Understanding one-time investment fees, such as sales loads
Sales load charges and commissions on investment purchases differ from the financial service industry’s numerous other recurring methods of charging fees to their retail consumers.
Sales loads are less straightforward to analyze for investment lifetime cost-effectiveness, compared to annually recurring charges. (See: Pay less to get more)
If you have a sophisticated and fully integrated lifetime investment growth modeling calculator like VeriPlan, which automatically takes into account all your investment returns expenses and taxes, then your lifetime losses to recurring investment expenses can be projected with reasonably straightforward methods. However, projecting the lifetime impacts of sales load charges requires additional and different projection modeling techniques, which VeriPlan also includes. (See: VeriPlan’s personal financial planning software helps you to understand the full lifetime costs of your excessive investment expenses)
Unlike recurring charges against current assets, front-end sales loads represent assets that did not get into your investment portfolio in the first place. They disappear before the process of calculating future investment returns and asset values can even begin. Therefore, your financial modeling software needs to remember that you lost or will lose these assets, and it needs to calculate the cumulative value of these ‘phantom’ assets over your lifetime.
Concerning the mechanics of a front-end sales load, when you pay a front-end load, some of your total payment is deducted at the beginning of the investment process. Depending upon the percentage of the front-end load charged, the amount invested on your behalf is reduced by the front-end load charge. If you write a check for $1,000 and the front-end load is 6%, then the sales load will be $60 and the remaining $940 would be invested for you. If you want to have $1,000 actually be invested for you when you pay a 6% load charge, then you must write a check for $1063.98. The front-end load formula used is: “Total $ Investment & Load charge” = “Actual $ Investment” / (1 – “% Load”).
The industry is gracious enough to offer you a supposed choice in this matter, when you buy mutual fund shares. You can choose between A, B, and C share classes. In doing so, industry sales representatives may suggest that you get to choose what is “best” for yourself. In this faux decision process, which The Skilled Investor has dubbed the “ABC Share Class Shuffle,” individual investors choose a share class. In the ABC Share Class Shuffle you really just choose one form sales fee over another. As long as you buy and pay a fee, the sponsoring firm and the sales rep do not care which choice you make. (See: Can you really get free and objective investment advice, when you pay investment sales loads?)
Brokerage firms understand well the behaviors of their individual investor customers. While brokerage firms provide apparent choices to pay front-end loads versus back-end loads with higher and lower annual investment fees, you can expect that the pricing of these alternatives will be neutral on a risk-adjusted basis from the investment bank’s point-of-view. It is probable that brokerage firms price their loads to be roughly equivalent on an expected profits basis and then let their customers sort themselves by personal preferences. Investors try to pick the fee that would be least costly, but they pay too much no matter what.
VeriPlan Is Simply The
Best Financial Planning Software
You Can Buy!
Only $57 for a license for ALL your household PCs
… with Free Shipping of the CD within the USA
Full 30-Day, 100% Money Back Guarantee — No Questions Asked
No Support Contract Required
No Need To Buy Upgrades, Since All Parameters Are User-Changeable
VeriPlan is a Great Product, a Great Deal,
and a Great Help with Your Personal Financial Planning.
Thank You Very Much for Your Order!
Note: We mail your VeriPlan CD on the next business day after PayPal has notified us of your order. When your order ships, we will send a shipment notification email to you using the email address supplied by PayPal. VeriPlan is shipped via the USPS, and deliveries typically take 3 to 10 days to arrive.
.
Tags:
theskilledinvestor.com
Personal Financial Planning
- Own Investment Mutual Funds and ETFs – Not Individual Securities (
Own Investment Mutual Funds and ETFs - Not Individual Securities
Owning individual stock and bond securities is just a big waste of your valuable time and money
Individual investors tend to be terrible investment portfolio managers. Almost everyone can hire an index fund manager to do a much better job for far less time, money, risk, and [...])
