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Brokers typically charge commissions and other fees for using their service. These fees are not unique to mutual funds but apply to the entire range of assets you access through that service provider. Typically, mutual funds are structured as an exchange-traded product, with fees and commissions similar to what you’d pay for accessing stocks.
Mutual funds that come with a sales charge or commission are referred to as load funds. Annual commissions on load funds can run as high as 5.75%, although this varies greatly based on the broker. Although load funds can be considered expensive, they are usually offset by a mutual fund’s competitive expense ratio. From a cost perspective, this leaves you better off in the long term, especially if you adopt a buy-and-hold approach.
Direct investing is beneficial because it allows you to set up automatic, recurring contributions. This is ideal for investors who are committed to dollar-cost averaging over a long-term horizon. However, the biggest benefit of direct investing is bypassing broker fees and commissions. This means more money is allocated to buying shares as opposed to paying the broker.
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Although this is a great way to boost your portfolio, one of the biggest downsides is a lack of investment options. Unlike brokerage accounts, the range of mutual funds offered by your employer through a 401(k) or similar retirement plan is likely to be much smaller. That being said, the employer match is a popular option for investors looking to make steady and sizable contributions to their favorite funds.
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