I'm 23 and Doubting Whether I Should Keep American Funds....

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I'm 23 and Doubting Whether I Should Keep American Funds....

Postby WEL » Sat Jun 29, 2013 2:00 pm

I have more money than most of my peers because I have something called 'work ethic'. This lead me to begin investing at age 10 through a custodial account. In 2009 I began investing in American Funds through Edward Jones. Flash forward to present day and here are the American Funds and the total gains as of 6/28/13:

AGTHX American Funds The Growth Fund of America A
ANWPX American Funds New Perspective Fund Class A
SMCWX American Funds SMALLCAP World A
AMCPX American Funds AMCAP Fund Class A
AEPGX American Funds EuroPacific Growth A
AIVSX American Funds Investment Company of America A

Total Gain: $19249.66

This year I began investing solely with Vanguard mutual funds through my Roth 401(k), Roth IRA, and taxable account. I have been learning a lot about expense ratios and 12b-1 fees (http://www.buyupside.com/calculators/feesdec07.htm) and how they eat into the long-term gains. I have also read many, many articles about possibly switching out of American Funds to begin Vanguarding. This thread is specific to my situation since I am a little unique in my situation. Here is my question:

Should I transfer my American Fund investments to Vanguard?

Important notes:

✓ The money is split between a Roth IRA and a taxable account.

✓ The front-end loads are sunk costs and I don't waste energy complaining about paying them. But I can't help but feel I've "joined the club" and it would be dumb to leave now. My loads are 4.50% currently.

✓ Through some careful accounting I know I can sell off (at least a decent portion this year) of the American Funds without paying capital gains.

I am not an emotional person when it comes to investing. My goal is to make the most money in the long-term (I won't draw on my investments for decades). In no way am I attached to any advisor or any fund, I just want my money to be parked in a place where it can do the most work for me.

Thank you very much for your advice. I respect this forum and its members. I hope to meet a few other young investors!
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Re: I'm 23 and Doubting Whether I Should Keep American Funds

Postby sometimesinvestor » Sat Jun 29, 2013 3:04 pm

Of the load funds an advisor might have suggested American represnts one of the better lower fee fund families . Obviously you don't buy more.Since you seem to be knowlegable about accounting I assume that means tax loss harvesting etc. In that regards I would sell the tax funds in which you have long term gains this year and next year sell the ones with losses while holding on to funds with short term gains trying for long term. In the third year you can sell those. The idea is to take advantage of the loss by deducting against regular not capital gain income.In the IRA I would perhaps switch to vanguard for the funds that are underperforming the index and hold on to those that are outperforming .Past performance is no guarantee but American's record isn't bad..If the difference in performance is not much you might well do it all at once.
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Re: I'm 23 and Doubting Whether I Should Keep American Funds

Postby pkcrafter » Sat Jun 29, 2013 3:08 pm

This should give you a clue about EJ and American funds.

http://www.fool.com/investing/general/2012/12/06/can-your-edward-jones-financial-advisor-really-ser.aspx

✓ The money is split between a Roth IRA and a taxable account.

You can transfer the Roth, no problem. Contact Vanguard and they will get you started and initiate the transfer. What funds are in taxable?

✓ The front-end loads are sunk costs and I don't waste energy complaining about paying them. But I can't help but feel I've "joined the club" and it would be dumb to leave now. My loads are 4.50% currently.

I agree about the sunk costs, but investing through EJ isn't your best choice because of costs and conflicting interests, so if you stay you will continue with high costs, limited fund selection, and worrying about your advisors best interest.


✓ Through some careful accounting I know I can sell off (at least a decent portion this year) of the American Funds without paying capital gains.

OK, that's a good start.

Paul
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Re: I'm 23 and Doubting Whether I Should Keep American Funds

Postby LAlearning » Sat Jun 29, 2013 3:26 pm

WEL wrote:I have more money than most of my peers because I have something called 'work ethic'. This lead me to begin investing at age 10 through a custodial account. In 2009 I began investing in American Funds through Edward Jones. Flash forward to present day and here are the American Funds and the total gains as of 6/28/13:

AGTHX American Funds The Growth Fund of America A
ANWPX American Funds New Perspective Fund Class A
SMCWX American Funds SMALLCAP World A
AMCPX American Funds AMCAP Fund Class A
AEPGX American Funds EuroPacific Growth A
AIVSX American Funds Investment Company of America A

Total Gain: $19249.66

This year I began investing solely with Vanguard mutual funds through my Roth 401(k), Roth IRA, and taxable account. I have been learning a lot about expense ratios and 12b-1 fees (http://www.buyupside.com/calculators/feesdec07.htm) and how they eat into the long-term gains. I have also read many, many articles about possibly switching out of American Funds to begin Vanguarding. This thread is specific to my situation since I am a little unique in my situation. All our mothers say this... Here is my question:

Should I transfer my American Fund investments to Vanguard?
--Without a doubt yes. (I hope) No one will advise you otherwise except American itself.

