Question: 
Is it always better to own a no-load fund than a load fund?

Answer:
The simple answer is that it is almost always better to invest in a no-load fund than a load fund. For the sake of this discussion, let's assume that we're talking about a fund with a 5 percent sales load. What this means is that if you invest $10,000, only $9,500 goes into the fund's portfolio to work for you.

So it's possible to re-phrase your question this way: If I "spend" $10,000 by investing in a fund, am I always better off to have $10,000 of my money invested than having only $9,500 invested? I think the answer to that is pretty obvious.

I can think of two cases in which you could buy a load fund legitimately. First, you could already own a fund and desire to exchange into another fund in the same family of funds, say from one Fidelity fund to another. Usually, once you have paid a load, you can move your money within the fund family without paying another load.

Second, you could legitimately need advice in selecting a mutual fund, and paying a load could be the only available way to get that advice. However, you will almost always get better advice from somebody who has no stake in the outcome of that advice than from a salesperson whose "free" help depends on commissions. In an extreme case, if the best place for your money turns out to be Treasury bills, a mutual fund salesperson cannot afford to tell you that. But a neutral advisor who is paid a fee can tell you that.

So if you must have an advisor to help you pick a fund, try to find one who will give you that help and charge by the hour. You'll usually get better advice that way, and you'll usually pay less for it than paying a sales load.

Some fund managers have great long-term track records, and it is obviously worthwhile to pay a load if their management can buy you better performance - enough to more than offset the sales charge. But a load does not buy you good management. In fact, a load doesn't buy you anything except the help of a salesperson. The manager doesn't get any part of the load, and all that load does is give the manager less of your money to work with.

For any strategy worth pursuing, you can find a no-load fund that pursues it. For specific recommendations of no-load alternatives to the largest load funds, see the "Explode Loads!" feature on our Web site.