Why Should I Move from AmFunds to Vanguard?

[IsThisAGoodUsername]

Update on my case study (https://forum.mrmoneymustache.com/case-studies/case-analyze-46m-to-get-to-fi/):

After seeing my financial advisor yesterday, I did a bunch of Excel math as shown below.  Yes, I know past performance is not a predictor of the future, but it's all I have to go on right now. I included the Since Inception data because the 10 year mark doesn't include the big market drop in 2008. Here is my big table of math projecting 10 and 19 years if I make no more contributions. AmFunds is short by $63k at the 10 year mark, but pulls ahead by $390k over 19 years. (To calculate future returns, I took existing balance and multiplied by 1+rate exponentially for 10 or 19 years.)

So yes the American Funds have E.Rs. much higher than VTSAX, but the net effect is that it's still outperforming VTSAX. Am I analyzing this wrong? Given this data, why should I move my American Funds holdings into VTSAX? (Yes, I've seen https://forum.mrmoneymustache.com/investor-alley/ditch-american-funds-for-vanguard/ and https://assetbuilder.com/knowledge-center/articles/investing-with-american-funds-is-like-betting-on-tiger-woods.)

.	Symbol	Initial Investment	Current Value	AmFund Inception Date	AmFunds perf 10 years	AmFunds perf since inception	VTSAX perf over 10 years	VTSAX perf since Inception	10 yr Growth in AmFunds @ 10 yr Rate	10 yr Growth in VTSAX @ 10 yr Rate	19 yr Growth in AmFunds @ Inception Rate	19 yr Growth in VTSAX @ Inception Rate
AMCAP	AMCPX	$3,000	$6,657	5/1/1967	11.10%	11.52%	10.78%	6.86%	$19,072	$18,530	$52,841	$23,483
American Balanced Fund	ABALX	$2,444	$2,439	7/26/1975	8.05%	10.53%	10.78%	6.86%	$5,291	$6,790	$16,345	$8,605
Capital Income Builder	CAIBX	$10,593	$10,194	7/30/1987	4.68%	8.92%	10.78%	6.86%	$16,106	$28,377	$51,690	$35,962
Capital World Growth and Income Fund	CWGIX	$9,778	$9,257	3/26/1993	5.97%	10.41%	10.78%	6.86%	$16,532	$25,770	$60,765	$32,657
The New Economy Fund	ANEFX	$8,556	$8,359	12/1/1983	11.38%	11.37%	10.78%	6.86%	$24,559	$23,268	$64,675	$29,487
Washington Mutual Investors Fund	AWSHX	$9,370	$9,419	7/31/1952	9.33%	11.80%	10.78%	6.86%	$22,983	$26,220	$78,417	$33,228
American Balanced Fund	BALCX	$1,487	$2,103	7/26/1975	7.82%	10.43%	10.78%	6.86%	$4,465	$5,854	$13,851	$7,418
Capital Income Builder	CIBCX	$10,292	$13,060	7/30/1987	4.46%	8.78%	10.78%	6.86%	$20,204	$36,354	$64,621	$46,071
Capital World Growth and Income Fund	CWGCX	$10,292	$14,476	3/26/1993	5.76%	10.29%	10.78%	6.86%	$25,343	$40,295	$93,073	$51,065
The New Economy Fund	ANFCX	$10,292	$17,070	12/1/1983	11.16%	11.26%	10.78%	6.86%	$49,171	$47,516	$129,619	$60,217
Washington Mutual Investors Fund	WSHCX	$10,292	$16,006	7/31/1952	9.10%	11.71%	10.78%	6.86%	$38,241	$44,554	$131,228	$56,463
Investment Company of America	AIVSX	$2,200	$3,491	1/1/1934	8.95%	12.08%	10.78%	6.86%	$8,228	$9,719	$30,482	$12,317
.	Total	$88,598	$112,531	.	.	.	.	.	$250,195	$313,247	$787,606	$396,974

[Proud Foot]

Not going to discuss the Vanguard portion of your question as I am not the same die-hard Vanguard only, index only investor that many here are. You do need to review your investments and consolidate them though. Is there a reason you are holding two different share classes of the following funds? (Or am I reading your data wrong)
American Balanced Fund - ABALX, BALCX
Capital Income Builder - CAIBX, CIBCX
Capital World Growth and Income - CWIGX, CWGCX
The New Economy - ANEFX, ANFCX
Washington Mutual Investors Fund - AWSHX, WSHCX

[IsThisAGoodUsername]

Is there a reason you are holding two different share classes of the following funds? (Or am I reading your data wrong)
American Balanced Fund - ABALX, BALCX
Capital Income Builder - CAIBX, CIBCX
Capital World Growth and Income - CWIGX, CWGCX
The New Economy - ANEFX, ANFCX
Washington Mutual Investors Fund - AWSHX, WSHCX

You're reading it correctly. I don't remember why as it was several years ago, but apparently when I chose to roll previous 401k accounts into this account, I selected the C class to avoid the upfront fee. This results in an additional 1% E.R. for 10 years for these holdings. I can't do anything about it now, so I consider it a sunk cost of education. :(

[robartsd]

Wasn't the big drop in September 2008? That's still just inside 10 year trailing return data. Sure, the high before the September 2008 drop was around October 2017, but more than half of the great recession losses are still in the 10 year trailing returns.