- The Heavy Burden of Recurring Investment Expenses and Fees – Part 2 (
The heavy burden of recurring investment fees (Part 2 of 2)
< < -- Go to Part 1
By charging fees as a percent of your assets, the investment industry can make their recurring fees seem small – like they are “just a few” percent.
Furthermore, by charging fees against your assets the industry can still bill you [...])
- Do Not Get Fooled by Superior Historical Investment Performance (
Evaluate the historical investment performance of mutual funds and ETFs, BUT ONLY AFTER using other screening criteria
Choosing only from among mutual funds and ETFs that have performed very well in the past can lead to significant selection mistakes and inferior personal portfolio returns
Previous superior or average fund performance simply does not predict similar fund performance [...])
- The Optimal Investment Strategy for Individual Investors (The Solution - ONLY follow financial strategies that are scientific, passive, diversified, savings focused, risk controlled, low cost, and tax efficient
A previous article, "The Problem - Straight answers about personal financial and investment planning are difficult to find," summarized important reasons why individuals may experience difficulties, even if they are intent upon doing better with [...])
- What are My Credit Card Contract Rights? (
PIRATES OF THE CREDIT SEA - Part 2: What are my rights?
What are my rights in the situation that I summarized in my previous article: "PIRATES OF THE CREDIT SEA: My Treasure Is Taken!"? Well, the answer is very simple. I have a contractual right to get my treasure back. I also have a right [...])
- The Biggest Personal Finance Story of the Past 30 Years (
The Biggest Personal Finance Story of the Past 30 Years - Part 1
What could the biggest personal finance story of three decades be?
The growth of mutual funds and ETFs? Nope.
The dot com boom and bust? Nope.
Vanishing pensions? Nope.
The not-so-high quality of mortgage bonds? Nope.
A 0% personal savings rate nationally? [...])
- Learning about personal finance and investing (Learning about personal finance and investing
The investment strategy that I always suggest is a “completely passive, globally diversified, always invested, never switch to beat the market” investment strategy. This kind of investment strategy is a very low maintenance investment strategy. From many respects, you set it, and you forget it. Except for:
the need to pay [...])
- The Investment Returns You Lose to Investment Sales Loads (
VeriPlan automatically tracks returns lost to investment sales loads
Many justifications for investment sales load charges might be offered by financial advisors during the sales process, but once a front-end load is charged, your diminished portfolio will 'forget' about the load charge for the rest of your life.
Loads become 'phantom' assets, which are rarely spoken of [...])
- Personal Financial Advice from Blogs this Week – January 2 2009 (
Personal Finance Blog Articles of the Week
Carnival of Financial Planning - January 3 2009 Edition
Welcome to the January 3, 2009 edition of the Carnival of Financial Planning.
The Carnival of Financial Planning takes a long-term view of personal financial planning for individuals and families. We focus on efficient and sustainable personal financial planning practices that [...])
- Your Valuable Assets Are Simply Your Evolving Estate (
Your investment portfolio and other property assets are simply your evolving estate
A previous financial article, “The Solution - ONLY follow financial strategies that are scientific, passive, diversified, savings focused, risk controlled, low cost, and tax efficient,” suggested that investors are much better off with a well-considered financial plan. A stable set of financial beliefs can [...])
- Developing Fund Authority Scores for ETFs and Mutual Funds (
Select mutual funds and ETFs with the most important economic factors that affect long term, diversified, and risk-adjusted investment fund returns
Good things are born small and grow over time. Regularly, The Skilled Investor evaluates individual mutual funds and ETFs and adds new articles that use the Fund Authority Score rating system. To be alerted when [...])
- Financial Planning and Personal Investment Articles (
Best Personal Financial Planning and Personal Investment Articles this Week from Personal Finance Blogs
Carnival of Financial Planning - Edition #145 - June 11, 2010
Welcome to the June 11, 2010 Edition #145 of the Carnival of Financial Planning.
The Carnival of Financial Planning takes a long-term view of personal financial planning for individuals and families. We focus [...])
