual funds are run efficiently, then their management expense ratios should be very, very low. While there are some ridiculous examples of domestic no load index funds with management expense ratios over 1% annually, even a .25% upper screening limit will give you a wide range of no load index funds from which to choose.

Finally, note also that newly created, actively managed and passively managed funds that are spawned within a larger fund family may benefit for a time from both the fund family’s economies of scale and its subsidies of the management expense ratio. Administrative economies of scale can permit new funds with smaller asset sizes to exist for a longer period.

Very often, fund families will substantially subsidize the management expense ratio of their newer funds. This temporarily reduction of the management expense ratio can have the effect of increasing short-term performance. However, if a new fund does not grow quickly, then it is likely to be shut down or merged into another inferior performing and/or more risky fund within that fund family. Therefore, you should choose mature noload mutual funds instead.

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Choose Mature Noload Mutual Funds

Investing in more mature stock and bond mutual funds and exchanged-traded funds (ETFs) allows you to evaluate the historical consistency of a fund’s record.

On average, the future portfolio returns of more mature funds are probably no more predictable than for very young funds with a similar style or strategy. However, the record of accomplishment of a more mature fund can provide more confidence in its commitment to its strategy and in its ability to remain in business. While there is no guarantee that an older fund will not fail, you have a better chance to avoid involuntary participation in the frenetic birth and death process of many infant stock and bond mutual funds.

Very young mutual funds simply lack records of accomplishment. Therefore, very young stock and bond mutual funds are more likely to put you into the position of being an experimental guinea pig of mutual fund companies and the ETF industry. Concerning screening criteria, simply set a minimum age for mutual funds and ETFs that you are willing to have in your investment portfolio. Three years should be adequate, and there is probably no reason to have a higher minimum. The point is simply to avoid allowing ETF and mutual fund companies to experiment with your money. Choose low cost noload mutual funds that have been around for at least three years.

The financial securities industry is clever and tries very hard to attract your investment mutual fund and ETF dollars.

For example, data from Lipper, Inc. indicated that 1,460 new mutual funds were started in 2003, 2,309 in 2002, and 2,392 in 2001.1 The actual number of truly new and distinct funds is smaller, because Lipper counts different share classes as separate funds.

Differences between share classes have nothing to do with the management of a fund’s portfolio. Instead, these share class differences are due to the structure of the sales compensation paid to the investment counselor or financial advisor who convinces you to invest in stock and bond mutual funds. Different share classes simply assess higher or lower front-end and back-end sales load charges and higher or lower annual expense ratios.

Mutual fund companies and ETF companies might argue that they are trying to offer innovative new stock and bond mutual funds to meet evolving investor demands.

This answer is largely rubbish. Mutual fund companies and ETF companies are trying to get your assets into their funds. A true innovation motive is quite unlikely, because tens of thousands of funds of all types already exist worldwide. For example, there are almost as many different US domestic stock mutual funds, as there were U.S. publicly traded companies (This counts only U.S. firms that are traded on public exchanges and excludes over the counter (OTC) penny stocks.)

A more cynical view of this frenetic fund birthing process is that mutual fund companies and ETF companies recognize that fund performance is much more a matter of luck than skill. If fund families keep forming new funds, then some of these new funds will perform better by chance than the average fund within the particular investment style category.

The large number of new funds launched annually indicates that barriers to entry are very low. Fund families can launch a new fund and use their existing operations to support the new fund. If early fund returns happen to exceed its benchmark, then the fund family has a new fund to sell with a short but apparently superior performance record.

Small new mutual funds with stellar investment fund performance records attract investor assets

Sometimes, new fund managers will get lucky by taking positions in smaller firms with more volatile stock prices, or they may pick some larger capitalization firms whose stocks might appreciate dramatically in the short run. The very short, but apparently stellar, record of accomplishment of some new funds makes it much easier to attract investors. These funds can live to see other days, if new assets flow in fast enough.

You should pay close attention the expense ratios of a very young fund and the expense-related footnotes in its prospectus. It is common for fund families to subsidize the management expenses of new funds for a time. By keeping the management expense ratio down, the funds can temporarily inflate performance.

If the fund’s securities selection is lucky, then more investors may come running. If the asset base grows quickly enough then could enable the new fund to grow its management expenses without increasing its annual management expense ratio.

