No Load

Two e-mails from readers hit on the same theme. Here's the first: My husband just retired and consulted with his broker as to what to do with the money in his 401(k) plan, which is invested in no-load Vanguard mutual funds. His broker suggested rolling over the money into an IRA with the American Funds. The American Funds charge a 5.75 percent load. The broker told my husband he wasn't generating enough money in commissions for him. And the second: I put $4,000 into an IRA with American Funds through my brother, who is a financial planner.

Q: Do all mutual funds automatically reinvest their dividends? Are there exceptions? - F.V., via the Internet A: The choice is up to you. You are given the option of having dividends and capital gains distributions either sent to you or reinvested in the fund. Many investors select reinvestment because it is a way to build their investment. But no matter how the dividends are received, it remains important that you keep track of them for tax purposes. "When you reinvest the dividends in the fund, you're using that money to buy more shares of the fund," said Mark Salzinger, publisher and editor of The No-Load Fund Investor in Brentwood, Tenn.

NEW YORK -- Do you love buying stocks but hate paying brokerage commissions? Check into the trend toward "no-load" or direct-purchase stocks.Nearly 130 companies now sell their shares directly to the public, bypassing the stockbroker. Within two years, there could be 2,500, predicts James Volpe, a vice president of First Chicago Trust Co. of New York, which handles transactions for no-load plans.Some companies charge zero for this service; the rest charge only a fraction of what the broker would.

George is a 70-something investor from West Palm Beach, Fla., who has been made a bit crazy by the stock market recently. Still, in reading my column last week -- which discussed how the market is giving investors a chance to upgrade their portfolios -- he wanted to know whether an investor could improve a portfolio simply by adding "more and better funds." "Do I have to sell what I have, or can I just add more to the mix?" George wrote in an e-mail. "In this kind of market, I would think more funds give me more protection from the market.

Mutual-fund basics are simple. Rather than pinning all your hopes on a few individual stocks, mutual funds allow you to diversify your holdings into a much larger universe of investments. Also, instead of worrying about what to do with your funds each day, you are in effect hiring investment professionals to make these decisions.These investment experts accept your money and put it into a pool of investments that they have chosen to meet certain investment goals that have been described in advance to all potential investors.

Vanguard is offering its no-load customers financial planning and asset management. Fidelity and Dreyfus are offeringhigh-net-worth customers asset management and advice. Smith Barney, Prudential and Merrill Lynch are offering their customers no-load mutual funds.Mutual-fund customers are hot properties. And the name of the game for fund companies is assets under management.The more money funds they manage, the more fees they collect. So direct-marketed funds want to keep their customers, while brokerage houses want to entice them to switch.

Early this year, T. Rowe Price assumed all the services that the State Street Bank of Boston had been performing for the mutual fund company, as Price decided to handle its client relationships directly. To facilitate this part of its business, Price opened new offices in Owings Mills.The product is important but so is service in the burgeoning mutual fund business, notes Steven Norwitz, vice president who heads public relations for the firm which has its headquarters in Baltimore.Price manages about $32 billion -- $20 billion of this in its 37 varied funds and $12 billion for private clients -- and it is one of the nation's leading mutual fund and money management companies.

"I am told that no-load funds are the only mutual funds to buy because they have no sales fees," a Minneapolis reader says. "If no-loads are so great, why would anyone buy a fund with sales fees? Why are sales fee funds still around?"Several readers have raised questions about no-load funds -- just as sales channels for them are being expanded via Charles Schwab and Fidelity's discount brokerage organization. You, too, may wonder whether no-loads are as desirable as they seem.No-load funds, begun in 1928 by the predecessor of today's Scudder Income Fund, have allowed you to buy and redeem shares without paying a sales charge, provided you deal directly with their sponsors.

School days, school days.As American students head off to college this fall, they leave behind family budgets that may or may not have been planned adequately for this important event.The sooner parents plan for a child's education, the better. That infant staring up at you from the crib has a future that's largely dependent upon you. Don't let the youngster down.A rule of thumb -- likely an overly optimistic one -- is that you should try to have the cost of a college education put aside, earning dividends until that future college date.

New York -- Never has there been a stronger case for choosing a mutual fund yourself, without paying any sales commissions. Although the average upfront sales charge has been coming down, the annual fees charged to fund holders have been going up. The more you pay, the less you net from your investment.Take the Pioneer Equity Income Fund and the T. Rowe Price Small Cap Value Fund, two stock-owning funds that earned 20.9 percent last year. Pioneer charges an upfront sales fee of 5.75 percent, so its new investors actually netted only 13.9 percent.

