Author Topic: Keep American Funds or move and sell?  (Read 7855 times)

theglobetrotter

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Keep American Funds or move and sell?
« on: May 11, 2014, 04:03:27 AM »
Hi! Been reading a few bits here from Google results and seeking my first advice...

We have our investments in different accounts. My husband is military so we have TSP, a bit over 20k. He has ROTH via TSP too but just opened at $1000. We have a Franklin account at around 19/20k also - opened in '04 also I think. We're stationed overseas and before quitting my job, I rolled the 403B into a traditional IRA American Funds account, 26k. I was also contributing to an AF ROTH and had 8k in there. I have stocks, bought via USAA for no fee (first 10 purchases were free I think) when the market crash, 10k now. And had 55k cash for emergencies.

We're 35/39 yrs old.

Before April 1st, not knowing better, I contacted my (new) advisor (old one retired 1-2 years ago) and I told him we need to max out our ROTHs. He said fine and I sent him  around 22k . So now we have 30k-ish in cash.

A week later my advisor gave me a proprosal. It's a portfolio basically.  His example was 55k turned into 250k in 10yrs. He said it's better than what I have now,  mostly Growth, Wasington Mutual, AMCAP, Balanced , Fundemental, Capital Income Builder, New Perspective and New World.  Small bits of bonds too.

It was just last week that I learned about the fees involved. When I started investing in '04, I was just pumped to start investing, very little Internet or reading research and just lost - overwhelmed with all the info. But in the last 48hrs I've learned about Fidelity, Vanguard and T Rowe. I've also spent 5hrs straight matching comparable (and hopefully better) funds to what I have now.

Here's my dilemma. Except for the 22k I just sent, everything has been allocated  from 2004-2010. I quit contributing after being transferred overseas and hubby just contributed to TSP and savings. So, I've paid the 5.75% and now just the 1 point something to point 8 fees, depending on the fund. Many of the funds have been doing well too I think. I compared them to similar funds (Vanguard has a nice tool for this) and the popular Equity Income and capital appreciation from T Rowe. They all have their ups and downs but all performing well.

By this time I was too tired to compare each to Fidelity but from a few I gathered, they're not bad.

So, I want to transfer the 22k we just mailed to Vanguard and start over. They're just in cash form still now because I told the advisor that I wasn't comfortable with the portfolio. I just can't see being charged another 2.5% on top of the 5.75% I paid already. Also every year there will be rebalancing fees.

I am not sure about the 40 some thousand in American Funds (oh, there is a 529 too). Stay or will it be beneficial in the long run to just have less fees? I do pay $10/year, or $30 total, to keep my accounts there. Also, there is a 1-2% to reinvest the devidend fee. I am not sure if that's included in the expense ratio or not. This is Edward Jones pricing.

Thank you!!
« Last Edit: May 11, 2014, 07:43:21 AM by putri »

Frankies Girl

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Re: Keep American Funds or move and sell?
« Reply #1 on: May 11, 2014, 06:09:28 AM »
Transfer to Vanguard. Just call up their customer service, and ask for how to get your account transfer started. It should be at most a few forms and getting a signatory guarantee and then sending them in and they'll handle the contact and transfer with Am Funds.

American Funds charges you a fee to even have the account (WTH?), and practically all of their investment options have high expense ratios. Vanguard won't charge you for having an account, and you can invest in funds that are some of the lowest expense ratios out there. Over time, even a 1% expense ratio robs you of so much investing money (compounding/interest) that it is sad.

Am Funds will likely charge you fees to both transfer and to close your account; just did this at the beginning of the year actually so that's how I know (talk about a jerky move). I moved my Am Funds account to Fidelity (because I prefer them and you can get low cost index funds that are the same as Vanguard), and they credited me the transfer fee since they wanted my account, but nothing they could do about the close fee... so one was something like $75 and the other $95 (can't remember which was which) but it's still worth it.

Quote below from (read the whole article):
http://www.nytimes.com/2013/10/16/your-money/the-erosive-effect-of-expenses-on-a-portfolios-value.html?_r=0

Quote
Tallying the total expenses of an actively managed fund and comparing them to a passively managed index fund, Mr. Bogle has found that the lower-cost funds have a 2.25 percent annual cost advantage.

