Converting MF A shares to ???

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jrsentz
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Joined: Sun Sep 09, 2012 8:03 am

Converting MF A shares to ???

Post by jrsentz »

I have roughly $40k in American Funds mutual funds (A and B shares). Overall i'm happy with the performance of the funds but not paying the 5%+ commission to my adviser. I know I can find comparable performing no load funds. My question is, do I just start funding other no load funds that are available through Fidelity (broker of choice) and let the American Funds A and B shares sit? If not, what do I do with the A shares? I don't think it makes sense to convert them to another share class (not sure that's even an option) since I've paid the upfront load for the lower expense ratio...I'd like to take advantage of the lower expense as long as the fund is performing. Any thoughts or suggestions? Thanks!
pkcrafter
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Re: Converting MF A shares to ???

Post by pkcrafter »

jrsentz wrote:I have roughly $40k in American Funds mutual funds (A and B shares). Overall i'm happy with the performance of the funds but not paying the 5%+ commission to my adviser. I know I can find comparable performing no load funds. My question is, do I just start funding other no load funds that are available through Fidelity (broker of choice) and let the American Funds A and B shares sit? If not, what do I do with the A shares? I don't think it makes sense to convert them to another share class (not sure that's even an option) since I've paid the upfront load for the lower expense ratio...I'd like to take advantage of the lower expense as long as the fund is performing. Any thoughts or suggestions? Thanks!
Welcome, you won't get much support for American funds here because we advocate using low cost index funds, but to address your question, hold onto the A shares because the load is what we call a "sunk cost" which means it's already lost. B shares on the other hand have an ongoing expenses which are much higher than the A shares for the same fund. As an example, AMCAP A shares has an ER of 0.73 and B shares has an ER of 1.50%. B shares will eventually convert to A shares in about 7 years, but that very high ER comes right out of your returns. Compare with using Vanguard index funds with an ER about 1/10th of that.

For now hold on to the the A share funds, but you really should think about moving out of B share funds. I'm guessing you are using an advisor, so that may be the first thing you really need to think about. Since you have ended up posting here, you might want to hang around, read some posts and look at the Bogleheads Wiki, which is loaded with information. If you are already at Fidelity, you have some very good low cost Spartan index funds available.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
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retiredjg
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Re: Converting MF A shares to ???

Post by retiredjg »

Welcome to the forum!

The load is gone. You won't get your money back. Just forget it. The question is whether to continue to hold the funds.

Since the expense ratios are much higher than index funds, it will continue to cost you more to keep the American Funds rather than put your money somewhere else. Dump them. :D
Islander
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Re: Converting MF A shares to ???

Post by Islander »

Agree with Paul's answer
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retiredjg
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Re: Converting MF A shares to ???

Post by retiredjg »

pkcrafter wrote:...but to address your question, hold onto the A shares because the load is what we call a "sunk cost" which means it's already lost.
I'm curious about this Paul, especially since I don't recall that you and I have ever had a difference of opinion in all these years. :happy

If the load money is already lost regardless of what the poster does, why continue to hold something that costs more on a daily basis? Why not move to something cheaper?
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jrsentz
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Re: Converting MF A shares to ???

Post by jrsentz »

Thank you for the feedback! I also took a look at the wiki portion of the site and wow, lots of pertinent information to review! So, sounds like I should let the A shares sit as long as the funds performing and see what my options are for the B shares (to get into something with lower expenses). Also, I should stop funding the A share American Funds and start funding my new Fidelity ROTH account with no load funds or index funds. Correct? Thanks again people.
pkcrafter
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Re: Converting MF A shares to ???

Post by pkcrafter »

Jg wrote:
I'm curious about this Paul, especially since I don't recall that you and I have ever had a difference of opinion in all these years.
Not to worry, we don't disagree. To clarify for you and jrsentz, I wrote:
For now hold on to the the A share funds,
I said this not to suggest that jrsentz hold the funds because of performance, but because this is all new and sometimes making quick changes while climbing the learning curve creates some mistakes. The B shares are a priority, but understanding and a plan should still be done before to much movement.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
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retiredjg
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Re: Converting MF A shares to ???

Post by retiredjg »

pkcrafter wrote:Jg wrote:
I'm curious about this Paul, especially since I don't recall that you and I have ever had a difference of opinion in all these years.
Not to worry, we don't disagree.
Oh good. I feel SOOOOO much better now. I was really scratching my head on that one. 8-)
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