title: Would I better off in an index / no-load mutual funds? description: [AFW S.12.7] Securities Objection #7 published: true date: 2026-06-30T08:09:31.397Z tags: editor: markdown dateCreated: 2021-06-27T19:34:32.244Z

Watch AF MKOM #1710: Would I better off in an index fund? VIDEO

Watch AF MKOM 1690 - AMF vs Index Funds VIDEO

Watch AF MKOM 1674 - Would I better off in an index funds? VIDEO

Watch MKOM 1603: Would I better off in an index funds? YOUTUBE VIDEO

The answer to this question posed in the title of this post has two parts:

1. The quality of products available in no-load vs load. High quality products vs mass-market commodities. This is best explained using an analogy such as Nordstrom vs Wal-Mart, which the script below focuses on.

2. Having an Advisor ("load") vs not having one ("no load"). This is covered in more detail in "Why should I hire you?" objection. Feel free to integrate that script into the one below.

What Are the "Indexes"?¶

The Dow-Jones Industrial Average is still the way many refer to how the market is doing, even though they well recognize the limitations of this index. This index, popularly called the Dow, is so renowned that the news media often called the Dow “the stock market.” No matter how imperfectly the index describes the movement of share prices — and virtually no money manager pegs his or her performance to it — the Dow is the way that many investors describe the ups and downs of the stock market.

But today there are many other, far more inclusive indexes. The S&P 500, created in March 1957 by Standard & Poor’s, now a division of the McGraw-Hill Financial, has become the uncontested benchmark index for large U.S. stocks

The Nasdaq, an automated electronic market that began in 1971, has become the exchange of choice for technology companies. The Nasdaq Index measures the performance of such large technology firms as Microsoft, Intel, Google, and Apple.

The indexes were never meant to be invested into. They are just a reference point. a benchmark, if you will.

The Script¶

Watch I'd rather get a no-load fund VIDEO

Advisor There's a reason why Vanguard doesn't charge a fee, and American Funds does - that reason is me. For good or bad, when you get American Funds, you get me with the package! With a no-load, you don't. In my mind, the issues isn't "load vs no-load", it's "help vs no-help." The no-load companies are after volume not quality. They treat investing as a commodity, and they just want to sell as many accounts as possible, so they offer bare-bones no-load index funds. American Funds for 80 years has decided to take a different approach. They treat a mutual fund account as a very high-quality, very important financial instrument that encompasses the hopes and dreams of a real family. That's why you can only get American Funds from an adivsor - they insist that real-life person is attached to every account. So, the company I represent has chosen to operate in the context of professional advice, high-quality, solid-performance investments.

The decision you have to make is whats most important to you. Just like if you were going to buy a family car that was meant to haul your kids around, would you get the cheapest or the safest?

If you were choosing a doctor, would you focus on price or competence? If you were going skydiving, would you want a second-hand, discount parachute, or a high-quality new one?

In the mutual fund industry there is a spectrum. One one side you have the Vanguards and Fidelitys, who focus on mass-marketing, volume-focuses, cheap, no-help average funds. Then on the other end you have companies such as American Funds with high-quality, Adviser-marketed, strong performance and client-focused. I know at which end I operate in. My question is, which part of the spectrum appeals to you?

Compare/Contrast Passive vs Active Management¶

“Trying to understand management teams (of companies to invest in) and their quality is huge for what we do. And, in fact, is one of our most important strategic advantages. The index funds don't spend any time evaluating management, not one bit. If we can do that well, that really gives us an advantage. ” -Don O'Neal, Capital Group Portfolio Manager, San Francisco office

“An index fund is like putting together a football team by selecting 11 random players from the entire universe of eligible players, with no research or filter. Then telling them to "go play" without a coach.” ―Michael

You may have heard on the internet (or as I call it, "Tik-Tok Finance") suggesting the superiority of index funds over professionally managed mutual funds, such as those offered by American Funds, which I previously referenced.

Index funds are mutual funds that invest in the same companies that make up a market index, such as the S&P 500 or the Russell 2000. Unlike actively managed funds, index funds do not employ a team of portfolio managers to select investments (remember the comparison between the Casio and Rolex?). Instead, they passively track the stocks of the chosen index.

The primary advantage of this approach is the lower cost, as no active management is involved in the selection process.

Two Fundamental Differences¶

1. Actively managed funds offer the advantage of a dedicated professional advisor (me!), whose services are included at no additional cost, as our fees are incorporated into the fund's cost structure. Conversely, index funds do not come with an attached advisor. In such cases, an advisor may charge an additional fee for their services, effectively negating the primary benefit of index funds.