However, if a mutual fund is not so lucky, its standalone management expenses will not disappear. Fund families do not want to subsidize costs of their small, languishing funds for an extended period, and the pressure will be on for the fund to “stand on its own.” Therefore, you need to watch for upward creep in the management expense ratio of a very young fund over time. Note also that the higher a fund’s expenses, the more likely it is that the fund’s net returns will fall short, when compared to a passive market index benchmark.

The new mutual fund grindhouse: Toss ‘em out — Chew ‘em up

In the Warner Brothers movie 300, the Spartans tossed to their deaths those babies whom they deemed to be inferior. Mutual fund companies also are Spartan in this respect. Unfortunately, most mutual fund companies do not extend this Spartan mentality to the management expense ratios that they charge investors across all their funds.

A new mutual fund that does poorly will often be put out of its misery, although this mortality process will do nothing for the misery of the mutual fund’s investors. Most of these under performing fund dogs (or puppies) either will be shut down or will be merged into larger funds. For example, “according to data from Lipper Inc. 870 U.S. mutual funds were merged into other funds (in 2003), while 464 were liquidated. The pace is similar to 839 mergers and 555 liquidations in 2002, and 956 mergers and 433 liquidations in 2001.”2

As noted previously in this article, 1430 mutual funds were created in 2003. When 2003’s 870 mergers and 464 liquidations are combined with these new funds, then the net number of new mutual funds was just 96! Fund financial innovation certainly seems like an awfully harsh process, through which many investors find themselves being dragged. The cynic would say that the mutual fund industry’s rapid birth and infanticide cycle simply allows some of the fund industry’s inferior performance history to be swept under the carpet and obscured or erased.

Mutual fund companies tend to merge new, under performing mutual funds into their inferior mature mutual funds

Furthermore, to the chagrin of participating investors, when unsuccessful young mutual funds are merged, there also is evidence that the older mutual funds — into which these young, failed funds tend to be merged — will usually have inferior characteristics from the investor’s perspective. The larger and older existing funds into which new and unsuccessful funds are merged have a higher tendency to be both more risky and poorer performing than the average mutual fund.3

Apparently, many mutual fund companies do not want to lose the assets that they already have captured in their inferior new funds by liquidating them and issuing refunds. However, at the same time, they also appear not to want to merge these failed young funds with their more successful older funds and thereby drag down the performance history of these more successful older funds. Instead, they usually merge their sick puppies with their older dogs, which are large enough to stay alive within the cost structure of the mutual fund companies.

1) Hayashi, Yuka. “More Mutual Funds are Disappearing Despite Market Recovery.” Dow Jones Newswires. February 26, 2004.
2) ibid
3) Edwin J. Elton, Martin J. Gruber, and Christopher R. Blake. “Survivorship Bias and Mutual Fund Performance.” Review of Financial Studies, Winter 1996, Vol. 9, No. 4: pp 1097-1120

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The Best Mutual Funds Have NO Sales Loads and NO 12b-1 Fees

Sales loads and other 12b1 fees just pay financial advisors to recommend more expensive mutual funds and ETFs

There is no good evidence that investment sales loads and other 12b-1 sales fees charged to investors result in higher mutual fund and ETF performance. In fact, the opposite has repeatedly been shown to be true.

Mutual funds have a long performance history to evaluate. Investment research shows that brokers and financial advisers do not pick better funds. Instead, they try to sell you the more expensive funds that they are paid to promote. By promoting more expensive funds, these higher fees actually reduce performance. Paying a load just means that you are throwing your hard-earned money down a hole.

Front-end and back-end loads, 12b-1 fees, and other sales compensation charges only ensure that an advisor and his/her advisory firm will be compensated for guiding you to select funds that will pay these fees. Front end sales loads reduce the amount that will be invested in the fund on your behalf. You will have less money invested and fewer assets upon which to earn a return.

Back end sales loads allow funds to take away a share of your future returns. Funds with front-end and back-end loads also tend to charge higher annual fees. Marketing fees sometimes known as 12b-1 fees are additional periodic sales charges that further reduce your ongoing returns. Assessed over time, 12b-1 fees pay a sales agent for periodic “servicing.”

Front end sales loads, back end sales load, and 12b1 charges pay advisers. They are not used to improve ETF and mutual fund investment performance.

