Front-load mutual fund

[O2Bfree]

An FA at my bank is trying to talk me into moving one of my matured IRAs into a frond-load mutual fund. I have just over $10,000 in the IRA. Among the funds he's offering is the Franklin Rising Dividends Fund Class A (FRDPX). It's front-loaded at 4-5%, depending on the amount invested, and has a 0.91% management fee, which includes 12b-1 fees.

The fund's performance looks pretty good, and my portfolio is light on dividend producers, but I'm wary for a number of reasons.

First, I've never really gotten any good advice from FAs. They've talked me into buying funds that performed poorly and tried to talk me into selling stock that has continued to rise after they said it was due to drop, for the purpose of investing in their recommended stocks or funds.

Second, I've read that loaded funds should be avoided because they don't necessarily perform any better than no-load funds.

Third, the fees are higher than, say, an index fund, and there seems to be little evidence that higher fees mean better performance.

So what you you all think?

 

[pb4uski]

Crazy. Run.

Move your IRA to Vanguard or PenFed.

 

[MRG]

So what you you all think?

Run away. Why pay 5% to buy a fund? We're living in 1980 if that sounds like a good idea.

 

[aja8888]

I think the OP answered all his own questions....

 

[Sunset]

run run run as fast as you can.
I made this same mistake once , and never will again, also by a bank (note the FA was not a bank employee, was kind of misleading as I trusted the bank).

Seriously, never pay a front end load, that just goes into the FA's pocket. And that 5% is not there to earn you any money.

look at vanguard.com lots of good funds, charge low rates, like 0.05 to 0.30 , most are on the low end. I personally think VTI etf with expense of 0.05 is great as a core holding. No Front end rip-off !!

 

[heikejohn]

I'm with "Sunset"

 

[bad_LNIP]

Buy a closed end fund at a 5% discount instead

Sent from my XT1049 using Early Retirement Forum mobile app

 

[frayne]

IMHO, loaded funds are for losers.

 

[travelover]

Move your IRA to Vanguard. This bank has demonstrated that they just consider you a sucker.

 

[athena53]

IMHO, loaded funds are for losers.

Thanks. I own a ton of American Funds! It's enough that I pay only 2% up front. They're the ballast in my portfolio; they tend not to sink as badly as the rest of the market in downturns and I'm comfortable that they don't have crazy upsides either. I have plenty of other investments that do. I've owned some of these funds for 10+ years so the front-end fee doesn't look that bad over a long period.

But, to the OP- the fund the "advisor" mentioned is mediocre; Morningstar rates it 3 stars out of 5 and it pretty much tracks the relevant indices, which means that you're paying a fee to get market returns. Losing 5% up front makes it worse. The person who recommended it is nothing more than a salesman who's got their own interests at heart, not yours. You can probably find a good ETF or Index fund that does the same thing, with lower expenses.

 

[Gatordoc50]

My DD has a employer sponsored Simple Plan that only offers front end loaded American Funds. I hate the fees but still recommend that she max out her contribution. She has recently become a partner so hopefully she can convince the majority owner to switch to a better plan.

 

[panacea]

Compare the long-term performance of these two funds and you can quickly see why a well-managed, low cost option makes more sense.

FRDPX Franklin Rising Dividends A Fund FRDPX Quote Price News

VDIGX Vanguard Dividend Growth Inv Fund VDIGX Quote Price News

 

[jim584672]

I am amazed front end load funds are still around. We have Internet and tons of better alternatives today. Oh well, someone has to feed the full service brokers.

 

[frayne]

Four to five percent front end load and almost one percent annual exp. ratio. I think you have answered your own question.

Athena, apologizes if you were offended by my original comment as every EDJ advisor I know just loves the American Fund family, not to mention the nice vacations, bonuses, etc.

 

[Which Roger]

Thanks. I own a ton of American Funds! It's enough that I pay only 2% up front. They're the ballast in my portfolio; they tend not to sink as badly as the rest of the market in downturns and I'm comfortable that they don't have crazy upsides either.

You don't need a front-loaded fund to control the peaks and valleys. An appropriate asset allocation does that for you.

 

[ERD50]

I think the OP answered all his own questions....

+1

 

[Chuckanut]

My first mutual fund purchase had an 8% load. Thankfully, I only bought a few thousand dollars of the fund. I have never paid a load or sales charge since.

Banks, especially the big ones, are not good places to buy mutual funds, IMHO.

 

[Which Roger]

I am amazed front end load funds are still around. We have Internet and tons of better alternatives today. Oh well, someone has to feed the full service brokers.

