Newbie asks Financial adviser about index funds

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topper
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Newbie asks Financial adviser about index funds

Post by topper »

Hi,

I'm 39, married with 2 kids and am a small business owner. In the past couple of years I've started trying to get my ducks in a row. First I read "Smart Couples Finish Rich" and followed quite a few things in there regarding life insurance, disability insurance and retirement planning.

A few months ago I hired a local fee-based company to do a financial plan for me. I can get more into the details of that later and will try to post my portfolio.

I recently read "The Coffee House Investor" and I have to say it kind of blew my mind. The whole index fund issue is something I've never heard mentioned.

After reading that book, I emailed my adviser and asked him if I was currently in any index funds. Here's his response:

"You do not have any index funds. The positive of index funds is that they
are typically less expensive than managed mutual funds. I favor mutual funds
that are managed by a team or an individual. In this type of market no
mutual funds have been doing well, but if we have our money with American
Funds or Pacific Life we know that they are doing their best to invest your
money in the right stocks. An index fund is just a bucket of stocks - they
do not buy or sell. With a managed fund, the manager(s) have the flexibility
to buy/sell stocks and move in and out of the market. If you pick the funds
with the right managers (it is our job to help you do that), hopefully you
can outperform the index funds."

I've since read up on index funds on the internet, found the Bogleheads and have started reading the Bogleheads book.

I'm not one to make knee jerk decisions, but right now I feel like I need to switch my accounts over to Vanguard, put my money into index funds, and let it ride while I add more money over time.

Am I getting too worked up too quick? I kind of feel like my bubble has been burst somewhat. Or should I give my new advisers a chance to beat the markets?

Thanks for a great site!

Topper
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Ted Valentine
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Post by Ted Valentine »

Keep reading and educating yourself. Read John Bogle's Little Book of Common Sense Investing if you want to understand why index funds are better. Don't be rash and fall into a belief that you're going to find the holy grail, however.

The advisor's response is well stated and fair. However, know that if you're in American Funds you're paying a hefty fee (load) to invest. If you want to trust the advisor to do everything and move on with your life, you could do worse than American Funds. But realize that comes with a price in the load and higher annual expense ratios.

Indexing is like changing your own oil. Changing your oil is simple and only requires some basic knowledge a small amount of time and effort. Do it once or twice and there is no real gain. Do it for a lifetime and the money you save will be enormous.

Most here believe that trying to beat the index with managed funds is a losing proposition.
Although our intellect always longs for clarity and certainty, our nature often finds uncertainty fascinating.
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Roverdog
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Post by Roverdog »

Topper,

Welcome to the board. You wrote:
A few months ago I hired a local fee-based company to do a financial plan for me
I may be wrong, but doesn't Pacific Life sell annuities --- and doesn't American use commission-based advisors? Somehow, this doesn't sound like a portfolio that would be recommended by a fee-only advisor. :)

Bob
dbr
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Post by dbr »

If you hire a fee based advisor that advisor has to be paid somehow. Do you know how you are paying your advisor and how much you are paying him? Would your advisor be able to keep you strictly in index funds and earn the income he wants to earn for handling your account? Does your advisor provide services that are worth what you are paying? How do you know?
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mickeyd
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Post by mickeyd »

Hey Topper,

Welcome here.

Most of the folks on this forum prefer Vanguard index funds. You are bound to find a bias for these investments.

Your selection for reading material is on the right track, but before you pull up stakes and move your stash to Vanguard, why not check out a few other books at http://www.bogleheads.org/readbooks.htm. The knowledge gained by reading some/all of them will insure that you are making a more informed decision. Most public libraries have many of these volumes.