He said in an e-mail that in a stock market with 7 percent annual returns, the returns of a fund with high total expenses would be reduced to 4.75 percent. Over 50 years, “a $10,000 initial investment would grow to $100,000 rather than $290,000,” he wrote. “At a cost of 0.06 percent — easily obtainable in a low-cost all-market index fund — the return would be 6.94 percent and the final value about $286,000.”
« Last Edit: May 11, 2014, 06:11:04 AM by Frankies Girl »

LowER

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Re: Keep American Funds or move and sell?
« Reply #2 on: May 11, 2014, 06:26:27 AM »
Transfer to Vanguard. Just call up their customer service, and ask for how to get your account transfer started. It should be at most a few forms and getting a signatory guarantee and then sending them in and they'll handle the contact and transfer with Am Funds.

American Funds charges you a fee to even have the account (WTH?), and practically all of their investment options have high expense ratios. Vanguard won't charge you for having an account, and you can invest in funds that are some of the lowest expense ratios out there. Over time, even a 1% expense ratio robs you of so much investing money (compounding/interest) that it is sad.

Am Funds will likely charge you fees to both transfer and to close your account; just did this at the beginning of the year actually so that's how I know (talk about a jerky move). I moved my Am Funds account to Fidelity (because I prefer them and you can get low cost index funds that are the same as Vanguard), and they credited me the transfer fee since they wanted my account, but nothing they could do about the close fee... so one was something like $75 and the other $95 (can't remember which was which) but it's still worth it.

Quote below from (read the whole article):
http://www.nytimes.com/2013/10/16/your-money/the-erosive-effect-of-expenses-on-a-portfolios-value.html?_r=0

Quote
Tallying the total expenses of an actively managed fund and comparing them to a passively managed index fund, Mr. Bogle has found that the lower-cost funds have a 2.25 percent annual cost advantage.

He said in an e-mail that in a stock market with 7 percent annual returns, the returns of a fund with high total expenses would be reduced to 4.75 percent. Over 50 years, “a $10,000 initial investment would grow to $100,000 rather than $290,000,” he wrote. “At a cost of 0.06 percent — easily obtainable in a low-cost all-market index fund — the return would be 6.94 percent and the final value about $286,000.”

EXCELLENT advice.  I did the same several years ago and haven't looked back.  The AF fees are eclectic and onerous, in my opinion.

Another Reader

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Re: Keep American Funds or move and sell?
« Reply #3 on: May 11, 2014, 07:02:44 AM »
American Funds in a captive defined contribution plan, such as a 401k or a 457, are often the best choices in those plans, because the loads are usually waived.  Overall their better funds have performed well over long periods of time.  However, there is NO reason to use them in something you control yourself.  I prefer Fidelity to Vanguard for the customer service and the better on-line interface, and they offer many comparable index funds and a wide variety of no commission ETF's.  Most large cities offer bricks and mortar offices, where you can accomplish things at the counter.  I have money at Vanguard as well.

Vanguard started as a managed mutual fund company.  It's only recently that the trend towards indexing made them a household name.  Both companies are good choices for what you want. 

SDREMNGR

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Re: Keep American Funds or move and sell?
« Reply #4 on: May 11, 2014, 07:12:33 AM »
Transfer now.  Better now than later.

Erica/NWEdible

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Re: Keep American Funds or move and sell?
« Reply #5 on: May 11, 2014, 08:09:28 AM »
Professional financial advisers seem to LOVE American Funds. I am not convinced that this is entirely because American Funds are better for the investor. I just think AF has a great "education" program for professionals. We had a fair bit with American Funds in a managed account and when our adviser retired we transitioned to Vanguard - mostly to Index, Wellington and Wellesley. No regrets at all.

theglobetrotter

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Re: Keep American Funds or move and sell?
« Reply #6 on: May 11, 2014, 09:40:52 AM »
Thank you all for your suggestions!! I had a feeling most would suggest this. I know, from reading the last 48hrs, that everybody suggested to avoid or transfer from EJ. But I wasn't sure, in my case since I've been in long enough and earning to kinda see the front end load as a wash, that keeping the old contributions there as something wise to do.

I do like Fidelity's website. Lots of great resources and everybody seems happy with having their 401/IRA there. I think what I shall do is put money in Vanguard for their REIT -- we have no real estate now being stationed overseas -- and my traditional and ROTH there.

I do like the PRWCX and the Equity Fund from T Rowe. I was ready to open but I could not for the life of me pass the profile page when trying to set it up. Not sure if it's cause I am in England.

I'll see if there is something similar in Fidelity...

So, I have $18k ($8k old contributions + $11k still in cash) ROTH, $26k in traditional, $18k in Franklin, and $11k of hubby's ROTH. Oh, and 529. I always forgot about it :)

I did open the Vanguard for hubby's ROTH and I shall look into Fidelity and if I still like T Rowe by Monday, I'll have to call them. I need to let my advisor know by Monday. He won't be too pleased... In the big picture, our investment is probably not much to an investor but the portfolio was going to be around $1.5k up front!

