Class A or B shares?

[alwaysbudget]

I am looking into investing some $$ into some mutual funds and I am learning ALOT here, and its almost too much for me to understand. My investment guy told me that I have a few choices of the way to invest and the 2 that I looked at were type A and type B shares.
Now, from what I understand these are just two different kinds of loads (charges) put on my investments.....
type A = a 5% charge upfront with no other charges after that... so I would loose 5 % automatically..... I dont think that there will be any other sorts of charges or anything like that.... maybe some of you out there know??
type B = a perpetual .82% charge over a period of 8 years, so its .82% deduction each year from principal+interest earnings for 8 years, and then after that there is no other charge....

Now some of you out there I know are very smart and furgal with money etc.... can someone explain to me the pros and cons of each type, and tell me if you think there is a better type out there?? I know that there are type F and others... well... Thanks for all your advice in advance

[kv968]

I know of a lot of funds that are better and they're called "no load funds". Without hurting your head with all the classes of shares, you should look into them instead. There are many companies that offer them such as Vanguard, T Rowe Price, Fidelity, etc...

You could buy them on your own by either calling the fund company or using their website. Your "financial guy" says you have a few choices between load funds because he'll get paid either way by you buying them.

[disneysteve]

kv968 summed it up nicely. The answer to "A or B" is neither! What you want is to buy no-load mutual funds that have no commission charged. There is absolutely no reason to pay a broker 5% or more of your investment to do something that you can do just as well or even better on your own for free.

Lose the "investment guy" and you'll be fine.

[Scanner]

Agree with the previous posters.

Mutual funds were never supposed to be complicated with "A" shares and "B" shares and "C" shares.

Financial planners/brokers complicated them to earn commission.

[rooskers]

type A = a 5% charge upfront with no other charges after that

type B = a perpetual .82% charge over a period of 8 years, so its .82% deduction each year from principal+interest earnings for 8 years, and then after that there is no other charge....

I don't know how much you know about mutual funds but there are charges after that, every mutual fund has Annual Operating Expenses which can range widely but usually from .2% to 1.5% and this can take out a large chunck of change at the end. So a front end sales charge or any will be on top of the Annual Operating Expenses.

Example: AIM Large Cap Growth A (LCGAX) Class A
Assume $10,000 invested over 20 years and 8% annual return
Front End Sales Charge 5.5%
Annual Operating Expenses = 1.14%
Initial fee = $550
Operating fees over 20 years = $5018.88
Total fees = $5568.88
Value after 20 years = $33,885.29

Example: Fidelity Large Cap Growth Fund (FSLGX) No load
Assume $10,000 invested over 20 years and 8% annual return
Annual Operating Expenses = 1%
Front End Sales Charge 0%
Initial fee = $0
Operating fees over 20 years = $4187.33
Total fees = $4187.33
Value after 20 years = $38,199.21

Example: Spartan 500 Index Fund (FSMKX) Index Fund
Assume $10,000 invested over 20 years and 8% annual return
Annual Operating Expenses = .10%
Front End Sales Charge 0%
Initial fee = $0
Operating fees over 20 years = $469.57
Total fees = $469.57
Value after 20 years = $45,687.19

As you can see there are other expenses and they can have a huge impact on your return. This is one reason many people believe that the most important part of picking a fund is not its annual return but instead its cost. The example I gave you above shows that both non-index funds would have to do considerably better in order to make up for their fees. So unless your adviser can get you into a fund that can justify the fees I would get an index fund from a popular company like TRowe, Fidelity, etc.. Hope this helps.