You should also consider if the investments are in taxable or tax deferred accounts such as IRAs. One of the reasons that many of us prefer Vanguard index funds is their very low expense ratio (ER) compared to all other mutual fund companies. Many of us have invested with other MF families (like Pacific and AF) and learned the hard way by paying high fees without realizing it.
Last edited by mickeyd on Wed Oct 01, 2008 4:13 pm, edited 1 time in total.
Part-Owner of Texas | | “The CMH-the Cost Matters Hypothesis -is all that is needed to explain why indexing must and will work… Yes, it is that simple.” John C. Bogle
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Rick Ferri
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Post by Rick Ferri »

if we have our money with American Funds or Pacific Life we know that they are doing their best to invest your money in the right stocks.
What are the 'right' stocks?
If you pick the funds with the right managers (it is our job to help you do that), hopefully you can outperform the index funds."
At least he did say active management relies on 'hope' and not skill. Here is another quote about hope:

"I would rather be certain of a good return the hopeful of a great one", Warren Buffett.
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Roverdog
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Post by Roverdog »

Ted Valentine wrote: Changing your oil is simple and only requires some basic knowledge a small amount of time and effort. Do it once or twice and there is no real gain. Do it for a lifetime and the money you save will be enormous.
Ted types faster. He beat me to it. :)

But hey, I change my own oil. It's fun (I used to autocross), and it avoids cross-threading the drain plug by the the quick lube guys (twice :wink: )
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bearwolf
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Re: Newbie asks Financial adviser about index funds

Post by bearwolf »

topper wrote: With a managed fund, the manager(s) have the flexibility
to buy/sell stocks and move in and out of the market. If you pick the funds
with the right managers (it is our job to help you do that), hopefully you
can outperform the index funds."

Topper
According to the research I read in the Bogleheads guide to investors, Index funds will beat 80% of managed funds over time. It is possible that American funds have done better the last couple of years than and Indexed approach. The problem is that as they take in more money because people have noticed that they outperformed it is more difficult for them to beat the index on an ongoing basis. When they get large enough they are basically a closet index fund with higher expenses.

If your investment horizon is long enough you will probably be better off with a low cost indexed approach. Since you are 39 it looks like you have an investing horizon of 40-50 years.

BearWolf
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Post by SkepticalGuy »

topper's adviser wrote:
If you pick the funds with the right managers (it is our job to help you do that), hopefully you can outperform the index funds."
Hi topper. There are a couple of tricky words in what your adviser said.

The first is "right" in "right managers". There's a metric ton of hard evidence that picking a manager who will beat an index over time is incredibly hard. Managers who do the trick in one period often fail in the next, and vice versa.

The second is "hopefully". As the old saying goes, spit in one hand and hope in the other and see which fills up first.

Ask your manager for a written guarantee that he'll make up the difference if his "right" managers fail to equal their target indexes over the next five years and you'll see just how "hopeful" he really is.

If I were you (and I have been) I'd run to Vanguard. Watch out for tax consequences before you dump any actively managed funds, though. Best to tread carefully.

Good luck.
dbr
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Post by dbr »

What fraction of your investment have you lost so far in loads, front end or deferred?
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Taylor Larimore
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Fee based or Fee only?

Post by Taylor Larimore »

I may be wrong, but doesn't Pacific Life sell annuities --- and doesn't American use commission-based advisors? Somehow, this doesn't sound like a portfolio that would be recommended by a fee-only advisor.

Bob


I think Bob may be right. I don't know why any "fee-only" advisor would recommend load funds and load annuities. Are you sure your advisor is not "fee-based?" which means he/she has a conflict of interest?

Research has shown that load funds, on average, underform no-load funds, and index funds outperform managed funds. It is my experience that most fee-only planners use index funds almost exclusively. I hope you are not paying both a (load) commission and fee.

Perhaps American and Pacific offer funds and annuities without loads/commissions. If so, I would like to know.

Best wishes.
Taylor
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Post by dbr »

I looked on the Pacific Life web site which seems to suggest they offer a selection of funds from fund management companies and also fund-of-fund managed selections.

Note the OP actually did say "fee-based."
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Post by Adrian Nenu »

Run from the "adviser" as fast as you can. Educate yourself about the fundamantals of investing and avoid the Wall Street charlatans.

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ruralavalon
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Re: Newbie asks Financial adviser about index funds

Post by ruralavalon »

topper wrote:Hi,

I've since read up on index funds on the internet, found the Bogleheads and have started reading the Bogleheads book.

I'm not one to make knee jerk decisions, but right now I feel like I need to switch my accounts over to Vanguard, put my money into index funds, and let it ride while I add more money over time.

