Author Topic: Should I transfer my American Funds account over to Vanguard?  (Read 13531 times)

Cwadda

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I started off my Roth IRA in 2012 at American Funds. Since I learned "the truth" about fees and such a few months ago, I've been investing in Vanguard only.

American Funds has a 5.7% load cost and .70% in annual fees.
Vanguard has no loads and a .17% fee for investor shares, and even lower for admiral ones. I have $6050 in AF, and $3100 in Vanguard, so I would only need around $1000 more to upgrade to Admiral Shares which would reduce expenses even more.

I've already paid the load fee on that AF money, so I wouldn't have to pay anything else on it. I would be able to put my money into a variety of things there that MAY outperform Vanguard. However, I think what's best for my age (19) is to stick with the total stock market index for growth so trying to switch things around wouldn't benefit much. I know VTSMX outperforms my Class A shares at AF almost every single day.

What is your opinion? Should I just transfer my account over to Vanguard? Is my thinking on the right track?

iamlindoro

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Re: Should I transfer my American Funds account over to Vanguard?
« Reply #1 on: April 02, 2014, 11:03:35 PM »
Yes.  Every day you wait is more money lost on the American Funds expense ratio.

Cwadda

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Re: Should I transfer my American Funds account over to Vanguard?
« Reply #2 on: April 02, 2014, 11:04:27 PM »
Yes.  Every day you wait is more money lost on the American Funds expense ratio.

Yep! I cringe a little bit inside every time. Getting a few more opinions on here and then will pull the trigger. Thanks.

nereo

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Re: Should I transfer my American Funds account over to Vanguard?
« Reply #3 on: April 03, 2014, 06:27:25 AM »
yes.  Pull the trigger already!  Every month you wait you've lost money!
Regarding the Admiral Shares and the extra $1000 - if you have enough cash on hand to convert them now, by all means do it.  But, Vanguard automatically converts them for you once your balance hits $10k.  So the difference between 0.17% and 0.05% on ~9k is about $0.84/month.  If you're contributing regularly you should hit the $10k pretty quickly.

Workinghard

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Re: Should I transfer my American Funds account over to Vanguard?
« Reply #4 on: April 03, 2014, 09:00:19 AM »
Nereo, I think the automatic conversion has changed. A few days ago when I logged into my Vanguard account there was a pop up screen asking if I wanted to convert one of my accounts to Admiral shares.

OP, we recently found out my husband could do an In- Service withdrawal on his 401k.  We're in the process of rolling it over to a tIRA at Vanguard.  Every bit helps.

nereo

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Re: Should I transfer my American Funds account over to Vanguard?
« Reply #5 on: April 03, 2014, 09:08:09 AM »
Nereo, I think the automatic conversion has changed. A few days ago when I logged into my Vanguard account there was a pop up screen asking if I wanted to convert one of my accounts to Admiral shares.
Interesting - I had not realized that. 
Still, my advice is the same: Convert Today!

Also, if Vanguard won't convert the shares automatically anymore you can still call them up anytime once the balance reaches $10k and initiate the transfer yourself.  If you are moving roth IRA funds from one fund into another it's a "non-taxable event" (I am certain about this point, since I did exactly this in 2013).  Later in life you can convert some of the shares into one of their dividend funds or balanced funds if you're looking for less volatility and a larger dividend payout, if that interests you.

Cwadda

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Re: Should I transfer my American Funds account over to Vanguard?
« Reply #6 on: April 03, 2014, 09:38:07 AM »
The Admiral shares pay higher dividends?

nereo

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Re: Should I transfer my American Funds account over to Vanguard?
« Reply #7 on: April 03, 2014, 10:09:57 AM »
The Admiral shares pay higher dividends?
No - the admiral shares have a lower expense ratio, but require a higher initial minimum balance ($10k).
There are more than one kind of Admiral shares though.  There's the Admiral shares of the total market index, the SP500 index, balanced Index, dividend growth index.... it goes on and on.

My advice is this:
1) convert the shares from American Funds to the Vanguard fund of your choice immediately.  Both the SP500 fund and the Total Market Fund are popular here.
2) Once you hit the $10,000 mark, call up Vanguard and have them convert all of those shares into Admiral shares.  It won't cost you a thing besides the 10 minute phone call.
3) Later in life if you want less volatilitiy and/or higher dividend payouts (at the expense of some overall growth) you can convert some or all of your shares into an Admiral balanced fund or an Admiral Dividend fund.

