The A-B-C's of Shares

[This question originated from a reader who read the article "Don't Be Taken by B-Shares”]


Q. I believe you are right on with your feelings on B-shares. However, I have used the NASD.com cost analyzer and have to disagree with your use C-share rather than A-share comment. The NASD's cost calculator clearly shows your cost to be less expensive than c-shares and so too does the prospectus of the various fund companies.

In addition, if you qualify for breakpoints your cost is reduced further.

I would be interested in your thoughts.

A. I'm glad you enjoyed the article and thank you for taking the time to send me a note.

You are right that when looking at a prospectus or using the calculator on the NASD website that Class A shares will be shown to have a lower overall cost over an extended period of time.

The reason that I recommend C shares instead of A shares is because very few people stay in a given mutual fund for several years. C shares provide the investor and the advisor to make changes when needed. For instance, a mutual fund may have been a high-flyer in the late '90s but a rock falling off a cliff in 2000-2002. The star manager could leave and go to a different fund. The fund could have style shift (starts investing in a different category than originall anticipated).

Many times, it's the investor's situation that changes. Health, job, retirement, travel, etc. may result is using all or a portion of the funds invested. The economic climate can change.

Nowadays, more than ever it is important for an investor to have the flexibility to make changes to their investments or their advisor. The additional cost associated with C shares versus A shares is more than made up by their flexibility. Look at the cost of C shares vs A shares over a 1, 2, or 3 year period. The average time an investor stays in a fund is less than 3 years.

Some people make the mistake of thinking that since this is money that I won't need for X number of years that they will leave the money in the same investment for that period. That's usually not the case.

Hope this helps.

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