Topper


Do exactly that, read the "Bogleheads' Guide to Investing" (and if you wish any of the other books recommended at "Books of Interest" on this site), and contact Vanguard and let them handle transfering your accounts. You can post your account information here (see information and format at "Investment Planning" and "Portfolio Questions" on this site) for recommendations as to what Vanguard funds you might want to consider for your accounts.

There is no time like the present, Vanguard index funds are a superior choice. Index funds beat 80% of the managers.

Welcome to the forum.
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Post by PaPaw »

The above posts have given you much good advice. I'll add my 2 cents worth for what you could consider:

1. Continue to educate yourself by reading from the Boglehead library and this forum and posting your questions. You might want to take a month or two for this step so you don't do anything rash.

2. I expect you will come to the conclusion that the philosophies of "buy the market" and "keep costs low" will come to make a lot of sense to you (i.e. invest in low cost Vanguard index funds like Total Stock Market, Total Bond Market). If you do become a Boglehead, then:

3. Evaluate your tax consequences and then move toward Vanguard as fast as you can and become your own advisor. You have a much higher stake in what is best for you than any advisor will ever have (no disrespect intended for the paid advisors who post on this forum).

4. Use your new found knowledge to help educate others.

Best wishes, ... PaPaw
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Mel Lindauer
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Post by Mel Lindauer »

Hi Topper:

Hope you enjoyed our book.

If this is your taxable account, you may well be able to do some tax-loss harvesting to help offset any gains you might have. And if it's in your retirement account, there are no tax consequenses to worry about.

There's no need to pay the commissions and higher expenses that you're currently paying. While returns aren't guaranteed anywhere, lower fees are a known factor that provides your investments with a tailwind compared to higher-cost managed funds, which may well end up underperforming their benchmark.

Contact Vanguard and let them handle the transfer for you.

Good luck!

Regards,

Mel
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Post by pkcrafter »

Hello Topper, welcome to the forum.

You are now doing exactly what you should be doing—ramping up on the learning curve. Do not make any changes until you know where you are at now, where you want to be, and how you are going to make the necessary changes.

This line says more about your situation than anything else you posted:
After reading that book, I emailed my adviser and asked him if I was currently in any index funds.

It's quite clear that you do not know what you own. That can be very dangerous for a number of reasons. And one of them is you need to understand some basics in order to evaluate the advise you are given.

Is your money under the advisor's management and does he have power to buy and sell funds at his own discretion? Is he a RIA, CFP or CFA?

Is this a tax-deferred account?

Again, don't try to hurry things up, just continue with your reading. I would second the suggestion for The Little Book of Common Sense and/or The Smartest Investment Book You'll Ever Read by Daniel Solin. Both are quick reads.

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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Post by woof755 »

One thing to get over quickly is the idea that investing is too complicated to do it yourself. When I was in training, earning $40k per year and putting $2000 a year into a 403(b), I did it myself. The whole time, I thought, "When I get out there and start making some 'real' money, I'm definitely hiring an advisor."

Thank goodness I found the beauty of indexing.

I'll do it myself forever now. You sound like you're on the right path.
"By singing in harmony from the same page of the same investing hymnal, the Diehards drown out market noise." | | --Jason Zweig, quoted in The Bogleheads' Guide to Investing
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topper
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Post by topper »

Hey,

Thanks for all the input. I feel a out of my league, so excuse my ignorance in my reporting.

Here's what my adviser has me set up in right now. They charge me 1.75% for the OMP accounts. All of the accounts except the Pac Life account were started with money transferred from other IRAs.

I have a Roth IRA with approx $25,000 in it. My wife has a rollover IRA with approx $14,000 in it. The are both through LPL Financial. I will put the maximum of $5000 into my IRA this year. Mine is set at "Aggressive Growth", her's is "Growth".

I'm not sure if I need to list the allocation or if these are standard LPL allocations that you will know about. I will be happy to post them if needed.

They also set up a Pac Life Roth IRA, which we just started $150 a month into. I can't remember why they set this up. I think it's because my wife had an IRA that she forgot she had until after these initial account were set up. I'll have to email the adviser to verify that. The fund is called Portfolio Optimization Moderate-Aggressive

We also have two 529s, one for each kid through American Funds, which is a Virginia 529. They seem to have a 5.75% sales charge. My oldest (6 years) has about $15,000 in it (I transferred from KY prepaid plan). My youngest (3 years) has about $7000 in it. I transferred that from KY's 529. I contribute $50 a month into each plan.