Thanks again and I look forward to participating in all the chit chats here! Seems like the perfect place for me :)

Another Reader

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Re: Keep American Funds or move and sell?
« Reply #7 on: May 11, 2014, 10:09:56 AM »
In your shoes, I would be careful about opening up  a lot of accounts with different companies.  For small amounts of money, it's difficult to track your asset allocation and there is a lot of paper to manage.  I would pick a primary investment company, and over time buy other funds and ETF's as your knowledge grows.  What's Franklin?  If it's the mutual fund company, I would have a hard look at what you own there.

If you have not already done so, read up on asset allocation and asset placement/location.  Some assets belong in tax deferred/tax free accounts, others belong in taxable accounts.  A good place to start is the Bogleheads site.  Write up an investment policy statement and figure out your asset allocation.

I like many of the T Rowe Price sector funds and their small and mid-cap funds.  These are areas where managed funds with the right managers can excel over long periods of time.  I'm not overly enthused about Capital Appreciation, PRWCX.  With a high turnover, it has no place in a taxable account.  There are also much better equity income funds out there than PRFDX.

theglobetrotter

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Re: Keep American Funds or move and sell?
« Reply #8 on: May 11, 2014, 11:04:16 AM »
I understand the paperwork bit, but, aren't you suppose to not have one nest egg? Hubby is in Vanguard (I think I am going go for the REIT here) and TSP. I am now deciding on where the 529 will be -- UT Vanguard or AK T Rowe. And I am undecided where mine will be, Fidelity, Vanguard or T Rowe. I am though leaning more towards a managed fund until I am better at this whole investment thing.

Any tips on researching will be great. I understand the turnover number. Lower is better. I have been looking at 10yrs history and cost (using Marketwatch tool for cost and comparison). I used Vanguard's tool to find comparable funds, comparing my AF to Vanguard's. This is what I got:

AMCAP FUND CL A   AMCPX   VPMCX
AMERICAN BALANCED FUND CL A   ABALX   VASGX
FUNDAMENTAL INVESTORS FUND CL A   ANCFX   VDEQX/VDIGX/VQNPX/VTSMX
NEW PERSPECTIVE FUND CL A   ANWPX   VHGEX/VMVFX/VTWSX

I have the Growth of America and Washington Mutual. The funds performing as well for these two are T Rowe's. There may be better ones... actually, I'm sure there are better ones. But since Friday, this is what I could come up with.

I am in a hurry because I have until Monday to tell EJ what to do with the money. Right now it's not allocated yet. It was almost but I called right on time and it was cancelled. Last Thursday I wasn't thinking of moving -- or know there were no fee/low fee options -- and three days later here I am...

I've been trying to learn as much as I can so that tomorrow I can comfortably pull the plug with EJ. I've just opened a Vanguard for hubby and trying to sort out the 529 and my stuff. I don't mind having three companies since they'll all be for three different people/reasons: Hubby, myself and the kids' schooling.

Right now we have all personal accounts. We have 2 savings accounts at ING--- or whatever it's called now, 8 checking/savings accounts at USAA, 2 stocks account with USAA, 4 with Edward Jones, 1 TSP, 2 Franklins (taxable). We don't have many joint accounts. I think we only have a joint checking/savings to pay for bills and another joint for the girl's "crap" fund (weddings, a downpayment on a house, or whatever.

So I'm not sure how we can minimize the paperwork since I like to keep things his and mine. I am already having a hard time not working/having a career. We used to be 50-50 on everything. My idea (I am the wife). The idea of joining everything is a bit much. I rather have lots of paperwork than having joint accounts...

For sure, I am exhausted!!!

Another Reader

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Re: Keep American Funds or move and sell?
« Reply #9 on: May 11, 2014, 01:04:59 PM »
You can have separate "nest eggs" and accounts, but your account set up in my opinion borders on the insane.  It makes no sense to have different companies for different people.  The accounts will have different names on them.  In your shoes, I would pick either Fidelity or Vanguard and move everything from EJ to the company you select.  The company you choose will help you do this tomorrow.  Vanguard used to be difficult to work with in getting accounts transferred, but their fairly new concierge service works very well.  If you want to keep the existing mutual funds for the money you already have invested, the new company may allow you to hold those shares until you decide what you want to do.  Call the companies and ask if the fund shares can be held there.  If the shares are at Vanguard or Fidelity, you may incur a charge if you choose to sell them later, but you will buy yourself some time.  Another possibility is to sell those shares and move the cash to the new company.  You don't have to pick new investments to make the switch.

