Stay at American Funds or move to Vanguard?

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ctantan
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Joined: Thu Feb 08, 2018 2:23 pm
Location: Orange, CA

Stay at American Funds or move to Vanguard?

Post by ctantan » Thu Feb 08, 2018 3:35 pm

Hi all,
this is my first post so please forgive me if I forget to include some crucial information, first my stats.

my info
Emergency funds: 9 months
Debt: mortgage ($260k - 3.625%), car loan (30k - 2.49%), student loan (10k - 6%)
Tax Filing Status: Married Filing Jointly
Tax Rate: 25% Federal, 7.75% State
State of Residence: CA
Age: 34 (him and her)
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 10% of stocks

We both work at the same company and are each maxing out our 401k contributions.

Now for my question (or the preface to my question):
I recently found out that in February 2006 my father in law opened an account at american funds for each one of her daughters (he has 4). He started with $2k then in December of 2006 started contributing $25.00 monthly to each account. So far he contributed $4,350 and the account is worth $10,400 ($6k in profit). He regrets not having done this sooner or putting more in the accounts, but hey it is what it is, he now turned the accounts over to each daughter and he said he will continue contributing $25 monthly or he would match our contribution up to $100. At first i though great, let's just put $100 in each month and he can put $100 as well. amazing opportunity! Then I got a hold of the account and I'm not sure I want to contribute my money to it, so I asked my father in law If I move the funds over to a different group (probably Vanguard) he would still match our $100 contribution and he said yes.

Current Mutual fund info:
American Funds Class A shares of "The New Economy Fund (ANEFX) - the account has had an annualized rate of return of 9.7%, 33.96% this past year so it's doing well.
The expense ratio is .78 and it has a front load charge of 5.76% so for every $25 he puts in only $23.56 is actually invested, if we both were to contribute $100 or $200 combined only $188.48 would get invested...that's almost $140 a year that's just wasted!

What do you guys think I should do:
A. just keep the account there and contribute $100 a month plus my father in law match of $100
B. Move the account to Vanguard and start contributing $100 a month plus the $100 match (there might be fees involved for closing the account)
C. Leave the account there but stop the contribution, open a new account at Vanguard and contribute $100 plus the $100
D. other suggestions?

Right now I'm leaning towards option C as I will avoid any closing costs, the ANEFX fund is doing well, it has a not too high expense ratio, and since the front load charges have been paid already, I might as well keep the fund and let it grow without contributing. Also my wife might become a stay at home mom in a few years so I will need to migrate her 401k to a new broker and I was thinking Vanguard would be my first choice.

Hopefully this is enough info to get a solid answer from the community. I thank you all in advance.

Dottie57
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Joined: Thu May 19, 2016 5:43 pm

Re: Stay at American Funds or move to Vanguard?

Post by Dottie57 » Thu Feb 08, 2018 4:17 pm

Move to Vanguard. Front end loads are commissions to whoever sold the fund. Don' makethe salesperson rich. Keep your money for yourself.

dbr
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Re: Stay at American Funds or move to Vanguard?

Post by dbr » Thu Feb 08, 2018 4:21 pm

Dottie57 wrote:
Thu Feb 08, 2018 4:17 pm
Move to Vanguard. Front end loads are commissions to whoever sold the fund. Don' makethe salesperson rich. Keep your money for yourself.
I agree. The past purchases are water under the bridge and can be held or sold, but new purchases should be of funds that are low cost and no load from now on.

Grt2bOutdoors
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Location: New York

Re: Stay at American Funds or move to Vanguard?

Post by Grt2bOutdoors » Thu Feb 08, 2018 6:01 pm

If you move the accounts over to Vanguard, there will be a tax cost. Liquidating the American Fund will result in a gain, depending on daughters tax bracket, you'll have to calculate what the tax on the gain will be. Which Vanguard fund are you thinking of moving it to?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

bondsr4me
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Re: Stay at American Funds or move to Vanguard?

Post by bondsr4me » Thu Feb 08, 2018 6:09 pm

Dottie57 wrote:
Thu Feb 08, 2018 4:17 pm
Move to Vanguard. Front end loads are commissions to whoever sold the fund. Don' makethe salesperson rich. Keep your money for yourself.
+1.

Keep your money as your money...no need to buy your salesperson a shiny new car or yacht.

Talk to VG about this.

Don

John Laurens
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Re: Stay at American Funds or move to Vanguard?