Cwadda

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Re: Should I transfer my American Funds account over to Vanguard?
« Reply #8 on: April 03, 2014, 10:18:18 AM »
If you're getting admiral shares, do you have to have $10k in each fund? So $10k in VTSAX, $10k in X, etc? Or do you just have to have $10k total invested in Vanguard as a whole?

I'm thinking of just sticking to VTSMX --> VTSAX

Frankies Girl

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Re: Should I transfer my American Funds account over to Vanguard?
« Reply #9 on: April 03, 2014, 10:23:34 AM »
If you're getting admiral shares, do you have to have $10k in each fund? So $10k in VTSAX, $10k in X, etc? Or do you just have to have $10k total invested in Vanguard as a whole?

I'm thinking of just sticking to VTSMX --> VTSAX

The minimums are for that specific fund. Most mutual funds are like that. So yes, you'd have to have 10K minimum to put into the fund to get into the admiral level.

kyleaaa

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Re: Should I transfer my American Funds account over to Vanguard?
« Reply #10 on: April 03, 2014, 11:13:44 AM »
The Admiral shares pay higher dividends?

Well, yes, technically. Expense ratios are taken out of a fund's cash distributions first, so a lower expense ratio = higher dividends, all else being equal. In fact, if you look at the 30-day SEC yield for the investor shares of the Vanguard total stock market index fund it currently reads 1.70% on Morningstar. If you look at the admiral share version of that fund, it's 1.82% for a difference of 0.12%. What's the expense ratio difference between those two funds? 0.12%.

And you don't need to call Vanguard to convert to admiral shares. There will be a button on the site when you reach $10,000 in the fund. Literally takes 10 seconds to do online. But PLEASE make sure you CONVERT to admiral shares instead of selling the investor shares and buying the admiral shares. Conversions are not taxable, but if you sell investor shares to buy admiral shares, you will owe tax (unless it's in an IRA, of course).
« Last Edit: April 03, 2014, 11:16:17 AM by kyleaaa »

nereo

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Re: Should I transfer my American Funds account over to Vanguard?
« Reply #11 on: April 03, 2014, 11:26:57 AM »
Well, yes, technically. Expense ratios are taken out of a fund's cash distributions first, so a lower expense ratio = higher dividends, all else being equal. In fact, if you look at the 30-day SEC yield for the investor shares of the Vanguard total stock market index fund it currently reads 1.70% on Morningstar. If you look at the admiral share version of that fund, it's 1.82% for a difference of 0.12%. What's the expense ratio difference between those two funds? 0.12%.
well isn't that just splitting hairs?  If you are paying lower fees you are by default getting a higher percentage of the dividends.  I guess you can look at it however you want, but the funds are passively tracking the exact same thing.  It's only the fees and the minimum starting balance that distinguish the two.

FWIW, the OP was asking about a ROTH IRA.

Workinghard

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Re: Should I transfer my American Funds account over to Vanguard?
« Reply #12 on: April 03, 2014, 12:21:06 PM »
Nereo, I think the automatic conversion has changed. A few days ago when I logged into my Vanguard account there was a pop up screen asking if I wanted to convert one of my accounts to Admiral shares.
Interesting - I had not realized that. 
Still, my advice is the same: Convert Today!

Also, if Vanguard won't convert the shares automatically anymore you can still call them up anytime once the balance reaches $10k and initiate the transfer yourself.  If you are moving roth IRA funds from one fund into another it's a "non-taxable event" (I am certain about this point, since I did exactly this in 2013).  Later in life you can convert some of the shares into one of their dividend funds or balanced funds if you're looking for less volatility and a larger dividend payout, if that interests you.

 I didn't even think about a non-taxable event with a Roth. Hmm, maybe it's time to consolidate some funds.

Eurotexan

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Re: Should I transfer my American Funds account over to Vanguard?
« Reply #13 on: April 03, 2014, 02:15:26 PM »
This s a very helpful thread. I too am in the process of transferring funds to Vanguard and this is good information to know. Thanks!

Cwadda

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Re: Should I transfer my American Funds account over to Vanguard?
« Reply #14 on: April 03, 2014, 09:47:25 PM »
Just one more question.