2. By definition, indexes represent an average performance benchmark. Investing in an index fund, therefore, means that one's returns will, by design, align with the index's performance. It is important to note that due to fees, it is not possible to match the index exactly, resulting in a slight underperformance.

Comparing AMF ICA vs S&P 500 Index¶

Read S&P 500 vs American Funds A-Share PDF

The Capital Group / American Funds - Investment Company of America is one of the oldest,active, professionally managed mutual funds (and one of my favorites). Let's compare it to the S&P 500 index:

• Note 1, the "index" doesn't have fees, but a index mutual fund does, thus the differences are even greater.
• Note 2, the A-share includes the maximum upfront sales charge and all fund expenses.

Read Think No One Can Beat the Index PDF

Watch Index Fund Killer VIDEO

Watch AMF Think No One Can Beat the Index? Think Again VIDEO

From the book, "Capital"¶

From the book "Capital". The author is a index-fund proponent who was tired of hearing about AMF, and decided to write a article about debunking them. After researching, the article turned into a book FAVORING AMF. Here are some excerpts from the book...

Nick Murray's View¶

“Success = 100% equities plus proper client behavior. And the best management of equities is professionally managed. (Index funds, are by definition, average).” -Nick Murray

Read Nick's ATY 178 June 27 - Active vs Passive PDF

Read Nick's ATY 179 June 28 - Everything Else is Never Equal PDF

Read Nick's ATY 181 June 30 - Focus On What Matters PDF

Read Nick's NMS 15 - Active vs passive - a sideshow PDF

Read Nick's NMS 16 - The ultimate irrelevance of active vs passive PDF

Read Nick's NMS 61 - Why don't I just buy index funds? PDF

$50 Watch vs $11,000 Watch¶

Casio Duro = \(49.95** vs. [Rolex Submariner](https://www.rolex.com/watches/submariner/m124060-0001) = **\)11,350

It strikes me that a $50 watch and a $11,000 watch tell you the same time. The uninformed or those easily fooled by appearances would have a hard time valuing those two watches and might overpay for the cheap watch or undervalue the expensive watch because it seemed to perform no better than the cheap watch.

But when carefully observing the expensive watch, you can see that it has craftsmanship, high-quality components, and brand name value.

This is also how good mutual funds operate (in particular, American Funds). The investment managers know what to look for and separate the superficial from the truly valuable. They know when the market is paying too much for low-quality companies and not enough for high-quality companies.

This is one of the many reasons we use mutual funds (not individual stocks/bonds), and professional managed mutual funds (not index funds).

The Script¶

Watch Would I better off in an index mutual fund_ VIDEO

Two parts to this answer:

1. The technical / product answer: index vs actively managed. You can use a hypothetical to show how the right actively managed fund(s) beat an index-fund. Rolling 10-years, or longer, is good to use since full market cycles have averaged about four years. The longer time frame you use, the more valid and impressive the feat is. AMF ICA is a good choice.

2. Value of the Advisor, which comes with actively managed mutual funds, but not usually index-funds. The issue is investor behavior vs investment behavior. Use the script "Why should I hire you? Are you worth your fee? What makes you different?".

Alternative Script¶

1. Index funds are by definition average. Is that what you want?
2. Index funds are missing two things: a) professional management, and b) professional advisor (you).
3. I can show you mutual funds that have both #1 & #2 above, and though they cost slightly more than an index fund, they perform better long-term AFTER fees and expenses.

10 Reasons I Invest in No-Load Funds¶

1. I feel secure in putting my hard-earned life savings in a mailbox and sending them to total strangers.

2. I prefer the service I receive from faceless clerks at 800 numbers to a local investment professional.

3. I have plenty of time to read finance journals, investment magazines, and newsletters.

4. I believe publications that depend on advertising revenue from no-load funds can render impartial and objective investment advice.

5. I prefer being thought of as a computer entry rather than a person.

6. I feel fund companies that sell to a mass market care about me and understand my specific financial goals, time horizons, and risk tolerance.

7. I have nerves of steel. The 507-point market decline on October 19, 1987, didn’t concern me—neither do bear markets.

8. I can time the market and make fund switches with laser precision.

9. I don’t find the 4000+ no-load fund alternatives overwhelming. By reading five prospectuses a day, I’ll know them all in about 26 months.

10. I am not willing to pay fees for professional services. In addition to managing my own investment portfolio, I also diagnose and treat my own medical problems, represent myself in legal matters, and file my own taxes.