With investing, as with most things in life, cost matters. Every dollar you pay in fees on your investments, is a dollar that isn’t going toward generating returns on your money. Fewer expenses mean higher earning power and more money in your pocket to invest.
One often overlooked fee on some mutual funds is sales loads, or commissions paid to the advisor or broker who sells you the fund. Sales loads can be charged when you buy a fund, called front-end sales loads, or when you sell your shares, called back-end sales loads, and can be as high as 8.5% of your investment.
To keep costs low when investing in mutual funds, look for “no-load mutual funds,” which won’t have sales charges.
“No-load funds can vary based on share class and the broker carrying those funds,” says Chris Berkel, investment advisor and founder of AXIS Financial. Some funds may have a sales load at certain brokers but not others, so it’s important to look closely before investing.
Note that even no-load mutual funds may still have expense ratios, which represent the amount of invested capital that goes toward running the fund. But these, too, can be minimized with savvy shopping.
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Here are five of the best no-load mutual funds:
— Vanguard Total World Stock Index Fund (ticker: VTWAX)
— Fidelity Zero International Index Fund (FZILX)
— Schwab S&P 500 Index Fund (SWPPX)
— T. Rowe Price Growth Stock Fund (PRGFX)
— Vanguard Value Index Fund (VVIAX)
Vanguard Total World Stock Index Fund (VTWAX)
While there is no single “best” no-load mutual fund because what’s best for one investor may not be best for another, Berkel says VTWAX is a good no-load mutual fund for investors just trying to get started investing a little at a time.
VTWAX gives investors exposure to stocks from around the globe, including developed and emerging markets. With more than 9,500 stocks in all, it’s hard to find a better diversified portfolio for less than VTWAX’s 0.1% expense ratio.
While there is no sales load, you may incur transaction fees when investing in this fund at certain brokers, like Fidelity Investments, which charges a $75 transaction fee on Vanguard funds.
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Fidelity Zero International Index Fund (FZILX)
You cannot get a lower cost no-load mutual fund than one of Fidelity Investment’s Zero Expense Ratio funds. There are four in total, each of which has no expense ratio or sales load and targets a different area of the stock market:
— The Fidelity Zero Large Cap Index Fund (FNILX) invests in large U.S. companies, similar to what you’d find in the S&P 500 index.
— The Fidelity Zero Total Market Index Fund (FZROX) invests in more than 2,800 growth and value companies in the U.S. with large market capitalizations.
— The Fidelity Zero Extended Market Index Fund (FZIPX) invests in mid- to small-capitalization U.S. companies.
— The Fidelity Zero International Index Fund (FZILX) invests in foreign stocks from developed and emerging economies.
With no minimum to get started, these Fidelity Zero funds are great options for starting or growing a portfolio.
Schwab S&P 500 Index Fund (SWPPX)
SWPPX invests in approximately 500 of the best U.S. companies, following the S&P 500 as its benchmark. Information technology makes up about 26% of the portfolio’s sector weight, holding some of the Big Tech names in its top 10 holdings, including Apple Inc. (AAPL), Microsoft Corp. (MSFT) and Alphabet Inc. (GOOG, GOOGL).
“The Schwab S&P 500 fund provides what an index fund should — broad exposure to large-cap U.S. stocks at an extremely low cost,” says Martha Post, chartered financial analyst and chief operating officer of Team Hewins, a wealth management firm. The fund has a 0.02% expense ratio. “Few active managers outperform indexes over the long term, especially in an asset class like large cap, and they tend to have higher turnover, making them less tax-efficient,” Post says.
SWPPX has a low portfolio turnover rate of about 1.67%, which means the fund follows a buy-and-hold strategy with lower fund expenses, making it best for the investor who prefers a low-cost, passive investment approach.
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T. Rowe Price Growth Stock Fund (PRGFX)
It’s generally a good idea to have a long-term strategic allocation to both growth and value stocks. For a growth mutual fund, PRGFX is a good choice since the fund has outperformed the S&P 500 since inception.
Many growth stocks also come from the technology sector, which has been a positive disruptor. The fund’s top 10 holdings include Big Tech stocks as well as financial companies such as Visa Inc. (V) and Mastercard Inc. (MA). The top 10 all together make up over 50% of the total portfolio, so pair this fund with others to get more diversification.
Vanguard Value Index Fund (VVIAX)
Now that you have an option for a no-load growth mutual fund, here’s a no-load value mutual fund to pair it with.
VVIAX invests in large-cap stocks that analysts believe to be undervalued. As the economy continues to reopen, experts believe this will benefit value stocks that will be poised to grow.
The fund tracks the performance of the CRSP U.S. Large Cap Value index, which is mostly made up of large-cap value stocks, and it holds each stock at about the same allocation as the index. VVIAX’s low expense ratio of 0.05% combined with its current yield of 2.38%, is suitable for investors seeking dividends and growth potential. The fund has a 10-year average annual return of 11.53%.
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5 Best No-Load Mutual Funds originally appeared on usnews.com
Update 02/27/23: This story was published at an earlier date and has been updated with new information.