Important notes:

✓ The money is split between a Roth IRA and a taxable account.
--If you go online to Vanguard you can ask for rIRA transfer. You input the asked information (location of account, appropriate #s), print it out and mail it in. Super easy! Vanguard will handle the transfer and let you know when its done. You can choose to transfer in-kind (if they have similar funds but probably unlikely) or they will just place it in a money market and you can re-allocate once its done. Since its a Roth, there are no tax implications either way. Therefore you don't have to deal with American who will drag out keeping your money.

✓ The front-end loads are sunk costs and I don't waste energy complaining about paying them. But I can't help but feel I've "joined the club" and it would be dumb to leave now. My loads are 4.50% currently.
--Your sentiment is classic emotional connection to the product. You are right, they are sunk costs. You will NEVER get them back no matter what you try and do. Therefore, you should move ahead according to your new plan. I'm telling you you've joined the wrong club. Hope you agree.
What's dumber is agreeing to keep paying the load on the re-invested dividends or added money to the account!
--4.5%! Ouch. Remember, that does not include the ER and other trading costs. Please get out now, and keep your hard earned money for yourself.


✓ Through some careful accounting I know I can sell off (at least a decent portion this year) of the American Funds without paying capital gains.
--If you are in the 10% or 15% tax bracket, the LTCG rate is 0%. So yes, transfer as much as possible if you can avoid taxes. Even better if you have losses to then offset some gains, keeping you as close to 0 as possible.
--Now, the rest will be up to you depending on the tax load. For example, if you only have $100 left to transfer that will result in taxes, just do it already. Its a pittance compared to your future growth and earnings. If its $100k, then I would reconsider. Some people get way too wrapped up in taxes. A few dollars here and there will not be the end of your world (if that's what it truly comes out to). Others will surely disagree.
--If its the latter (large amount of taxes to be paid), then you should stop re-investing dividends so you stop making new short term taxable lots. Then you can transfer the next chunk next year if you are again in the favorable tax brackets. This will take some time, but will spread out your tax burden as you continue to contribute to Vanguard.


I am not an emotional person when it comes to investing. My goal is to make the most money in the long-term (I won't draw on my investments for decades). In no way am I attached to any advisor or any fund, I just want my money to be parked in a place where it can do the most work for me.
--Everyone has emotions when it comes to investing. You obviously do as you are awaiting opinions re: leaving American funds. The key is to recognize them and know when to ignore them. I think you are doing a great job and moving in the right direction.

Thank you very much for your advice. I respect this forum and its members. I hope to meet a few other young investors!


Hope this helps!
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Re: I'm 23 and Doubting Whether I Should Keep American Funds

Postby WEL » Sat Jun 29, 2013 3:34 pm

sometimesinvestor: I have no losses to discount my gains.

pkcrafter: Edward Jones reminds me of that "friend" we all had in high school. I mean the one that you met and really hit it off with. But as time went by and you learned more and more about him, the less you wanted to be friends with him. I will not work with them anymore in the future. Perhaps I should have been more clear about that in my original post but I wanted to keep this thread upbeat. Thank you for the article though, yet another example of why I'm not too chummy with my "advisor" anymore.

Inside my taxable: about 60% of my AGTHX, 20% of ANWPX, and 100% SMCWX. Total long-term gains from selling: $8,699.61

Note: All my gains would be long-term.

LAlearning: Thank you for your reply as well. A lot of what you wrote I would have touched on further but I thought a 2,000 word opening post would scare people off. :D
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Re: I'm 23 and Doubting Whether I Should Keep American Funds

Postby retiredjg » Sat Jun 29, 2013 4:12 pm

Welcome to the forum!


✓ The money is split between a Roth IRA and a taxable account.

The gains in the Roth IRA don't count. You will only pay tax on the gains in the taxable account. Definitely move the Roth. There may be an account closing fee. Just pay it. Also move the taxable account, but maybe not all at one time because that might push you into a higher bracket. Is there any possibility you are in the marginal 15% federal bracket? In that bracket, you would pay 0% tax on long term gains.

✓ The front-end loads are sunk costs and I don't waste energy complaining about paying them. But I can't help but feel I've "joined the club" and it would be dumb to leave now. My loads are 4.50% currently.

The loads are sunk costs, but it is not dumb to leave now because the higher fees will continue day after day after day....till you sell.