Later, you can open accounts at T Rowe Price, or you can pay a fee to your selected custodian company and buy a number of the T. Rowe Price funds, at least you can at Fidelity.

Actually, until you educate yourself a little more, I would stay in the existing funds but at the new custodian, go to cash, or just put everything into a total market fund at the new company.  You have learned a lot since last Thursday, so in a couple of weeks you will have a much better idea of what you want to do.  A good example of someone here that learned a lot quickly and made a lot of good changes is Frankies Girl.  She did a great job, and so can you.

What do you have at Franklin and USAA?  That's not the problem for today or tomorrow, but some thought should be given to dumping Franklin as you learn more about investing.

theglobetrotter

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Re: Keep American Funds or move and sell?
« Reply #10 on: May 11, 2014, 04:54:48 PM »
Ok. So I got this somewhat started... I did what you suggested. Well, kind of. I am a bit stubborn on the his and hers thing SO, I created a Vanguard AND Fidelity account. Vanguard for my husband's ROTH ($11k) + the Utah 529 account ($10k -- we don't save a lot here since we have my husband's G! bill split between our two girls. They each have 2yrs -- 6 semesters -- of tuition + books. Plus, I got my higher ed for free and I worked for a university and so I know ways to pay for college :) ) and Fidelity for me ($65k-ish I think: my Roth, traditional IRA and Franklin Templeton TESIX mutual fund).

I did speak to a lovely gentleman at Fidelity and he said all my funds (we went through each of them to make sure) could be held there as is until I figure out what I want to do. So that's a HUGE relief! I can learn more and figure out the best funds for our needs. I LOVE all the resources that Fidelity has (I like it better than Vanguard's website) and have been reading a bit more. So many things to learn!!!

To answer your question... My USAA are half stocks and half mutual funds. I bought the stocks when the market crash (when Ford was $2 and Whole Foods at $6/7) just to see how well I could do. They're doing really well!! I put $1,500 in and it has fluctuated from $5k to $9k?? Something like that. Whole Foods plummeted and so I'm at $6k now :/ Then I have $5.5k in a First Start: this year 2.90% one year 11.72% 3 years 7.59% 5 years 16.15% 10 years 6.61%. I started this about 10 years ago with $0 balance and a monthly deposit of $20. Five years ago we added $20 when our dd2 was born. I don't like to fork out a lot of money in one go. It's just my nature. I have a savings for Christmas, a savings for birthdays, a savings for car taxes and maintenance, and so it's just natural to have a savings for weddings (and if no wedding, to help with their first house or whatever). It's nothing serious but it'd be fabulous if we can get a fat balance in 15yrs (told the girls they can't even date until they're 21, HA!!). So after I get all the important stuff sorted, I'll look into the USAA one. I think I can still buy a few stocks for free too -- the first 10 are free and I've only bought three.

Thank you for your guidance and I shall stalk Frankies Girl to see what she's done! :)






Another Reader

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Re: Keep American Funds or move and sell?
« Reply #11 on: May 11, 2014, 09:44:37 PM »
I don't have any problem with his and hers, so be as stubborn as you want. 

Transferring the funds in kind while you figure this out is very sensible.  I am not familiar with specific 529 plans for the various states.  Does Utah require a particular custodian?  Can it be moved to Vanguard with no consequences?

With accounts at both companies, you will have an opportunity to test drive their websites and customer service.  You will get a feel for what you like and dislike over time.  You can make changes along the way.

Start reading the JL Collins investment series (hint: he likes a simple portfolio comprised of a few index funds) and have a look at the introductory articles at the Bogleheads site.  These folks all favor passive index funds.  Other folks, me included, favor a mix of index funds and actively managed funds.  You will find several very long and occasionally heated discussions on actively managed vs. index funds here.  Also lots of discussion of where bonds and bond funds fit in.

A lot of people here will give you their opinions and help you as much as possible.  Keep reading and asking questions.  That's how you will develop the confidence to run your investments yourself.  It's not nearly as complicated as the "advisors" tell you.

Another Reader

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Re: Keep American Funds or move and sell?
« Reply #12 on: May 11, 2014, 09:56:07 PM »
BTW, your husband would do well to max out the TSP as much as he can.  The TSP has the lowest expense ratios and is the envy of everyone that is not eligible for it.  Whether he should do a Roth or a traditional TSP depends largely on tax considerations today vs in retirement.  Not something to decide today, but a question for later once everything settles out.