Without a doubt, no-load funds are the best choice for mutual fund investors. But what are the best no-load funds and where can they be found? With thousands of mutual funds to choose from and hundreds of different fund families offering them, an investor can suffer from choice overload and possibly make needless mistakes.
Most investors know to avoid mutual fund loads if they want to maximize returns by minimizing mutual fund fees. Many investors also know how to choose the best funds. However, the wisest investor knows that simplicity, in addition to frugality, is a powerful virtue in the art of mutual fund selection: All that is needed to build the best mutual fund portfolio is to choose one good no-load fund family and select five or six of their no-load funds from different types of mutual fund categories.
A fund family is the collective name for a group of mutual funds offered from a particular mutual fund company. Most fund families offer a variety of mutual funds but not all fund families offer a wide variety of high-quality no-load funds from which an investor can build a diversified portfolio.
Here are three of the best no-load mutual fund families:
- Vanguard: We begin with Vanguard because most no-load investors are also frugal investors--they want to keep mutual fund fees to a minimum. Vanguard is probably best known for their wide selection of low cost index funds, which are known for having the lowest Expense Ratios in the universe of mutual funds. Although Vanguard specializes in index funds, also known as passively-managed funds, they also have a great selection of actively-managed funds and Exchange Traded Funds (ETFs) that fit into their low expense philosophy.
- Fidelity: One of the reasons for Vanguard's ultra-low expenses is that their greatest no-load rival, Fidelity, has an outstanding selection of no-load funds that constantly compete for the lowest cost investments in the mutual fund universe. Including all share classes, Fidelity by far has the most fund choices on our list of best no-load fund families. This doesn't mean Fidelity has the highest quality funds but there is certainly enough choice among diverse categories to build an outstanding portfolio of mutual funds. If you like index funds but you love actively-managed funds, Fidelity may be the best choice for you.
- T. Rowe Price: Size doesn't always matter in the universe of mutual funds. T. Rowe Price is much smaller in size and selection than Vanguard and Fidelity but they have plenty of high quality no-load funds that can allow an investor to build a great portfolio within one fund family. T. Rowe Price has only a few index funds but a sufficient selection of large-cap indexes. They also have some good sector funds and their target-date funds are outstanding.
In summary, two of the greatest virtues of successful mutual fund investors include simplicity and frugality. There is no reason to buy loaded funds; there is no reason to buy more than five or six funds; and there is no reason to use more than one fund family. Any of the three no-load fund families listed above are suited to meet and exceed the needs of the smartest and most frugal of mutual fund investors.