Should I keep my American Funds?

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randomthrowaway
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Should I keep my American Funds?

Post by randomthrowaway »

I own about 17,000 dollars in 3 different American Funds Class A Shares in a Roth IRA. I had been investing with Wells Fargo until I realized how much I was paying with fees. While I've made money, I've been debating selling and buying into Vanguard Funds. Should I keep the American Funds and save to buy into Vanguard funds? Or should I sell the American Funds and use that money to purchase Vanguard Funds?
goblue100
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Re: Should I keep my American Funds?

Post by goblue100 »

randomthrowaway wrote: Or should I sell the American Funds and use that money to purchase Vanguard Funds?
Do this.
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Re: Should I keep my American Funds?

Post by placeholder »

It's not like you have capital gains concerns so if you wouldn't buy these funds now then what would the reason to keep them?
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Ged
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Re: Should I keep my American Funds?

Post by Ged »

Sell Sell Sell.
seamonkey
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Re: Should I keep my American Funds?

Post by seamonkey »

The question really isn't IF you should transfer, it's WHEN you should transfer, just so you can avoid even more ridiculous fees. It takes a little bit of sleuthing and math, but you'll be able to answer your question more precisely than we can with incomplete knowledge of your situation.

(1) You should verify all the fine print (and not just in the title of the fund that describes the share class) that you've already paid the load and what (if any) surrender fees there are on the back end. You should then If you've already paid the load, it is pretty likely that you'll do better by selling sooner than later and getting into a lower ER, no load broad index fund (such as those at Vanguard). Actually, even if there is a back-end load, you may still do better by selling soon as long as you've held shares for the requisite length of time. For you, if these are all truly class A shares, you've already paid the load and won't have a back-end fee. Hopefully Wells Fargo doesn't have additional fees tacked on either.

(2) As this is a Roth, there is no tax benefit for getting shares to be "long-term," so you can probably sell anytime. For others with a similar question, if this is in a taxable account, first stop reinvesting dividends, then determine if the tax benefit of keeping shares for a year to be taxed at your expected long-term capital gains tax rate is worth the wait (versus selling and being at your short-term / marginal income tax rate). And make sure you plan to have enough money withheld in your paychecks to cover the tax.
JW-Retired
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Re: Should I keep my American Funds?

Post by JW-Retired »

Class A shares! Now you know not to do it again. The load you paid is a sunk cost gone poof for nothing so you need to just forget about it. Going forward, the expense ratios are still pretty high compared to Vanguard or Fidelity Spartan index funds. (I know that without even knowing what your funds are.)
Since it is in a Roth and cap gains tax is not an issue, there is no reason whatsoever to keep these American funds instead of moving to equivalent lower cost alternatives. Over time the investment cost difference will just keep on compounding.

Transfer!
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Steelersfan
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Re: Should I keep my American Funds?

Post by Steelersfan »

Unless your capital gains are really substantial you should sell them.

I've got one American Funds fund with sufficient capital gains that it will take 15 years to recoup the tax consequences of selling and reinvesting in Vanguard funds. For those I'm having the dividends and capital gains distributions go to cash so I don't worsen the consequences.

I wish I had realized earlier that the better decision would have been to sell ASAP.
nyblitz
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Re: Should I keep my American Funds?

Post by nyblitz »

Agree with above. Sell. Move to Vanguard. Very happy when I was able to roll 401k to an IRA as it was dominated by AF's.

Good luck.
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Re: Should I keep my American Funds?

Post by abuss368 »

This would be an easy decision for me: sell and move to Vanguard.
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Calm Man
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Re: Should I keep my American Funds?

Post by Calm Man »

OP, this is pretty easy as there can't be too much in embedded capital gains. Sell and move on. And this is a nice, cheap lesson !!! Ask yourself one question and get yourself a good answer: WHY DID I BUY THIS? Then the followup is easy: How do educate myself to never do something like this again? Good luck.
Cody
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Re: Should I keep my American Funds?

Post by Cody »

I was told by my financial adviser at Wealth Enhancement (Minnesota) that the reason for the A share is to keep costs down. How I asked.

Well, he said, with out the A share up front people would be tempted to move in and out of the fund. With the high cost up front it helps prevent people from the tempation of "in and out." Like you and me. So I guess it works?

Apparently we, by staying, keep their costs done, which they pass on to the customer with better returns overall.

I was out! And quick. But it hurt.