Hope that gives you a better idea of what's going on. I think my adviser is a good guy and I never felt pressured by him or his boss in any way. They definitely laid everything out for me as far as a long term plan. But after reading about index funds, I feel like the world of investing has a lot of secrets...

Thanks,
topper
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topper
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Post by topper »

PS

My adviser is a CFP, CRC, and CLTC.

I guess technically he can make any changes he wants.


topper
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topper
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Post by topper »

PPS

My comment of "fee only" might not be accurate, as I'm not sure if I really know what that means.

sorry if it caused any confusion.
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Post by livesoft »

If you were giving me 1.75% of your assets every year, I wouldn't pressure you either. I would just sit back and watch the money roll in.

Oh, you didn't write "fee-only", you wrote "fee-based" which is different as you have shown. Here's an article on "fee-based": http://seekingalpha.com/article/15275-e ... the-rescue
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account holdings

Post by pkcrafter »

Topper,

I'm guessing that OMP stands for Optimum Market Portfolio? It means nothing at all and doesn't provide any information on your holdings.

LPL? That one's even tougher. Is that the name of the Advisor firm? Nope, we don't know anything about LPL or what they have you invested in.

1.75% seems reeeealy high. And you have load funds as well? Phew!

If you want some additional input, which you may not like, you will have to post all holdings in all accounts.

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.
taxman
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Post by taxman »

Welcome you heard the choir, you dont need another tuned to the same midset do you?
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Post by PaPaw »

topper wrote:I think my adviser is a good guy and I never felt pressured by him or his boss in any way. They definitely laid everything out for me as far as a long term plan. But after reading about index funds, I feel like the world of investing has a lot of secrets...
Hey topper, I'd like to be your new best friend. I'll give you advice and only charge 10% of your assets every year - before you decline, just remember "you get what you pay for" and obviously a Rolls Royce is a better deal for you than a Volkswagen. Heck, I'll even buy your kids ice cream once a week and send you and your wife free movie tickets every month. I'll be really nice and talk to you on the phone about how well I'm taking care of your money. You won't even have to bother knowing where your money is invested ... just trust me. If by chance your assets happen to go to zero, I'll even let you cry on my shoulder for as long as you want (or at least until I line up another customer). PM me if you want to take me up on this offer.

topper, I thought you could use a bit of humor to lighten up your day. :lol: :lol: I hope by now you can see why you are getting the advice on this forum to learn to manage your own assets and that my sarcastic humor really does mirror how some unethical advisors can operate with the unaware.

Best wishes and happy learning! .... PaPaw
Amishman
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Re: Fee based or Fee only?

Post by Amishman »

Taylor Larimore wrote: Perhaps American and Pacific offer funds and annuities without loads/commissions. If so, I would like to know.

Best wishes.
Taylor
Yes they do.
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Adrian Nenu
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Post by Adrian Nenu »

"It's much more profitable to sell investment advice than follow it."

Know it, memorize it, implement it. Otherwise, the only one who will get rich is your "adviser". CFP materials do not teach the basics of investing. If an adviser makes claims about active funds, run as fast as you can.

Adrian
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Taylor Larimore
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Re: Fee based or Fee only?

Post by Taylor Larimore »

Hi Amishman:

Thank you for your reply.

Best wishes.
Taylor
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Rick Ferri
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Post by Rick Ferri »

topper wrote:My adviser is a CFP, CRC, and CLTC.
Topper,

I know what CFP stands for, but what the heck is a CRC and a CLTC? Are they similar in non-sense to the title "Vice President of Investments" given away at brokerage firms?

Rick Ferri
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Post by JW-Retired »

topper wrote: They charge me 1.75% for the OMP accounts. ..... We also have two 529s, one for each kid through American Funds, which is a Virginia 529. They seem to have a 5.75% sales charge.
People are being sarcastic but please don't take offense. We hear this so much.

I have no idea what OMP is but 1.75% of assets under mangement is a big drain on your investments. What ever funds this guy has you in are sure to have at least a 1% expense ratio. So you are paying 2.75% per year expenses at least. And a big sales charge on top of that. You could invest in index funds for next to nothing compared to that.