Post by John Laurens » Thu Feb 08, 2018 6:10 pm

I would choose option C as well. Leaving the current value but redirecting all new purchases to Vanguard will serve 2 purposes. One, from a gratitude perspective it will allow you to not be an ungrateful know it all. Two, with all future contributions being directed to low fee index funds at Vanguard, you will be able to convert your FIL and SIL’s to bogleheads without saying a word. Your after fees/tax returns will speak for themselves.

Oh, and get the car/student loan knocked out.

Regards,
John

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Duckie
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Re: Stay at American Funds or move to Vanguard?

Post by Duckie » Thu Feb 08, 2018 7:15 pm

ctantan wrote:D. other suggestions?
Stocks have lost value this week. Find out what the cost basis is and check to see if the gain has been reduced. That would make selling easier on the pocketbook. (She's going to need the basis in the future anyway.)

If she decides to keep it, open the taxable account at Vanguard and move the fund "in kind". She still owns it but it's held at Vanguard instead of American Funds. Have all dividends funneled to her settlement account/money market fund. (Although Vanguard will take ANEFX , she can't buy more, not that she'd want to.)

JohnDindex
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Re: Stay at American Funds or move to Vanguard?

Post by JohnDindex » Fri Feb 09, 2018 7:57 am

Vanguard offers F1 shares that are no load for American, if you move there in kind, you probably could convert to that class. They are also NTF at vanguard now. There is a .25% 12b1

I own vanguard and american funds, have been very happy with both. That particular fund you own has a pretty solid 10 year track record, at least consider holding so you don't pay the IRS.

ddurrett896
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Re: Stay at American Funds or move to Vanguard?

Post by ddurrett896 » Fri Feb 09, 2018 8:14 am

Move. Did the same about 3 years ago and never been better.

Between the high ER and front kid few, you’re best bet is to move.

onourway
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Re: Stay at American Funds or move to Vanguard?

Post by onourway » Fri Feb 09, 2018 8:42 am

I like the idea of moving the funds in-kind to Vanguard, but I'm not sure I agree with the suggestions to turn off reinvestment of dividends. This is a great strategy for those of us here who are actively involved in our finances and have good reason to want to do this. For someone who is hands-off however, those dividends are likely to end up sitting in the sweep account for years, earning nothing. Much of the total return will come from those re-investments. Better to leave things as automated as possible. Any future contributions can be used to buy Vanguard funds instead.

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Duckie
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Re: Stay at American Funds or move to Vanguard?

Post by Duckie » Fri Feb 09, 2018 5:46 pm

onourway wrote:I like the idea of moving the funds in-kind to Vanguard, but I'm not sure I agree with the suggestions to turn off reinvestment of dividends.
There are two issues with reinvesting ANEFX dividends:
  1. Although the fund can be transferred it can't be purchased at Vanguard. I'm not sure dividends even can be reinvested in that fund.
  2. It has an expense ratio of 0.82%. That's expensive. She doesn't need to buy any more of that fund even if allowed.

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burt
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Re: Stay at American Funds or move to Vanguard?

Post by burt » Fri Feb 09, 2018 5:56 pm

Forget about taxes.
Forget about charges.
Forget about fees.

Just move to a low cost index fund provider.
You will break even in a few years and save a lot of money over the next 50 years.
This is a no brainer.

burt

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ruralavalon
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Re: Stay at American Funds or move to Vanguard?

Post by ruralavalon » Fri Feb 09, 2018 6:49 pm

Welcome to the forum :) .

Option B. Transfer it all to Vanguard and reinvest in a good low expense Vanguard fund.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

jadedfalcons
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Re: Stay at American Funds or move to Vanguard?

Post by jadedfalcons » Fri Feb 09, 2018 7:40 pm

No point getting rid of it. This forum has an irrational hate of American Funds. That's an excellent investment that has outperformed the 500 over the long haul, even allowing for the full load. I've had it since 1993, and it was the largest recipient of my IRA contributions this year.

Keep it, but if it's not in a tax deferred account, don't add to it since the cap gains can get pretty high.

ctantan
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Joined: Thu Feb 08, 2018 2:23 pm
Location: Orange, CA

Re: Stay at American Funds or move to Vanguard?

Post by ctantan » Tue Feb 13, 2018 4:48 pm

Thank you all for the responses/suggestions. I think i will move the funds "in-kind" to vanguard if possible but will no longer contribute to the fund. I'll have any dividend invested in a new low cost fund (which I have yet to determine).

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