Author Topic: American Funds  (Read 8233 times)

VaCPA

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American Funds
« on: April 04, 2016, 01:21:49 PM »
What do you guys think of American Funds(I'm sure I know the answer, Vanguard seems the favorite here). Many years ago when I changed jobs I rolled a 401k and Roth 401k into accounts with AF through a buddy of mine, who's a financial advisor. At the time I didn't really know anything about the upfront load stuff. I actually think I may not have paid the upfront load in that rollover because it went into B shares but last year it converted to A shares due to being with them for long enough. I've recently been thinking if the funds are best served over there, especially since I've become interested in trying to use the backdoor conversion to put more money into the Roth. I think having an IRA complicates that so I'd have to roll it into my current 401k. They are in A shares now so there may be some value in that if Am Funds performs really well for me, or maybe not.

I also opened a 529 plan with them a couple years ago which I'm having major reservations about, due to the upfront load that I am paying there to go directly into A shares. I'm still early on so if I want to pull the plug and go somewhere else I still have plenty of time to accumulate but I probably should do that sooner than later.

forummm

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Re: American Funds
« Reply #1 on: April 04, 2016, 01:31:08 PM »
Stay away. Why would you even consider it? Just roll them into Vanguard. Having a Roth doesn't affect your ability to do backdoor Roth.

Jack

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Re: American Funds
« Reply #2 on: April 04, 2016, 01:33:40 PM »
Any fund with a load is a shitty fund. Any fund with a high expense ratio is a shitty fund. If American Funds have either of those things (and it sounds like they do), they are shitty.

By the way, Fidelity Spartan funds (not Fidelity funds in general, just the ones with "Spartan" in the name) are reasonable alternatives if you prefer to be contrarian and avoid Vanguard for some reason. There may be a few other fund providers who have seen the low-fee light, but I don't remember what they are.



Having a fund that "performs well" is a separate issue: around here, statements like that are generally treated as nonsensical because all index funds (in the same category) perform essentially identically, except for expenses. In other words, talking about "performance" implies that you're talking about active management, which means you're not even working from the same basic set of axioms as the rest of us (e.g. belief in the efficient market hypothesis).

MustacheAndaHalf

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Re: American Funds
« Reply #3 on: April 04, 2016, 02:05:45 PM »
"... with AF through a buddy of mine, who's a financial advisor. At the time I didn't really know anything about the upfront load stuff."

Your "buddy" silently took money from you as a commission, without you knowing about it.  I would caution against investing with friends who are financial advisers.  They have a conflict of interest in their commission - they are salespeople, and do not (yet) owe you a "fiduciary duty" like your lawyer would.  The person to act in your best interest is you.

If you don't want people to push you toward Vanguard, you can also get low cost ETFs elsewhere.  There's Fidelity Spartan funds, which offer low expense ratios.  There's some total market ETFs (ITOT, SCHB) you can buy like stocks at any brokerage.

VaCPA

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Re: American Funds
« Reply #4 on: April 04, 2016, 02:23:10 PM »
Stay away. Why would you even consider it? Just roll them into Vanguard. Having a Roth doesn't affect your ability to do backdoor Roth.

It's having a regular IRA that complicates the backdoor I think. There's tax implications if you have IRAs that have pretax money and you want to do the conversion. We've very close to AMT so I can't do anything that will push our taxable income up much.

My understanding with the backdoor is if I don't have any traditional IRAs(e.g. I roll my American Funds account into my 401k) I can basically do the backdoor conversion with no tax implications. I contribute post-tax money to a traditional IRA then immediate convert to Roth. Obviously there's tax implications in that it's post tax money but it won't increase my AGI on my tax return.

I definitely am going to look into a different 529 plan though.

dandarc

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Re: American Funds
« Reply #5 on: April 04, 2016, 02:27:02 PM »
Thanks for the reminder - we still need to get some of wife's Roth IRA away from American Funds.

johnny847

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Re: American Funds
« Reply #6 on: April 04, 2016, 02:37:25 PM »
Having a fund that "performs well" is a separate issue: around here, statements like that are generally treated as nonsensical because all index funds (in the same category) perform essentially identically, except for expenses. In other words, talking about "performance" implies that you're talking about active management, which means you're not even working from the same basic set of axioms as the rest of us (e.g. belief in the efficient market hypothesis).