Expenses are huge. Do some numbers. You have about $40K in your IRAs. Assuming a 6% return on whatever funds you are investing in, in 25 years when you retire that $40K would be worth $40K(1.06^25)= $171.67K, a gain of $131.67K if there were no expenses. With 2.75% expenses after 25 years it is worth only $40K(1.0325^25)= $89.98K, a gain of $49.98K.

This is just arithmetic. The arithmetic says you got $49.98K of your investment returns and your advisor and the fund company got the other $81.69K, 1.6x what you got. Good grief! How could anyone think for a second that this is a good deal? I have no idea but many do. The FA industry makes billions.

IMO, you should just say no and use Vanguard index funds, which means your expenses will be about 1/20th of this. Don't use any middlemen, go directly to the no-load fund company. Fidelity also has funds that are this low cost. It is not difficult.
JW
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Mel Lindauer
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Post by Mel Lindauer »

Rick Ferri wrote:
topper wrote:My adviser is a CFP, CRC, and CLTC.
Topper,

I know what CFP stands for, but what the heck is a CRC and a CLTC? Are they similar in non-sense to the title "Vice President of Investments" given away at brokerage firms?

Rick Ferri
Hi Rick:

If you promise not to laugh, I'll tell you.

Certified Retirement Counselor (CRC) http://www.infre.org/pages/CertifiedRet ... nation.htm

Certified in Long-Term Care insurance (CLTC).
Choose between a 2-day Master Class or Correspondence Course
http://www.ltc-cltc.com/consumers/outline.html

You promised not to laugh, Rick! :D :D :D

Best regards,

Mel
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Adrian Nenu
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Post by Adrian Nenu »

Master Class:
(2-day onsite) The 2-day Master Class is $1295 or available for $1095* through sponsorships.
Please call the National Marketing Office at 866-383-2075 to see if you qualify for a discount.
Rick, you might even qualify for the discount!

Adrian
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chris7
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Post by chris7 »

I've heard the same rationale from our financial advisor everytime we asked him if indexing wouldn't be a better choice than American Funds.

At the time I knew a little bit about indexing, but not enough to feel confident. He'd talk at us for 5 minutes and show us numbers, and we'd ultimately say "Oh, OK".

In the last 6 months I've gotten an education and have already opened a small account at Vanguard.

Next month we're moving the remainder of our money.
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topper
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Post by topper »

Thanks again. I don't mind sarcasm, in fact I'm a big fan.

I'll post the complete list of holdings, hopefully tonight.

Does anyone have any opinions on the 529? I did some research on a website that compares them the Virginia plan seemed to be one of the higher rated ones...

Thanks,
topper
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Barry Barnitz
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509 Plans:

Post by Barry Barnitz »

Hi Topper:

Virginia has two 529 plan options. One is a direct sold plan offering Vanguard Index Fund portfolios at an expense loading of 0.31% to 0.57%.

You can get detailed information on this option at Virginia 529 plan.

Virginia also offers a broker sold 529 plan offering American Funds. These offerings have expense ratios dependent on which share class is purchased;

Approximate range is 0.63% to 1.10% for Class 529-A, 1.45% to 1.92% for Class 529-B, 1.45% to 1.92% for Class 529-C, 0.94% to 1.41% for Class 529-E, and 0.44% to 0.91% for Class 529-F.

There is also a $10 annual account fee.
How American Funds share classes differ

Our share classes mainly differ based on how you pay for the advice of your financial professional. Because different payment structures suit different investment needs, we offer several convenient pricing options for our mutual fund accounts as well as our CollegeAmerica® 529 savings plan — a tax-advantaged way to save for college.

*Class A and 529-A shares
o You pay the sales charge at the time of purchase. (5.75%)
o You will pay lower annual expenses.

*Class B and 529-B shares
o If you sell your shares within six years, you will pay a sales charge.
o You will pay higher annual expenses than Class A and 529-A shares for eight years.
o Class B and 529-B shares convert to Class A and 529-A shares, respectively, after eight years.