[neil]

Return since inception is a meaningless metric of comparison.  The fund could have started in 1929 or 1983 (or whatever) and end up having two different numbers because it went through two entirely different waves of economic returns (which can vary not only due to time but sector allocation as well).  The only thing they have in common is that you can buy them today.  This is not a mathematically correct methodology to use for projection.  (In fact, I would not even bother projecting like this in the first place.  Past performance, future results, etc.)

I also fundamentally struggle why looking at the track record of money managers and mutual fund tickers is acceptable and doing the same with stocks are not.  Are the investment managers smarter than the people actually running the businesses?  Buying a stock is bad because you focus your results on one business?  Well, I feel buying a managed fund is bad because I focus my results on one money manager.

Look at FMAGX.  When Lynch was running things, everything was great.  Since then, not so much.  They famously went too conservative too soon in the 90s and got hammered.  In your account, it's just a ticker.  Is the guy running things now as good or better (or ideally, the same person) as the guys responsible for prior performance?  Yes, if you invested in 1976 and stayed, you'd have 4X more money.  But they've underperformed substantially for decades.  How can you tell the difference?

The other reason I index is to understand how I'm invested.  VTSAX is the US market.  I didn't know what CIBCX was, but I assumed it was bond heavy and not fair to compare to VTSAX.  (It's more of a blend of international and bond, but it's still terrible for what it is.  Vanguard and others also have blended funds if you want that as well.)  This portfolio just looks confusing to me and I'd want to make it something I understand while it is $100K before it becomes $1M and harder to fix. 

Selecting funds is simple, right?

In the end though, I'm just some random internet guy.  You own your portfolio and its future results.  But if you're confused and why you ask here in the first place, that's a real problem.  That confusion compounds into fear when the markets are doing poorly.  It's easy to blow it off when things are great.

[Radagast]

You should always compare over the same time frame, never since inception because different start dates will give wildly different results even for the same fund. Use Morningstar and use VTSMX instead of VTSAX to get a longer history. VTSMX and VTSAX are the same thing, but VTSAX requires $10k instead of $3k, has a much lower expense ratio, and was introduced about 10 years later. I didn't bother to shorten the link.
https://quotes.morningstar.com/chart/fund/chart.action?t=VTSMX&region=usa&culture=en-US&dataParams=%7B%22zoomKey%22%3A10%2C%22version%22%3A%22US%22%2C%22showNav%22%3Atrue%2C%22defaultShowName%22%3A%22name%22%2C%22mainSettingId%22%3A%22main%22%2C%22navSettingId%22%3A%22nav%22%2C%22benchmarkSettingId%22%3A%22benchmark%22%2C%22sliderBgSettingId%22%3A%22sliderBg%22%2C%22volumeSettingId%22%3A%22volume%22%2C%22defaultBenchmark%22%3Afalse%2C%22id%22%3A%22FOUSA00FQU%7CFOUSA02SPM%7CFOUSA02SQF%7CFOUSA02SQ6%7CFOUSA02SPR%7CFOUSA02SQ3%7CFOUSA00D77%7CFOUSA00B49%22%2C%22type%22%3A%22FO%7CFO%7CFO%7CFO%7CFO%7CFO%7CFO%7CFO%22%2C%22region%22%3A%22USA%22%2C%22name%22%3A%22XNAS%3AVTSMX%7CXNAS%3ABALCX%7CXNAS%3ACIBCX%7CXNAS%3ACWGCX%7CXNAS%3AANFCX%7CXNAS%3AWSHCX%7CXNAS%3AAIVSX%7CXNAS%3AAMCPX%22%2C%22baseCurrency%22%3A%22USD%22%2C%22defaultBenchmarks%22%3A%5B%22%22%2C%22%22%5D%2C%22chartType%22%3A%22growth%22%2C%22startDay%22%3A%2204%2F27%2F1992%22%2C%22endDay%22%3A%2208%2F30%2F2018%22%2C%22chartWidth%22%3A955%2C%22SMA%22%3A%5B%5D%7D

Since the inception of VTSMX only AMCAP came out ahead. Yes, I chose the higher expense ratio funds. Otherwise there was no way to account for the front load.

On average, an investor's returns will compound at the rate of the market minus expenses. There is strong evidence that over the long term everyone becomes average, therefore expenses are all that is left. I am also not dogmatic about this: I just recommended my wife invest in Vanguard's actively managed PrimeCap fund instead of the S&P500 in her 401k. But that has an expense ratio of 0.32% and no loads, which is much less of a drag than what you are doing should things not go as hoped.