As you examine your investment records, you may find that your dearest, reliable lower-risk stock investments of the past few years have suddenly taken a turn in the opposite direction. Real estate investment trusts and utilities - two investments that conservative investors typically buy for dividend income and modest growth - have been uncommonly strong for five years. But amid an inflation and interest-rate scare the past few weeks, they slumped more than other categories of stocks.

How would you invest $10,000 in the coming year? Each year, we toss that question to a panel of investment experts. Knocking the cover off the ball for a second year in a row was Richard Cripps, chief market strategist for St. Louis-based Stifel, Nicolaus & Co. His recommendation to stash the entire 10 grand in American Eagle Outfitters Inc. last year produced a gain of more than 100 percent. His Omnicare Inc. pick the previous year rose 66 percent. Our pundits were extra cautious last year, which resulted in no serious clunkers.

Two e-mails from readers hit on the same theme. Here's the first: My husband just retired and consulted with his broker as to what to do with the money in his 401(k) plan, which is invested in no-load Vanguard mutual funds. His broker suggested rolling over the money into an IRA with the American Funds. The American Funds charge a 5.75 percent load. The broker told my husband he wasn't generating enough money in commissions for him. And the second: I put $4,000 into an IRA with American Funds through my brother, who is a financial planner.

I own shares of Van- guard Windsor Fund in my retirement account. What do you think of this investment? - H.S., via the Internet In existence since 1958, this fund was once the nation's largest and the domain of famous contrarian John Neff. In recent years it has been a bit streaky because its new managers often take large positions in individual stocks and sectors. Returns were hurt by an untimely jump into telecommunications stocks, avoidance of energy stocks and disappointing technology investments.

THE mutual fund scandals may not be over, but it's clear that fund executives and investors are over the scandals. At the Investment Company Institute general membership meeting in Washington, leadership was mildly contrite, mostly concerned with the future and definitely ready to move on. "People have heard enough about the scandals," says Sheldon Jacobs of the No-Load Fund Investor. "They are back to asking which type of assets to buy now and which funds look good." Indeed, for all of the money that flooded out of scandal-ridden firms, more than $150 billion of new money went into funds in the past year, during a time of modest performance.

THE socially responsible Domini Social Equity Fund, which is based in New York's SoHo and avoids tobacco, alcohol, weapon and gambling stocks, has delivered a total return of 14 percent the past 12 months. The socially irresponsible Vice Fund, which is based in Dallas and partakes of the above-named categories like Dean Martin drank martinis, has produced a 29 percent return in 12 months and likes its prospects just fine. The wages of sin are death, St. Paul told the Romans, but apparently one can do quite nicely meanwhile in one's individual retirement account.

Riding one of the most remarkable success stories in investing history, the mutual-fund industry should be ready to deal with some of the more mundane issues it has overlooked.One of those issues is expenses. While the industry has grown from about $100 billion in assets in 1980 to more than $1.4 trillion today, expenses and fees have continued to rise, in apparent defiance of the rules of economy of scale.During the 1980s, for example, the average "fund expense ratio," the percentage of assets taken out of every fund each year to pay for things like salaries, equipment, advertising and mailing, rose from 1.08 percent to 1.27 percent, according to Don Phillips, publisher of Morningstar Mutual Funds.

With 190 different funds and assets totaling $170 billion, Boston-based Fidelity Investments is the General Motors of the mutual fund industry. The main difference is that, in recent years, Fidelity has handled its money and planning a whole lot better than GM has.Amazing expansion and endless new fund introductions are both good and bad. They're good because they breed success, bad because they sometimes make the overall structure overwhelming to average...

STEVE from Suquamish, Wash., is fed up with his mutual funds. They've lost too much money. He can't bear them any more. "I'm through with mutual funds," he wrote in a recent e-mail. "What are the alternatives? What should I replace my funds with?" Steve, who declined to give his last name, is far from alone in wanting to abandon funds, particularly stock mutual funds. Investors pulled more than $25 billion from stock funds during 2002. Money market funds, which have been posting wretched returns due to the historic decline in interest rates, also saw net outflows.

CHOOSING from among dozens of mutual fund newsletters can be extremely difficult. For people looking for structured investment advice without hiring a financial counselor, the right newsletter offers comfort in selecting investments, structuring a portfolio and implementing investment strategy. The wrong newsletter, however, can cost a lot more than just its subscription price. "There are all types of newsletters out there, but they're not all equal," says Mark Hulbert of Hulbert Financial Digest, which analyzes the performance of stock- and fund-picking newsletters.