Good luck,
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island
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Re: Should I keep my American Funds?

Post by island »

Agree with the others, SELL!

I have American Funds in a taxable fund and I wish the we're in my retirement fund so I could dump them without a tax consequence. Bought long ago before I knew anything about fees and taxes. I'm not even sure they perform as well as an index so I'm definitely taking steps to get out.

Curious, which Am Funds do you have?
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ofcmetz
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Re: Should I keep my American Funds?

Post by ofcmetz »

Vanguard isn't the only option, but it's a good one. Of course you should transfer that IRA to a low cost equity index provider ASAP.
Never underestimate the power of the force of low cost index funds.
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nedsaid
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Re: Should I keep my American Funds?

Post by nedsaid »

I actually do like American Funds. They are value oriented and have performed well. That being said, Vanguard has nice value funds too that you could get for lower cost than your American Funds. Vanguard is no-load and the expense ratio is much lower.
A fool and his money are good for business.
island
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Re: Should I keep my American Funds?

Post by island »

nedsaid wrote:I actually do like American Funds. They are value oriented and have performed well.......
Ned, Forget the load, since that's a sunk cost for those who already own, but do you think they've performed well enough to override the higher ER's? Thanks.
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nedsaid
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Re: Should I keep my American Funds?

Post by nedsaid »

Though I don't own it, American EuroPacific Growth is a fund I have admired for years. Just checked on Morningstar, $10,000 invested ten years ago (disregarding the load) grew to $22,321 where the Fidelity Spartan International Index only grew to $18.910. EuroPacific Growth is available in a lot of 401k plans. This is a good example of why I like American Funds.

I do own Capital Income Builder, which is a World Allocation Fund. Over ten years, $10,000 (disregarding the load) went to $20,111 and the category average for World Allocation Funds was $17,390. The Morningstar Moderate Target Risk Category grew to $19,910. Not bad. I own this in a ROTH IRA and wanted a steady, consistent fund. This one fits the bill.

Money magazine has rated some of the American Funds very highly. So you have to do fund by fund comparisons. You could compare American Funds with comparable Vanguard Funds and see how they stack up. Morningstar recently had a nice article on American Funds.

So if you have paid the load and own their better funds, I would consider holding on. Yes, in some cases the performance is enough to overcome the extra fees.

Another fund company I have admired for years is T Rowe Price though I have never owned any of their funds. They are a good value shop. Vanguard has excellent value funds and excellent balanced funds. A lot of people here like the Wellington and Wellesley funds at Vanguard. As I recall, one is a 60/40 stock/bond fund and the other is 40/60.

I have worked with an independent broker for probably 16-17 years and I have bought load funds from him in part to compensate him for his time. But I buy the funds with lower expense ratios and most of which have good track records. The same Brokerage IRA holds Individual Stocks I rarely trade and ETF's based on Indexes.

What I recommend is that people buy their mutual funds direct and from the lower cost providers. The three largest are Vanguard, Fidelity, and T Rowe Price. I own both Vanguard and Fidelity funds. All three of the largest providers have Index funds. There is no need to buy load funds from an Advisor. For brokerage accounts, I am a big fan of the Index ETFs.

I am not recommending that people rush to a financial advisor and buy American Funds. But if you still own them from a past investing life, depending on what funds you have, they might be worth hanging on to. If you are absolutely clueless and have to go to an advisor, you could do a whole lot worse than a portfolio of American Funds. What I am saying is if you own them, don't automatically make a snap judgment and just sell them. I realize I am in the minority on this forum.

Remember also, the 5.75% load is pretty steep. Most of my funds are no-loads for that reason. I am cheap.
A fool and his money are good for business.
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in_reality
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Re: Should I keep my American Funds?

Post by in_reality »

nedsaid wrote:Though I don't own it, American EuroPacific Growth is a fund I have admired for years. Just checked on Morningstar, $10,000 invested ten years ago (disregarding the load) grew to $22,321 where the Fidelity Spartan International Index only grew to $18.910. EuroPacific Growth is available in a lot of 401k plans. This is a good example of why I like American Funds.
I don't think the Fidelity Spartan International Index comparison is fair. That's more a large (tilted value) fund. EuroPacific Growth is large (tilted growth). A comparible Vanguard fund --VWIGX-- returned $21,632. And Vanguard total international (which included more mid and small caps) returned $21,793. Yes this does not figure in loads.