You should certainly sell all the funds with 1%+ expense ratios and invest in something that is actually a good investment. If you want to keep the money in the active funds for which you already paid the front end load that seems reasonable, but I would not add any more money to those funds because...loads.

[robartsd]

Your overall expense ratio is 1.12% for your funds (~$1256.60/year) - that doesn't include any AUM fee your "Advisor" is charging. These funds have 6.45% of your investment sitting on the sidelines as cash or similar.

A similar allocation with Vanguard funds might look like this:

Symbol	Amount	Expense Ratio
VTSAX	64700.89	0.04%
VTIAX	33116.68	0.11%
VBMFX	6639.66	0.15%
BNDX	820.50	0.11%
VMSXX	7253.27	0.15%

Overall expense ratio 0.07% ($84.05/yr). Note I moved a bit of cash into international bonds to get a round 15 shares of BNDX.

Moving cash into bonds I might make your portfolio look more like this:

Symbol	Amount	Expense Ratio
VTSAX	64700.89	0.04%
VTIAX	33116.68	0.11%
VBTLX	11713.43	0.05%
BTIBX	3000.00	0.15%

This portfolio has an overall expense ration of 0.06% ($72.04/yr - the savings comes from increasing the US Bond holding enough to get Admiral class shares).

[MustacheAndaHalf]

Your picks seem to either beat VTSAX by a little, or fall behind by a lot.  That's not a good combination, since trailing by -6.0% is far more significant than being ahead +0.5%.

Let me compare two of your funds to something else to make another point:
VTSAX holds 22% tech.  It averaged 10.8%/year for the past 10 years
ANFCX holds 31% tech.  It averaged 11.3%/year for the past 10 years
VGT holds 85% tech.  It averaged 15.5%/year for the past 10 years

A higher allocation to tech has performed well for the past 10 years.  But if you combined VTSAX and VGT so that you wind up with 31% tech, you'd actually have beaten ANFCX with a +11.5%/year return for 10 years.  So their emphasis on tech is actually being weighed down by something else.

Have you tried multiplying your funds starting investment with their performance?  That would give you a weighted return, which I strongly suspect trails VTSAX.  When you beat by less than 1% but fall behind by over 5%, the average is going to be worse than VTSAX.

You should also visit morningstar.com to look up these funds, to see their bond allocations.  The "portfolio" tab on morningstar indicates that CAIBX holds about 1/4th bonds.  That's a big drag on performance, especially if you're trying to build up your nest egg.  Look closer at the percentage bonds in this portfolio, it might surprise you.

[Telecaster]

After seeing my financial advisor yesterday, I did a bunch of Excel math as shown below.  Yes, I know past performance is not a predictor of the future, but it's all I have to go on right now. I included the Since Inception data because the 10 year mark doesn't include the big market drop in 2008. Here is my big table of math projecting 10 and 19 years if I make no more contributions. AmFunds is short by $63k at the 10 year mark, but pulls ahead by $390k over 19 years. (To calculate future returns, I took existing balance and multiplied by 1+rate exponentially for 10 or 19 years.)

So yes the American Funds have E.Rs. much higher than VTSAX, but the net effect is that it's still outperforming VTSAX. Am I analyzing this wrong?

Yes, you are analyzing it wrong.    You have to compare the same periods.    The inception dates don't mean anything for comparison purpose.   If you compare the VTSAX with AIVSX (which I believe has the highest growth rate since inception of the funds you listed)  starting in 2001 (inception date of VTSAX), the performance of AIVSX actually a little worse. 6.96% vs. 7.24% 

Anyway, point is there are any number of funds that have performed better than VTSAX over the last ten years.   But how do you pick which ones ahead of time?   You can't.  For example, mid-caps did pretty well in the 2000s.  So any fund that was "mid-cappy" probably would have done better than VTSAX (which is basically large cap).  But  back in 2001, there was no way to know that mid-caps would out perform large caps.  The reality is that over any reasonable period of time the vast majority of funds don't match the index.  That's why the usual advice is to just by VTSAX and forget about it. 

[Retire-Canada]

Yes, I know past performance is not a predictor of the future, but it's all I have to go on right now.

Before wasting your time developing a spreadsheet you really need to think about and appreciate why your ^^ statement is silly. As the saying goes..."...garbage in garbage out..."

Have a read of this thread. You'll note past performance is not part of any recommendations:

https://forum.mrmoneymustache.com/investor-alley/factors-comparing-index-funds/

[IsThisAGoodUsername]

Thanks for everybody's responses above. I'm just trying to learn and do all this on my own to set my ship right.

[ThatGuy]

I came across this calculator and thought of this thread. https://www.begintoinvest.com/expense-ratio-calculator/