I wish they weren't still around, but it's reality. It's important to remember that the average member of this board knows more about investing than 99% of the general population. And most of us learned the hard way.

Investing is simple, but learning that investing is simple is not easy.

 

[ERD50]

Compare the long-term performance of these two funds and you can quickly see why a well-managed, low cost option makes more sense.

FRDPX Franklin Rising Dividends A Fund FRDPX Quote Price News

VDIGX Vanguard Dividend Growth Inv Fund VDIGX Quote Price News

And it doesn't even look like that includes the effect of the ~5% FE load. Else, it would show that $10,000 invested is actually $9,500 invested, no?

-ERD50

 

[pb4uski]

+1 that front-end load funds are still around... I don't get it but BIL is an agent and insists that some people still want/need hand holding and he still has to eat.

OP, check out VDAIX... lower fees (.20% vs .91%), better long term performance.

Growth of $10k

1 year: 11,026.16 vs 10,321.90 (10,865.16 * 95%)
3 year: 14,607.59 vs 14,197.72 (14,544.97 * 95%)
5 year: 18,521.99 vs 17,796.62 (18,733.28 * 95%)
10 year*: 19,065.44 vs 16,797.02 (17,681.16 * 95%)

* 4/27/2006 - 3/14/2015

 

[Hermit]

An FA at my bank is trying to talk me into moving one of my matured IRAs into a frond-load mutual fund. I have just over $10,000 in the IRA. Among the funds he's offering is the Franklin Rising Dividends Fund Class A (FRDPX). It's front-loaded at 4-5%, depending on the amount invested, and has a 0.91% management fee, which includes 12b-1 fees.

The fund's performance looks pretty good, and my portfolio is light on dividend producers, but I'm wary for a number of reasons.

First, I've never really gotten any good advice from FAs. They've talked me into buying funds that performed poorly and tried to talk me into selling stock that has continued to rise after they said it was due to drop, for the purpose of investing in their recommended stocks or funds.

Second, I've read that loaded funds should be avoided because they don't necessarily perform any better than no-load funds.

Third, the fees are higher than, say, an index fund, and there seems to be little evidence that higher fees mean better performance.

So what you you all think?

If you go with this fund, you can think of yourself as a kindly uncle who is helping the nephew FA feed his hungry family (and also help him make the payments on his Mercedes.) You will be reminded of your kindness when they take out the fees for years to come.

 

[MRG]

An FA at my bank is trying to talk me into moving one of my matured IRAs into a frond-load mutual fund. I have just over $10,000 in the IRA. Among the funds he's offering is the Franklin Rising Dividends Fund Class A (FRDPX). It's front-loaded at 4-5%, depending on the amount invested, and has a 0.91% management fee, which includes 12b-1 fees.

So what you you all think?

Your reasons to be afraid are sound. Great reasons not to do business with the bank. As someone said banks are terrible places to invest. You're better off with moving your money to Vanguard, Fidelity, Schwab.

You wrote "Among the funds he's offering". Don't you want to be in control of what funds you buy? "He's offering" sounds like the relationship is backwards. Your money, your choices, you are in charge. I'd take my money elsewhere. The bank is treating you like it's the last century. The .25% 12B-1 fee is more than you'll pay on any low cost index fund or etf. The bank takes that money, for what? That's why the bank offers these funds they take the load, and reoccurring fees. They win, getting paid with your money? No, it doesn't work like that today!

 

[samclem]

Move your IRA to Vanguard. This bank has demonstrated that they just consider you a sucker.

+1. You'd be making a big mistake going this route. If I found out my bank was offering these things (or allowing them to be offered in their branches), I'd have a talk with the branch manager, write a letter to the HQs, and get my money out of that institution and into a place where they have some interest in the financial well-being of their customers.

 

[panacea]

And it doesn't even look like that includes the effect of the ~5% FE load. Else, it would show that $10,000 invested is actually $9,500 invested, no?

-ERD50

Good question and I'm not entirely sure. But I would think that the expense adjustment must be built in over time so they can show growth of $10,000 on an apples to apples basis.

 

[pb4uski]

And it doesn't even look like that includes the effect of the ~5% FE load. Else, it would show that $10,000 invested is actually $9,500 invested, no?

-ERD50

Yes, I don't think the M* growth or $10k charts account for the 5% load because the chart starts out at $10,000 at time 0. That is why in the comparisons that I did in post #20 I took the ending values times 95% to account for the 5% load and get an apples-to-apples comparison with the no-load fund.