* Class C and 529-C shares
o If you sell your shares within 12 months, you will pay a sales charge.
o You could pay higher annual expenses than Class A, 529-A, B and Class 529-B shares.
o Class C shares convert to Class F-1 shares after 10 years. Class 529-C shares do not convert to Class 529-F-1 shares.

*Class F-1, F-2 and 529-F-1 shares
o You pay an asset-based fee for F-1, F-2 or 529-F-1 shares based on your financial adviser's fee-based program.
o You pay no up-front or contingent deferred sales charge.
o Class F-2 shares do not carry a 12b-1 fee.
o These shares are offered only through participating financial professionals.
You need to know which share class of American Funds you are using in order to determine your investment costs.

regards,
Additional administrative tasks: Financial Page bogleheads.org. blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; Wiki Bogleheads® España.
dbr
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Post by dbr »

It is also true that American Funds Class A sales charges are on a sliding scale. Over $1M there is no charge, thus it is possible to say American Funds CAN be bought at no load, though not likely helpful to most people.

Also, as often mentioned, loads may be waived in some plans, notably 401k's. May not apply to the OP.
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Post by SkepticalGuy »

Financial services guys use a long list of arguments to persuade you that indexing is a bad idea.

When I talked with the Edward Jones rep who handled my mother's money, he gave me a chart showing how some active fund had beaten the Vanguard S&P 500 fund for 5 years running--as if 5 years made a difference, and as if a serious asset allocator would put all of her money in that single Vanguard fund...

When I was looking for someone to name as trustee in case my wife and I went belly up while my son was still young, a bank trust dept. lady told me that using index funds "guarantees a mediocre result, and we don't settle for mediocre". Again, I got a chart showing better performance than the S&P 500 over 5 years.

After lots of chin music, a JP Morgan trust advisor admitted that there was evidence in favor of indexing, but claimed that JP had a policy against using index funds because "we're responsible for handling trust money prudently, and that requires that we use JP Morgan's own mutual funds, since those are the only ones whose quality and holdings we can know with complete certainty". And of course most of those JP Morgan funds were actively managed.

This is pretty sad stuff. Even sadder, in a certain sense, is that I think the people who told me this nonsense actually believed it. In each case I probed for general investing knowledge and found that the reps were very poorly educated and relied heavily on limited company-sponsored "training". Not one of them could identify Fama or French or Markowitz or even Malkiel. And forget about actually understanding alpha or even standard deviation.

Where these reps and trust officers are concerned I can't even enjoy a sense of righteous indignation about lying and gouging--most of them are simply too dim or befuddled to understand what they're doing wrong. I have to reserve most of my rage for the guys in the home offices, and I never get to talk to them. It's much less satisfying.
edge
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Post by edge »

This is absolutely right. The finance industry is 99% marketing.

Financial sales people know about finance as much as drug reps know about medicine.
SkepticalGuy wrote:Financial services guys use a long list of arguments to persuade you that indexing is a bad idea.

When I talked with the Edward Jones rep who handled my mother's money, he gave me a chart showing how some active fund had beaten the Vanguard S&P 500 fund for 5 years running--as if 5 years made a difference, and as if a serious asset allocator would put all of her money in that single Vanguard fund...

When I was looking for someone to name as trustee in case my wife and I went belly up while my son was still young, a bank trust dept. lady told me that using index funds "guarantees a mediocre result, and we don't settle for mediocre". Again, I got a chart showing better performance than the S&P 500 over 5 years.

After lots of chin music, a JP Morgan trust advisor admitted that there was evidence in favor of indexing, but claimed that JP had a policy against using index funds because "we're responsible for handling trust money prudently, and that requires that we use JP Morgan's own mutual funds, since those are the only ones whose quality and holdings we can know with complete certainty". And of course most of those JP Morgan funds were actively managed.

This is pretty sad stuff. Even sadder, in a certain sense, is that I think the people who told me this nonsense actually believed it. In each case I probed for general investing knowledge and found that the reps were very poorly educated and relied heavily on limited company-sponsored "training". Not one of them could identify Fama or French or Markowitz or even Malkiel. And forget about actually understanding alpha or even standard deviation.

