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Some mutual funds want you to pay for the privilege of them (or your investment adviser) taking your money to invest. It's called a load, and it works like a cover charge to get into a nightclub. Luckily, there are such things as no-load funds. As the name implies, shares of these funds are sold without a fee paid to a broker or investment advisor.
The entire amount you invest in no-load funds goes to work for your returns. On the other hand, with load funds, right off the bat you're charged commission (not to mention other fees incurred over the life of the investment). Let's say, for example, you invest $25,000 into a load fund that charges a 5% commission. This costs you $1,250 off the top, bringing your actual investment down to only $23,750.
The often-cited horse race analogy argues against investing in load funds. Here's the logic behind it: Would you place a bet on a horse that had to start a race 200 yards behind the others? Well, maybe you would if you got a tip from a sketchy, trench coat-clad man in a dark alley. However, under most circumstances, it's not smart to put your money on that handicapped horse.
But some argue that at times that man in the trench coat (aka your broker) knows more about the horses than you do, and has a better shot at picking a winner. Also, sometimes these fees are unavoidable because some funds are available only through investment advisers.
Cost-benefit analysis can help determine when a load fund is worth it (in other words, when it will score you a load) and when it is better to "do it yourself" and avoid the fees. Load-fund fees range depending on share class and can cover a variety of costs, such as paper work and fund management.
Home / Markets / Industries / Government
Tuesday, May 20, 2008
Senate Reaches Agreement for Housing Rescue Bill
Associated Press
WASHINGTON--Two powerful senators announced Monday they had reached an agreement for a homeowner rescue package that could help a half-million strapped borrowers get government-backed mortgages.
Sen. Christopher J. Dodd, D-Conn., the Banking Committee chairman, and Sen. Richard C. Shelby of Alabama, the panel's senior Republican, said the committee will move forward with bipartisan legislation on Tuesday after completing their negotiations.
"This legislation is good news for both the markets and homeowners," Dodd said. Added Shelby: "I've long said that we should do what we can to help struggling homeowners, short of asking the taxpayer to foot the bill."
Dodd's committee was scheduled to vote last week, but the vote was canceled in hopes that the two senators could come up with a bipartisan measure to bring to the Senate floor.
A White House spokesman said President Bush did not have a position on the proposed bill yet. However, Bush said earlier Monday that he remains opposed to any homeowner rescue legislation that would be a bailout for lenders.
"Laws shouldn't bail out lenders," Bush said after getting an economic update from Treasury Secretary Henry Paulson. "Laws shouldn't help speculators. The government ought to be helping creditworthy people stay in their homes."
The compromise bill allows the Federal Housing Administration to back up to $300 billion in new loans for debt-ridden homeowners facing foreclosure, who would otherwise be considered too financially risky to get a fixed-rate, government-insured loan.
Money for the plan would be drawn from an affordable housing fund that will be funded through profits from government-sponsored mortgage giants Fannie Mae and Freddie Mac.
To qualify for the proposed FHA program, borrowers would have to show they could afford the new loans, while mortgage holders would have to agree to take a substantial loss on the existing loan in exchange for avoiding a costly foreclosure.
The FHA would share at least half of any proceeds if the homeowner refinanced again or profited from selling the home.
The bill would also tighten regulations on Fannie Mae and Freddie Mac. "It doesn't include everything we would have liked, but it is a significant step forward and ought to become law," said Sen. Charles Schumer, D-N.Y.
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