You don't even need to believe in the efficient market hypothesis to argue that in the long run average, indexed portfolios beat actively managed portfolios.

Take all investors out there. The average return of their portfolios before fees is by definition the average market return.
Split the investors portfolios into two groups: those that invest passively with indices, and those who don't (you will have to split the portfolios of individual investors who have both actively and passively managed funds to do this, but w/e).

The average after expenses return of those who invest passively is only slightly lower than the average market return.
The average after expenses return of those who invest actively is quite a bit lower than the average market return.


There was no efficient market hypothesis needed in this argument.

Proud Foot

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Re: American Funds
« Reply #7 on: April 05, 2016, 08:30:16 AM »
They have a few funds that I think are good, although with certain conditions.  I would never invest in any American Funds outside of my 401k where I have access to the Investor Class shares.  These shares do not have the outrageous loads the regular funds available to individuals and 529 plans have. 

Miss Piggy

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Re: American Funds
« Reply #8 on: April 06, 2016, 08:13:15 PM »
I had American Funds for years with an advisor from Northwestern Mutual. Never seemed to make a dime off of those funds. I've since moved my money away from both American Funds and Northwestern Mutual.

johnny847

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Re: American Funds
« Reply #9 on: April 06, 2016, 08:41:37 PM »
I had American Funds for years with an advisor from Northwestern Mutual. Never seemed to make a dime off of those funds. I've since moved my money away from both American Funds and Northwestern Mutual.

This kind of logic could be applied to Vanguard (or whoever) index funds over certain time frames (such as last year).

Poor performance should not be a reason to switch funds. High fees and/or active management are definitely good reasons though (which are true of American Funds).

Miss Piggy

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Re: American Funds
« Reply #10 on: April 06, 2016, 08:48:30 PM »
I had American Funds for years with an advisor from Northwestern Mutual. Never seemed to make a dime off of those funds. I've since moved my money away from both American Funds and Northwestern Mutual.

This kind of logic could be applied to Vanguard (or whoever) index funds over certain time frames (such as last year).

Poor performance should not be a reason to switch funds. High fees and/or active management are definitely good reasons though (which are true of American Funds).

Why would poor performance not be a reason to switch funds, when other funds are performing better?

In addition to the poor performance, I had big-time trust issues with the advisor. So I jumped ship.
« Last Edit: April 07, 2016, 07:15:25 AM by Miss Piggy »

NoStacheOhio

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Re: American Funds
« Reply #11 on: April 07, 2016, 10:43:08 AM »
Why would poor performance not be a reason to switch funds, when other funds are performing better?

In addition to the poor performance, I had big-time trust issues with the advisor. So I jumped ship.

Because you end up buying high and selling low. Buying a fund that performed well last year means you're missing out on last year's gains. The fund could perform terribly this year.

Just buy the market when cash becomes available, regardless of short-term performance.

Miss Piggy

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Re: American Funds
« Reply #12 on: April 07, 2016, 10:47:18 AM »
Why would poor performance not be a reason to switch funds, when other funds are performing better?

In addition to the poor performance, I had big-time trust issues with the advisor. So I jumped ship.

Because you end up buying high and selling low. Buying a fund that performed well last year means you're missing out on last year's gains. The fund could perform terribly this year.

Just buy the market when cash becomes available, regardless of short-term performance.


hhhhmmmm....I had the funds for over 10 years and made no money. I think I gave them ample opportunity.

pbkmaine

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Re: American Funds
« Reply #13 on: April 07, 2016, 10:57:22 AM »
American Funds has 16 different share classes. (At least they did last time I checked.) That means there are sixteen different combinations of loads and expense ratios. What share class you get depends on what kind of investment vehicle you have (individual account, IRA, 401(k), college savings plan), how much money you are investing and how greedy your investment advisor is.