So what can we conclude. EuroPacific Growth may be a tiny bit better in that timeframe and who knows going forward.

I inherited American EuroPacific Growth and 4 other American funds. What I see is my funds are really a hassle to compare performance for. They hold both US and international and a little bonds and a little other. EuroPacific Growth is the most straightforward and easy to compare.

I held on in taxable and sold in tax advantaged. Now, I've held too long and have cap gains... rrrrgh. Didn't know what I was doing and didn't want to sell till I did.

By the way, I have "f" shares (no load). In 10 years time, "a" shares returned $51 more on 10,000 invested. This means if you factor in that you have to invest 10575+ to have 10k invested, it sure seems like the load is going straight to the company and that there is no reason to think you would be benefiting from having "a" shares. My ER is .01% lower too.

Don't feel bad, I stayed with my parent's advisor for 3 years at 1% before I moved to Wells Fargo Private Bank at 1.5% and then it dawned on me after watching how my index funds in my 529 plan were doing and how much I was paying for them ...
Last edited by in_reality on Wed Mar 19, 2014 6:24 am, edited 1 time in total.
carolinaman
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Re: Should I keep my American Funds?

Post by carolinaman »

nedsaid wrote:I am not recommending that people rush to a financial advisor and buy American Funds. But if you still own them from a past investing life, depending on what funds you have, they might be worth hanging on to. If you are absolutely clueless and have to go to an advisor, you could do a whole lot worse than a portfolio of American Funds. What I am saying is if you own them, don't automatically make a snap judgment and just sell them. I realize I am in the minority on this forum.

Remember also, the 5.75% load is pretty steep. Most of my funds are no-loads for that reason. I am cheap.
I agree. If you already have paid the load, some American Funds are good performers and worth keeping. I was in American's Europacific fund for many years until our 401k dropped it.
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Random Musings
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Re: Should I keep my American Funds?

Post by Random Musings »

nedsaid wrote:Though I don't own it, American EuroPacific Growth is a fund I have admired for years. Just checked on Morningstar, $10,000 invested ten years ago (disregarding the load) grew to $22,321 where the Fidelity Spartan International Index only grew to $18.910. EuroPacific Growth is available in a lot of 401k plans. This is a good example of why I like American Funds.

I do own Capital Income Builder, which is a World Allocation Fund. Over ten years, $10,000 (disregarding the load) went to $20,111 and the category average for World Allocation Funds was $17,390. The Morningstar Moderate Target Risk Category grew to $19,910. Not bad. I own this in a ROTH IRA and wanted a steady, consistent fund. This one fits the bill.

Money magazine has rated some of the American Funds very highly. So you have to do fund by fund comparisons. You could compare American Funds with comparable Vanguard Funds and see how they stack up. Morningstar recently had a nice article on American Funds.
The same case could be said about certain active Vanguard Funds. Or Dodge & Cox Funds. Better yet, you don't have to deal with sunk costs right off the bat. M* doesn't show those on the their charts, and not sure if they consider in total returns (my guess is, they don't).

The other issue with AF's (unless this practice has been stopped) is that you can conduit all your $ into specific bond funds, for example the short-term bond fund of America with a 2.5% A share front-end load, and then move $ out to desired funds (since they can't charge front-end loads twice). 2.5% is a lot better than 5.75%.

RM
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nedsaid
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Re: Should I keep my American Funds?

Post by nedsaid »

I want to make it clear that I am not a financial advisor. I am an accountant. So I am not "advertising" for American Funds. But there are certain funds out there like certain Vanguard managed funds, Dodge and Cox, certain T Rowe Price funds that you have to say hmmm. Making "always" and "never" statements when discussing investments is a bit dangerous because there are always exceptions out there. I am actually impressed with what American Funds has accomplished.

I get indexing, I believe in indexing, and some of my biggest holdings are index funds. I would just not say "never" to managed funds. There are a few folks out there that actually manage money pretty darned well. Vanguard is one of them. They offer some active funds that are well worth considering.

Those of you who have American Funds offered in your 401k's with no-load and at an attractive expense ratio might find
these worth considering. Particularly if you are looking for good value funds. If you don't have access to the special class for retirement accounts and want good value oriented funds, Vanguard has well-regarded funds that are even cheaper.

Thanks for the thoughtful replies to my posts. This is how we all learn.
A fool and his money are good for business.
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