There is zero connection between the management of the fund and the extra front end sales loads, back end sales loads, higher management expenses, and 12b-1 marketing fees that you pay, when you buy through a financial counselor. There is absolutely no reason to believe that the fund will perform any better to compensate for these charges.

Because securities markets are generally efficient, superior performance is largely due to luck rather than skill and superior performance tends not to persist. On average across funds, front end and back end sales loads are a dead weight loss to you due to market efficiency and the fact that the loads you pay are not even applied toward improving performance.

All a front-end sales load or back-end sales load will guarantee is that there will be a paid sales person to tell you that the fund that they are trying to get you to purchase is a “better” fund. While advisors will most often be careful to avoid making specific promises about future performance, they will not hesitate to provide materials that suggest that the fund has had superior past performance and perhaps a 4-star or 5-star Morningstar Rating.

This game is easy to play, because only those mutual funds and ETFs with past “superior” performance will be promoted by the commissioned financial advisor. Other less expensive and no load mutual funds will be conveniently ignored. When superior performance stops in the future, then new “better” funds will be promoted instead. Past “better” funds that do not turn out to be better will be shelved. The securities industry has been playing this superior investment performance shell game for decades. Unfortunately, you get stuck with mediocre future performance and higher investment costs.

When choosing stock and bond mutual funds, eliminate ALL front end and back end loaded mutual funds from consideration.

There are thousands of fine no-load funds available. Ignore the sales pressure of any financial counselor or investment advisor who pushes stock and bond mutual funds with loads, marketing charges, and higher expenses. You can buy noload mutual funds directly from no load mutual fund families. You can buy exchange traded funds through discount brokers and then hold them for a very long term to amortized your trading costs.

Note that certain very limited back-end loads can sometimes be beneficial to you, but only if they expire quickly and are designed to prevent costly active trading in and out of the fund by other investors who exploit buy and hold investors. Accept short duration back-end redemption fees that are unlikely to affect you (months and not years). Also, you should be reasonably certain that you can stay invested in the fund long enough for the redemption penalty period to expire.

Do not accept back end load charges. These back end charges should not be paid to an investment adviser or to the fund promoter. Instead, these back end charges should be in the form of a redemption fee that is paid only to the shareholders who remain in the mutual fund. Before buying, ensure that all redemption proceeds from early-exit investors will be returned the fund’s investment pool for the benefit of its longer-term shareholders.

Do not pay brokerage account wrap-fees that are charged by retail “full-service” stock brokers.

It is unnecessary to pay wrap fees to purchase good no load mutual funds and and low fee ETFs. Buy-and-hold individual investors do not have to pay high (or any) percent of assets wrap account fees to buy and hold mutual funds and ETFs. Buy them yourself directly and avoid wrap accounts that bleed your personal investment portfolio year after year after year.

If you have sufficient personal initiative to research low cost index mutual fund alternatives, then you can get a very large extra financial payoff by purchasing directly from the mutual fund. Investing directly in funds that you select yourself is very straightforward. It really does not take much time and your “hourly wage” for buying low cost index mutual funds and ETFs is huge.

All mutual fund families that allow direct investments have toll free customer service telephone numbers to request forms to be sent through the mail. Telephone representatives will tell you how to invest. No load funds dealing directly with the public also have easily downloadable and printable forms on their websites.

Filling out and mailing in these noload fund investment forms is only mildly tedious. However, when you do it yourself and you do not pay a commission to purchase through an investment advisor, you pay yourself a very high hourly wage for this relatively quick and painless process of purchasing directly from the mutual fund.

Exchange-traded funds are very easy to acquire, but just hold your ETFs and do not trade frequently.

Just use a discount broker to keep your transaction costs down. Furthermore, to amortize these brokerage transactions costs only buy broadly diversified, very low fee, index ETFs that you intend to hold for a long time. While somewhat different, ETFs and mutual funds share many similar characteristics.

However, one disturbing trend with ETFs has been the far more frequent trading of ETFs, which drives up your trading costs and your short term capital gains taxes and long term capital gains taxes unnecessarily. Do not get caught up on trading ETFs. Buy the broadest market index exchanged traded funds and just hold on to them. Do not trade. Brokers want to trade ETFs to drive up commissions. Just say no and sit tight. Passive buy and hold investors are far more likely to do better in the long run compared to active investors who chase the latest hot investment sector.

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