For example, American Funds Growth Fund of America R1 shares (for very small retirement plans) has an expense ratio of 1.42%, or 142 basis points. R6 shares (for very large plans) has an expense ratio of .33%, or 33 basis points. Same fund, same managers, same holdings. The only difference is the price you pay and the returns (net of fees) you get.

As for me, I use Vanguard.

NoStacheOhio

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Re: American Funds
« Reply #14 on: April 07, 2016, 11:05:28 AM »
Why would poor performance not be a reason to switch funds, when other funds are performing better?

In addition to the poor performance, I had big-time trust issues with the advisor. So I jumped ship.

Because you end up buying high and selling low. Buying a fund that performed well last year means you're missing out on last year's gains. The fund could perform terribly this year.

Just buy the market when cash becomes available, regardless of short-term performance.


hhhhmmmm....I had the funds for over 10 years and made no money. I think I gave them ample opportunity.

I'm not advocating holding crappy funds (most American Funds are crappy). I'm advocating NOT buying into flavor-of-the-year.

johnny847

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Re: American Funds
« Reply #15 on: April 07, 2016, 09:12:57 PM »
Why would poor performance not be a reason to switch funds, when other funds are performing better?

In addition to the poor performance, I had big-time trust issues with the advisor. So I jumped ship.

Because you end up buying high and selling low. Buying a fund that performed well last year means you're missing out on last year's gains. The fund could perform terribly this year.

Just buy the market when cash becomes available, regardless of short-term performance.


hhhhmmmm....I had the funds for over 10 years and made no money. I think I gave them ample opportunity.

I'm not advocating holding crappy funds (most American Funds are crappy). I'm advocating NOT buying into flavor-of-the-year.

And to pile on, most American funds are crappy because they're expensive. And actively managed.

Any good fund (which I define as a low cost index fund) can do poorly in the short term. That still doesn't change the fact that index funds have been shown time and time again to beat out actively managed funds given a long enough investment horizon.

VaCPA

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Re: American Funds
« Reply #16 on: April 08, 2016, 06:37:04 AM »
Well I chatted with my advisor yesterday and discussed moving my Roth IRA to another provider, probably Vanguard. Of course he briefly tried to talk me out of it, showing me some graphic about how American Funds beat the Lipper average. I have no idea how the Lipper avg is calculated so it doesn't mean much to me. Would've been more meaningful if he'd showed stats about how AF beats other funds like Vanguard to justify the fees. He understood though, didn't really push too hard.

Once I get the Roth to Vanguard I'll probably start trying to backdoor 5k a year into it before they close that loophole.

NoStacheOhio

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Re: American Funds
« Reply #17 on: April 08, 2016, 06:40:24 AM »
Well I chatted with my advisor yesterday and discussed moving my Roth IRA to another provider, probably Vanguard. Of course he briefly tried to talk me out of it, showing me some graphic about how American Funds beat the Lipper average. I have no idea how the Lipper avg is calculated so it doesn't mean much to me. Would've been more meaningful if he'd showed stats about how AF beats other funds like Vanguard to justify the fees. He understood though, didn't really push too hard.

Once I get the Roth to Vanguard I'll probably start trying to backdoor 5k a year into it before they close that loophole.

https://en.wikipedia.org/wiki/Lipper_average

Probably just means it's less-bad than 29 other high fee, active funds.

Jack

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Re: American Funds
« Reply #18 on: April 08, 2016, 08:06:01 AM »
Well I chatted with my advisor yesterday and discussed moving my Roth IRA to another provider, probably Vanguard. Of course he briefly tried to talk me out of it, showing me some graphic about how American Funds beat the Lipper average. I have no idea how the Lipper avg is calculated so it doesn't mean much to me. Would've been more meaningful if he'd showed stats about how AF beats other funds like Vanguard to justify the fees. He understood though, didn't really push too hard.

Once I get the Roth to Vanguard I'll probably start trying to backdoor 5k a year into it before they close that loophole.

https://en.wikipedia.org/wiki/Lipper_average

Probably just means it's less-bad than 29 other high fee, active funds.

The follow-up question should be, "and how did the Lipper average itself perform against the index, oh wise mister advisor sir?"