Which option do I choose?

   
a) Use your liquidated proceeds to buy new mutual funds, stocks, bonds, CDs, ETFs at Vanguard or Vanguard Brokerage Services.

b)   
Transfer your assets currently invested at American Funds directly to Vanguard or Vanguard Brokerage Services (in-kind transfer). With an in-kind transfer you don't sell your assets before transferring them to us. When your assets arrive, you can then sell or exchange your investments.

iamlindoro

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Re: Should I transfer my American Funds account over to Vanguard?
« Reply #15 on: April 03, 2014, 09:56:06 PM »
Just one more question.

Which option do I choose?

   
a) Use your liquidated proceeds to buy new mutual funds, stocks, bonds, CDs, ETFs at Vanguard or Vanguard Brokerage Services.

b)   
Transfer your assets currently invested at American Funds directly to Vanguard or Vanguard Brokerage Services (in-kind transfer). With an in-kind transfer you don't sell your assets before transferring them to us. When your assets arrive, you can then sell or exchange your investments.

Since you want it all to end up in VTSMX, a.  A is also almost certain to be faster.


nereo

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Re: Should I transfer my American Funds account over to Vanguard?
« Reply #16 on: April 04, 2014, 12:51:06 PM »
Just one more question.

Which option do I choose?
   
a) Use your liquidated proceeds to buy new mutual funds, stocks, bonds, CDs, ETFs at Vanguard or Vanguard Brokerage Services.

b)Transfer your assets currently invested at American Funds directly to Vanguard or Vanguard Brokerage Services (in-kind transfer). With an in-kind transfer you don't sell your assets before transferring them to us. When your assets arrive, you can then sell or exchange your investments.

I disagree - if you are moving funds from a ROTH at American to a ROTH at Vanguard, I would do an in-kind transfer.  If you liquidate the account at American it gets a lot more complicated to make it a "non-taxable event."  Basically you have to show that all the money you took our of one account was used to fund the other account within a narrow time frame.
For me simplicity is better.  I called Vanguard, they initiated the in-kind transfer, they generated the pre-filled PDFs, all I had to do was print, sign and mail.

iamlindoro

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Re: Should I transfer my American Funds account over to Vanguard?
« Reply #17 on: April 04, 2014, 03:32:12 PM »
I disagree - if you are moving funds from a ROTH at American to a ROTH at Vanguard, I would do an in-kind transfer.  If you liquidate the account at American it gets a lot more complicated to make it a "non-taxable event."  Basically you have to show that all the money you took our of one account was used to fund the other account within a narrow time frame.
For me simplicity is better.  I called Vanguard, they initiated the in-kind transfer, they generated the pre-filled PDFs, all I had to do was print, sign and mail.

If you follow the instructions Vanguard gives you, the check is sent to you, made out directly to Vanguard.  You have 60 days to send it in to Vanguard once the old company sends you a check.  It's not complicated at all (and 60 days seems more than adequate since the whole thing should take you a week, max).

TomTX

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Re: Should I transfer my American Funds account over to Vanguard?
« Reply #18 on: April 04, 2014, 07:37:46 PM »
Shoot, just call Vanguard Concierge Services. The nice person who answers the phone will walk you through it.

Make sure you have all your info about your American Funds account, and their phone number.

nereo

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Re: Should I transfer my American Funds account over to Vanguard?
« Reply #19 on: April 04, 2014, 09:36:16 PM »

If you follow the instructions Vanguard gives you, the check is sent to you, made out directly to Vanguard.  You have 60 days to send it in to Vanguard once the old company sends you a check.  It's not complicated at all (and 60 days seems more than adequate since the whole thing should take you a week, max).
Ditto what TomTX said - why bother having American mail you a check and then having to mail that to Vanguard?  They'll initiate the transfer, all you need to do is call, print and sign. Worked great for me.
But both methods will work, I guess just do whichever makes the most sense to you.

Cwadda

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Re: Should I transfer my American Funds account over to Vanguard?
« Reply #20 on: April 04, 2014, 10:10:28 PM »
Just did exactly that. Application complete. ^.^

TomTX

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Re: Should I transfer my American Funds account over to Vanguard?
« Reply #22 on: April 05, 2014, 08:06:14 AM »
If you want some peer pressure to make the move, read this and know that you are in great company:

http://online.wsj.com/news/articles/SB10000872396390444873204577537241786609710

Cwadda

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Re: Should I transfer my American Funds account over to Vanguard?
« Reply #23 on: April 05, 2014, 03:52:20 PM »
Yeah it should take around a month.