Where these reps and trust officers are concerned I can't even enjoy a sense of righteous indignation about lying and gouging--most of them are simply too dim or befuddled to understand what they're doing wrong. I have to reserve most of my rage for the guys in the home offices, and I never get to talk to them. It's much less satisfying.
Jack Cook
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Post by Jack Cook »

Hi Topper, great advice so far from guys a lot smater than me. But I would add the following to your reading list; http://investingessentials.blogspot.com/
It is Paul Keck's on line invesment guide, Paul has replied to your original post as "pkcrafter". I guess he is just to modest to refer you to his own work. But I recommned his guide to a lot of people. It is concise, well written and, contrary to the almost universal truth, along with this forum it is about as close as you will ever get to a free lunch.

Good Luck, Jack
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Taylor Larimore
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Paul Keck's "Investment Guide"

Post by Taylor Larimore »

Hi Jack:

I agree with you that Paul Keck's "Investment Guide" is one of the best posts on this forum.

Your link contains Paul's treasure of rock-solid information for successful (Boglehead) investing.

Best wishes.
Taylor
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gravlax
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Post by gravlax »

Hi Topper,

Welcome to the forum. I am in a similar boat as you. I was hoodwinked by a high-fee investement counselor, then after the fact, decided to start learning about personal finance. I know, I should have done it the other way around.

I am enjoying and benefitting from reading the responses in this thread, and have also read the Bogleheads Guide to Investing, The Four Pillars of Investing, and Rick's excellent book on Asset Allocation.

I am taking things slowly, but hope to have my financial house in (relative) order once the new year rolls in.

Good luck to you...
Last edited by gravlax on Fri Oct 03, 2008 11:51 am, edited 1 time in total.
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topper
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Post by topper »

I have the Class A shares in the 529 plan.

Yeah, somehow by going in and getting more organized, then not taking it all at face value, has made me more serious about investing.

topper
muddlehead
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time to start is now

Post by muddlehead »

with the computer you are looking at right now, and a little time, you can easily learn how to manage your family's finances. it isn't that difficult. never pay anyone to do it for you.
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Taylor Larimore
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Never say "never."

Post by Taylor Larimore »

muddlehead wrote:with the computer you are looking at right now, and a little time, you can easily learn how to manage your family's finances. it isn't that difficult. never pay anyone to do it for you.


Hi muddlehead:

Welcome to the Bogleheads Forum.

I think it is necessary to correct the underlined portion of your statement, above.

Although most Bogleheads prefer to do their own investing, there are many investors who can benefit from the knowledge and experience of a good advisor.

Of course, the problem is finding a good advisor. Anyone can hang out a shingle and call themselves an advisor. Even with an experienced and knowledgeable advisor, there is no assurance that person is reputable. We need a basic understanding of investing to judge an advisor.

Having said all that, investors with large portfolios often have complex tax and estate problems they cannot best solve themselves. Many investors don't have the time or willingness to learn about investing by reading a good book on the subject. Maybe they need hand-holding during bear markets like this one.

It is a mistake to say that we should never pay anyone to help manage our finances.

"Never say Never." :)

Best wishes
Taylor
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mickeyd
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Post by mickeyd »

JP Morgan trust advisor admitted that there was evidence in favor of indexing, but claimed that JP had a policy against using index funds because "we're responsible for handling trust money prudently, and that requires that we use JP Morgan's own mutual funds, since those are the only ones whose quality and holdings we can know with complete certainty".

Hey SkepticalGuy,

:lol: :lol: :lol: :lol: This is so slick that I almost feel like contacting my nearest JPM rep and buyin' up a bunch of that stuff. Some wordsmith did a fine job working with those choice words.
Part-Owner of Texas | | “The CMH-the Cost Matters Hypothesis -is all that is needed to explain why indexing must and will work… Yes, it is that simple.” John C. Bogle
SkepticalGuy
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Post by SkepticalGuy »

mickeyd wrote:
This is so slick that I almost feel like contacting my nearest JPM rep and buyin' up a bunch of that stuff. Some wordsmith did a fine job working with those choice words.
I'm with you, mickeyd. I told the lady it was the most reasonable-sounding nonsense anyone had fed me in years, and that I admired the heck out of whoever thought it up.
muddlehead
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hi taylor