(Apparently, the Lipper average of actively-managed funds beats the index so rarely that it's news when it happens: 1999, 2006. I'm sure it's "just a coincidence" that both of those instances were at the tops of bubbles.)

Proud Foot

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Re: American Funds
« Reply #19 on: April 08, 2016, 12:26:11 PM »
Jack, I agree with you that a good question to ask is how the Lipper Average, or the individual fund, performed against the index.  I think it is a good system and has its merits but should not be used as the primary or even secondary basis for deciding to invest in a fund. 

And, not that it invalidates your point, but in your second link it states that 2005 marked the 7th straight year the Lipper Average beat the S&P500. My quick search did not find any information comparing the two since the end of 2005.

Mighty-Dollar

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Re: American Funds
« Reply #20 on: April 08, 2016, 02:09:46 PM »
AVOID actively managed funds! They do everything for the "advisers" who push them and nothing for the investor. Here's a nice analysis of American Funds Growth Fund of America...
http://www.investingadvicewatchdog.com/mutual-funds.html

American funds are expensive and very closely mirror the benchmark indexes, so what's the point in dumping money into them? It's good for Mr. Broker!
« Last Edit: April 08, 2016, 02:11:54 PM by Mighty-Dollar »

Indexer

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Re: American Funds
« Reply #21 on: April 08, 2016, 06:03:53 PM »
I had American Funds for years with an advisor from Northwestern Mutual. Never seemed to make a dime off of those funds. I've since moved my money away from both American Funds and Northwestern Mutual.

You bought expensive active funds from an insurance agent. If I had to rank people to get financial advice from on a scale of 1-10, Warren Buffett managing your money for free being a 10, and a drunken car salesmen with a gun to your head trying to rob you being a 1, I would rank an insurance salesmen around a 2.

In many(likely most) cases an insurance salesmen selling mutual funds is someone who really specializes insurance, commission based insurance that is, who got a Series 6 license(which is a joke), so they could also sell mutual funds as a way to get more commissions.

I would rank them below the very expensive advisors who normally use A share loaded mutual funds. These guys at least normally have a Series 7 securities license(requires at least a basic understanding of investments) and work with investments on a daily basis. I'm not recommending them at all. I would only give them a 3.

It is a good thing you fired that salesman and sold the American funds. If you feel you can manage your own accounts you will find plenty of help here on the MMM forums. If you do want the help of an advisor I would look for a fee-only or hourly financial planner. In terms of credentials a Series 7 securities license plus a CFP should be the minimum. In terms of cost aim for 0.5% AUM or less, or hourly if you can find it. Depending on your assets Vanguard will even team you up with a CFP for free. On my 1-10 scale I would say the low cost advisor fits about an 8. Free is obviously even better. Learning it yourself, staying disciplined, and saving the fees, that is a 9. ;)

Well I chatted with my advisor yesterday and discussed moving my Roth IRA to another provider, probably Vanguard. Of course he briefly tried to talk me out of it, showing me some graphic about how American Funds beat the Lipper average. I have no idea how the Lipper avg is calculated so it doesn't mean much to me. Would've been more meaningful if he'd showed stats about how AF beats other funds like Vanguard to justify the fees. He understood though, didn't really push too hard.

Once I get the Roth to Vanguard I'll probably start trying to backdoor 5k a year into it before they close that loophole.

Last time I checked 93% of Vanguard funds also outperform their Lipper averages over 10 years. A Lipper average is how other mutual funds did. Since most mutual funds underperform their index benchmarks over long periods of time thanks to cost a low cost index fund has a fairly easy time beating its Lipper average. ;)  Your advisor doesn't want to be in a head to head fight with Vanguard. He knows he will lose.
« Last Edit: April 08, 2016, 06:06:24 PM by Indexer »

Travis

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Re: American Funds
« Reply #22 on: April 08, 2016, 07:03:14 PM »
I'm in the middle of transferring one of my mom's American Funds accounts that I inherited from her over to Vanguard.  American Funds doesn't have an email address under the "contact us" section. What?  The fund is a 529 for my son she made when he was born.  The fund the 529 is based on has a .68% ER.