Investing In The Stock Market

You probably heard the term before. No load mutual funds. You may not know what these are, but you probably heard that they are “very good thing”. Yes, it is true, no load mutual funds are a good thing. However, this does not help you very much if you don’t know what they are. This article is here to help rectify that situation. Fortunately, they are not that hard to understand.

To understand the no load mutual fund, we must first understand what a loaded funds is. A load is a fee that is charged to an investor when they buy or sell a mutual fund. A load that is charged upon the purchase of a fund is known as a front end load. A load that is imposed on the sale of fund is a back end load. The money from this load goes to the broker as a compensation for selling the fund. If the fund does not have these load fees, it is known as a no load mutual fund. Pretty simple, huh?

So, you know what no load mutual fund is now. What good does this do you? What is so great about these funds? I have written before about reducing expenses when investing. The more expenses that you pay, the less of your own money that you get to keep. No load mutual funds help reduce these expenses in investing. Now, this does not mean that no load mutual funds are expense free. However, since they lack the front and back end loads, they are much lower in expense.

It should be readily apparent when researching funds which ones have loads and which ones do not. Most mutual fund providers have many no load mutual fund options. Keep in mind that pretty much all passive index funds are no load. Since I recommend investing with these passive funds in the first place, this topic might be slightly redundant. However, if you still prefer going with managed funds, finding managed funds with no loads will help you save money in the long run.

So, these funds are relatively straightforward and simple. This means that you have no excuse for not demanding load free funds when you are investing. Some will tell you that funds with loads can afford to pay for better managers, however, there is little research support that this is the case. Any marginal advantage that the money manager might have is wiped out by the extra expenses that you incur when buying a loaded fund. Keep it simple, keep it no load. That is all

Investing has always been a bit tricky for those with strong opinions and consciences.  Sure, you want a good return on your money like everyone else, but you’d rather not hand your money over to a company that makes its money by flattening baby seals with a gas guzzling CO2 machine in the rain forest (or something like that).  You would prefer that your hard earned dollars go to companies that are making the work a better place.  If this sounds like you, green mutual funds might be for you.

As their name suggests, green mutual funds are mutual funds that hold stocks from so called “green” companies.  Green companies are those which work in environmentally friendly industries.  An example of a green company would be a company that produces wind power equipment.  These companies are picked by the fund manager, so it’s his definition of “green” that determines what stocks can get in or not.

Of course,  these funds are also intended to make money.  The fund manager does his best to select the best earning stocks, just as with a normal mutual fund.  However, in the case of the green fund, the manager is limited to companies that follow the proper ethical guidelines.  As you can imagine, having  a limited pool of stocks to choose from does affect potential performance.

Additionally, since many green companies are in start up fields such as renewable energy, these green funds are often much more volatile than a normal mutual fund.  The ups can be greater, but so can the downs.  It’s something you should definitely think about before pulling the trigger on a green fund.

So, are green mutual funds for you?  It really depends on the person.  For some people, the risks and volatility associated with green mutual funds isn’t worth the “feel good” aspects of owning them.  For others, the feeling of investing in companies that are doing the right thing for the environment outweighs the potential downsides in terms in investment returns.  In the end, it is your decision.