Post by muddlehead »

we'll have to agree to disagree. anyone who has a computer, no exceptions, can and must learn how to manage their own money.
pkcrafter
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advisor

Post by pkcrafter »

muddlehead wrote:
anyone who has a computer, no exceptions, can and must learn how to manage their own money.
I agree with Taylor; I think you are mistaken about this. As a matter of fact, I'd go so far as to say most individual investors need a good advisor. You have to realize that the posters on this forum are not a cross section of average investors. Average investors as a whole have no clue as to good investing fundamentals and are incapable of self-management. I do agree that people can and should learn the fundamentals, but only a small fraction do, and that alone does not qualify someone to manage their own portfolio. They must also have the confidence, the time, and a suitable temperament to avoid making common behavioral mistakes.

As far as the posters on this forum, most do manage their own portfolio but there are also a certain percentage who, for various reasons, prefer to have a professional do it.


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.
SkepticalGuy
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Post by SkepticalGuy »

I have to side with Paul and Taylor on this one. Unless you're able to bring patience, determination, and a studious attitude to investing, you're not likely to choose a decent strategy and stick to it. Better to find a good advisor.

Here's what hurts even more--

Without those same qualities, you're not likely to choose a very good advisor, either. Yeah, I try to steer friends to rational, fee-only advisors, but other folks steer them to Smith Barney and Edward Jones with equal enthusiasm. Let's face it: if you don't have any background information, Robert Kiyosaki may sound just as reasonable to you as John Bogle.

I hate to watch what happens as a result of this, and I've rarely managed to prevent it. My hat is off to Taylor and friends for trying so very hard to help folks avoid these traps.
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paul e
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Post by paul e »

Topper, I was in your shoes for a long time.. Im a citigold acct holder, and I get assigned an 'adviser' as part of that account, which is qualified by my keeping what they consider a large enough balance to make me a sitting duck to that institution, which is why they 'give' me an adviser in the first place: to try and direct a portion of my holdings into their brokerage acct. That account ONLY deals in load funds, which is where they make their money.. So its no surprise that they directed me into American funds. But... for some reason, they sold me two World funds to hold in that portion of my IRA, only because they knew it would be an easy sell for them because each is 5 star rated and had pretty good recent growth at that time. They also feature 12-b1 fees and loads. But, would an adviser who had my financial health in their minds ever load me up with these 2 funds, making me way too int'l heavy by anybody's standards?

My point is, by buying funds through this advisor relationship at Citibank, and now, Smith Barney, Im limited to only buying expensive funds.. Not only that.. When funds are bought for me via this relationship, absolutely no attention is paid to tax consequences. .Thats not so important within the Ira acct, however prior to that, I had purchased a large diversified stock portfolio though them, and the cap gains tax I wound up paying was ridiculous and totally unnecessary. If I wanted a broad based stock portfolio, Id have been so much better off with a Vanguard Total Stock Market index fund, for example, where there are no fees, and taxes are lower.

The point is this. After reading the Bogleheads Guide to Investing, and Bogle's Little Book of Common Sense Investing, youll probably agree with most here, that its not all that difficult to establish an appropriate asset allocation ratio for yourself which youll read is the single most important investment decision youll make, and then, finding the appropriate Vanguard funds to support it. Once you work up a test portfolio for yourself, do what countless others here do: post your intended portfolio on this forum, and get the blessing or the critique of some of the most knowledgeable investment minds around. You will do better over the long term using this approach than Im sure youll do with your 'advisor'.

BTW, as others have intimated, your adviser's response to you about index funds is hardly devoid of self interest. It would be virtually impossible for him to have responded that index funds would be best for you, because if he did, thered me no more need for him, since index funds dont generally generate the load by which so many advisers in similar relationships are paid, over and above the fee they charge.. 'Double dipping', in other words.. I dont know how youll feel over time, but i certainly felt scammed big time once I learned how all this worked.. I felt a tremendous sense of freedom once I decided to rid my self of almost all my prior investments via this 'adviser' methodology , and switch to self directed Vanguard funds supporting my allocation ratio I had chosen.. BTW, if you want some other great readings, head on over to www.fundadvice.com and check out their strategic model portfolios for various allocations, and to also find models and charts showing you how much loads and fees eat into potential earnings.
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