✓ Through some careful accounting I know I can sell off (at least a decent portion this year) of the American Funds without paying capital gains.

Because you are in the 15% bracket? If so, sell to the top of the 15% bracket each year till gone or until you are just tired of fooling with it. Better yet, sell to the top of the 15% bracket this year and sell it all next year. You'll pay some tax but that only means you've made money. No sense in continuing with high cost funds must past January of next year.
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Re: I'm 23 and Doubting Whether I Should Keep American Funds

Postby livesoft » Sat Jun 29, 2013 4:37 pm

One can also give away shares to charity including your own DonorAdvisedFund (start a DAF at Fidelity for instance). That would avoid cap gains taxes, too.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: I'm 23 and Doubting Whether I Should Keep American Funds

Postby WEL » Sat Jun 29, 2013 5:37 pm

retiredjg wrote:Welcome to the forum!


✓ The money is split between a Roth IRA and a taxable account.

The gains in the Roth IRA don't count. You will only pay tax on the gains in the taxable account. Definitely move the Roth. There may be an account closing fee. Just pay it. Also move the taxable account, but maybe not all at one time because that might push you into a higher bracket. Is there any possibility you are in the marginal 15% federal bracket? In that bracket, you would pay 0% tax on long term gains.

✓ The front-end loads are sunk costs and I don't waste energy complaining about paying them. But I can't help but feel I've "joined the club" and it would be dumb to leave now. My loads are 4.50% currently.

The loads are sunk costs, but it is not dumb to leave now because the higher fees will continue day after day after day....till you sell.

✓ Through some careful accounting I know I can sell off (at least a decent portion this year) of the American Funds without paying capital gains.

Because you are in the 15% bracket? If so, sell to the top of the 15% bracket each year till gone or until you are just tired of fooling with it. Better yet, sell to the top of the 15% bracket this year and sell it all next year. You'll pay some tax but that only means you've made money. No sense in continuing with high cost funds must past January of next year.


Thanks for the warm welcome!

Yes, I think I can stay down in the 15% bracket but I need to do the math on my ordinary income: subtract regular 401(k) contributions, add ESPP gains, add wages, add bank interest (over $10) and bank bonuses, look at my deductions, etc.

Once I have done the proper math, I will ditch my American Funds in my taxable account.

There is a $0 transfer fee to exit American Funds and a $95 fee to close an EJ account (maybe I can keep like $1 in a muni. to avoid this fee (I watch my pennies). :wink: I will put my Roth IRA funds from American into my Vanguard Roth IRA and invest in Vanguard mutual funds or possibly Vanguard ETFs.


***And I feel like I've already made up my mind but I still welcome criticism of my plan***
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Re: I'm 23 and Doubting Whether I Should Keep American Funds

Postby retiredjg » Sat Jun 29, 2013 6:28 pm

Keep in mind that you can push this penny watching thing a bit far. We're talking about $8,699.61 here.

Even if you sold everything this year, some would carry no tax and the rest would only carry 15% tax. That is not a great deal of money - less than $1,300 and you'll realize immediate savings in your expense ratios. As your portfolio grows that less-than-$1,300 won't even be a drop in the bucket so I would not worry a great deal about it now. Again, paying the taxes only happens when you have made money.

I can see some logic in selling some in the 15% bracket in 2013 and the rest in January 2014 (some being taxed at 0% and some at 15%). But holding onto funds that you don't want past January 2014 to save on a bit of taxes would be past frugal and into the miserly category in my book. Frugal is good. Miserly is probably not good. :happy
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Re: I'm 23 and Doubting Whether I Should Keep American Funds

Postby Jeff7 » Sat Jun 29, 2013 6:59 pm

I'll just quick throw in some expense ratios for the funds themselves, per Morningstar:

0.71% - AGTHX American Funds The Growth Fund of America A
0.80% - ANWPX American Funds New Perspective Fund Class A
1.14% - SMCWX American Funds SMALLCAP World A
0.74% - AMCPX American Funds AMCAP Fund Class A
0.86% - AEPGX American Funds EuroPacific Growth A
0.62% - AIVSX American Funds Investment Company of America A

Plus whatever Edward Jones may be adding, if anything.

Each has a 5.75% front-end load.
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Re: I'm 23 and Doubting Whether I Should Keep American Funds

Postby Toons » Sat Jun 29, 2013 7:10 pm

You've paid the load ,done deal,American Funds expenses are some of the lowest in the fund industry when it comes to load funds. I say keep the funds for the time being.I currently own Investment Company Of America and Capital Income Builder,funds I bought many years ago before recognizing Vanguard.They are in IRA accounts and never give any thought to selling them. :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
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Re: I'm 23 and Doubting Whether I Should Keep American Funds

Postby ogd » Sat Jun 29, 2013 8:32 pm

Hi WEL,

I just wanted to say that when I was in your situation and I realized that money had more or less been stolen from me, my reaction was not a penny more to those crooks. I didn't particularly want to think about what club I had joined, either.

