Excerpted from Common Sense on Mutual Funds by John C. Bogle, pages 93-94

Tens of millions of investors need personal guidance in allocating their assets and selecting funds. Other tens of millions do not. Fore those in the latter category, some 3,000 no-load funds, without sales commissions, are available to choose from, and it is the essence of simplicity for self-reliant, intelligent, informed investors to purchase shares without resorting to an intermediary salesperson or financial adviser. Assuming the funds are properly selected, buying no-load funds is the least costly way to own mutual funds, and costs will consume the lowest possible proportion of future returns.

For the many investors who require guidance, there are registered advisers and brokerage account executives, many of whom serve their clients ably at a fair price. Good advisers give you their personal attention, help you avoid some of the pitfalls of investing, and provide worthwhile asset-allocation and fund-selection services. But, like any of us, they must earn their keep, providing you with valuable services that make it worth your while to invest through them. But I do not believe that they can identify, in advance, the top-performing managers - no one can! - and I'd avoid those who claim they can do so. The best advisers can help you develop a long-range investment strategy and an intelligent plan for its implementation.

You should know exactly how much the adviser's services will cost. Advice may be provided by registered fee-only investment advisers, who usually charge annual fees beginning at 1 percent of assets. It may also be provided by brokerage firm representatives who receive sales commissions. Commissions represent a significant drag on a mutual fund's performance, especially if the fund's shares are held for only a short period. It would be foolish to pay a 6 percent load if you expect to hold the shares for only a few years. Over 10 years, on the other hand, such a load would cut your return by a more modest 0.6 percent per year. In all, paying a reasonable price for guidance - especially when the adviser helps minimize your all-in cost (his or her cost, plus the costs of the funds) by focusing on low-cost funds - may well be acceptable in light of the services you receive.

Beware of the many apparently no-load funds that charge a hidden load - a special kind of sales charge, known as a 12b-1 fee, that is deducted from your returns each year. This fee may reduce your annual return by an additional one percentage point. If regular fund expenses are also 1.5 percentage points, the combined fee could consume one-fourth of a long-term 10 percent return on your portfolio, reducing it to 7.5 percent. Deductions may be even larger if you liquidate your fund shares within five or six years. Other funds use these 12b-1 fees, not to pay the salespeople, but to promote sales of the fund's shares through aggressive advertising and marketing programs. These fees provide no net benefit whatsoever to you, but they are paid out of your pocket. Be wary of funds that charge 12b-1 fees.

YAHOO! FINANCE TIP Yahoo! Finance reports a mutual fund's costs and expenses on its profile page. For an example, see VFINX's profile page.

Most of all, beware of wrap accounts - packages of mutual funds assembled within a wrapper for which an additional fee is paid. They are usually expensive. Owning a package of managed funds may make sense under some circumstances, but paying 2 percent or more of assets per year for such a package defies reason. In my judgment, an investor who pays up to 4 percent a year in total costs (fund expenses plus the wrap fee) has destroyed any chance of approximating the total returns of the financial markets. Such a cost is simply too much dead weight - too great a handicap - on the return of any fund to enable it to be competitive. It cannot win the race.