Also, please consider posting a few online reviews of your advisor or EJ office at the usual places. Otherwise they'll just keep at it. I mean, they will keep at it, but maybe it will get a tiny bit harder.
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Re: I'm 23 and Doubting Whether I Should Keep American Funds

Postby JW Nearly Retired » Sat Jun 29, 2013 9:02 pm

Jeff7 wrote:I'll just quick throw in some expense ratios for the funds themselves, per Morningstar:

0.71% - AGTHX American Funds The Growth Fund of America A
0.80% - ANWPX American Funds New Perspective Fund Class A
1.14% - SMCWX American Funds SMALLCAP World A
0.74% - AMCPX American Funds AMCAP Fund Class A
0.86% - AEPGX American Funds EuroPacific Growth A
0.62% - AIVSX American Funds Investment Company of America A

Plus whatever Edward Jones may be adding, if anything.

Each has a 5.75% front-end load.

Paying a load is serious madness but they all have 1/4% 12b1 fees as well. This EJ guy is going to be sorry to see the OP go. If he could wrangle some way to hang onto OP and a few more like him permanently, the 12b-1 fees alone on forty or fifty-something portfolios would put one of his kids through college. :greedy

The good news for OP is another year or two of 1% ER's instead of 0.1% ER's doesn't amount to much. He has some time to decide when to exit EJ with the least tax consequences.
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Re: I'm 23 and Doubting Whether I Should Keep American Funds

Postby grabiner » Sat Jun 29, 2013 11:00 pm

Jeff7 wrote:I'll just quick throw in some expense ratios for the funds themselves, per Morningstar:

0.71% - AGTHX American Funds The Growth Fund of America A
0.80% - ANWPX American Funds New Perspective Fund Class A
1.14% - SMCWX American Funds SMALLCAP World A
0.74% - AMCPX American Funds AMCAP Fund Class A
0.86% - AEPGX American Funds EuroPacific Growth A
0.62% - AIVSX American Funds Investment Company of America A


In addition, none of these funds are good for a taxable account. Comparing these six funds to the most similar index funds, it looks like you will be paying the IRS about an extra 0.5%, in addition to the extra expenses once you get into the 25% tax bracket. (I am using Morningstar for after-tax returns of the American funds, which may include some errors.) Therefore, you should sell any taxable funds as soon as the capital gains on the funds become long-term; if you are in the 15% bracket, the sale is free now and won't be free later, and if you are in the 25% bracket, the 15% tax on the gains now will avoid a lot of taxes in the future.
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Re: I'm 23 and Doubting Whether I Should Keep American Funds

Postby WEL » Mon Jul 01, 2013 7:45 pm

Thank you for all the replies! After hearing no good defense (no matter how hard I Google :happy ) for American Funds, I will be switching completely to Vanguard no later than January of '14 but most likely I will get rid of everything this year. I am moving my Roth IRA to Vanguard once I am done typing this. I will report back with the end result of this exodus of American Funds. Thank you again for all the sound advice!
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Re: I'm 23 and Doubting Whether I Should Keep American Funds

Postby Randomize » Mon Jul 01, 2013 8:08 pm

WEL wrote:Thank you for all the replies! After hearing no good defense (no matter how hard I Google :happy ) for American Funds, I will be switching completely to Vanguard no later than January of '14 but most likely I will get rid of everything this year. I am moving my Roth IRA to Vanguard once I am done typing this. I will report back with the end result of this exodus of American Funds. Thank you again for all the sound advice!


Good call :beer
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Re: I'm 23 and Doubting Whether I Should Keep American Funds

Postby baw703916 » Mon Jul 01, 2013 9:01 pm

Just one additional consideration. If you have any fund shares in the taxable account that you have held less than one year, and you have a capital gain on those shares (and you probably would, because the market is up quite a bit), then you want to wait until you have owned them for at least a year before selling them (to have them taxed at the LTCG rate).
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Re: I'm 23 and Doubting Whether I Should Keep American Funds

Postby WEL » Mon Jul 01, 2013 9:06 pm

baw703916 wrote:Just one additional consideration. If you have any fund shares in the taxable account that you have held less than one year, and you have a capital gain on those shares (and you probably would, because the market is up quite a bit), then you want to wait until you have owned them for at least a year before selling them (to have them taxed at the LTCG rate).


Thanks for the kind reminder! I do have some shares I bought in January of this year but those are in my Roth IRA.
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