Basic question!

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learn4fun
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Basic question!

Post by learn4fun » Wed Mar 21, 2018 8:56 pm

Hello! New to the forum but learning so much. Thank you to everyone sharing and giving advice. I am a fairly young investor but was hoping to get advice as I am finally done with student loans and hope to invest more moving forward. Apologies if my terminology is not correct with some parts!

My main question revolves around my roth ira which I want to max out now each year. Its currently through an adviser and uses american funds. There is a 5.75% load charge and .2% annual on going fee (from what I understand). I think there is also a small maintenance fee once a year of $5-10.

I don't have a ton in it as I have just been putting in $100/mo over the past few years, but as I start to max it out, is it best to keep it where its at or think about making the switch to Vanguard, Fidelity, Schwab, or even something like betterment? If I should switch, is it best just to leave the american funds account as is and open a different one since I already paid the load fees? I dont really know enough to even question if I am in the best american funds but I guess that is where you trust in your adviser! If I go the Vanguard route, how hard is that to do with very little knowledge?

Other than mortgage with pmi, I am debt free and again hoping to learn/invest more.

Any thoughts are much appreciated!

mhalley
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Re: Basic question!

Post by mhalley » Wed Mar 21, 2018 11:56 pm

The load is a sunk cost, but going forward you still would be paying a high er. The sooner you switch to a low cost provider, the faster your portfolio will make up for the high fees you have been paying. I bet there is more than a .2% fee. Most American type a funds have about a .6 er, and you may be paying other fees on top of that.
Move it today,

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mhadden1
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Re: Basic question!

Post by mhadden1 » Thu Mar 22, 2018 12:23 am

learn4fun wrote:
Wed Mar 21, 2018 8:56 pm
If I go the Vanguard route, how hard is that to do with very little knowledge?
The Vanguard route is very easy. I would call Vanguard, get your new account open, and arrange to get your current Roth moved over. I suggest a Vanguard Target Date fund where the year is close to the year to expect to retire. The Target Date funds have a $1000 minimum investment.

Moving away from your current investments, with their loads and higher fees, will allow you to keep more of your investment returns. Over time this can make a big difference.

Good luck!
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.

mrpotatoheadsays
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Re: Basic question!

Post by mrpotatoheadsays » Thu Mar 22, 2018 12:48 am

My thoughts are that Dave Ramsey got rich off of people like you.

Let's look at Growth & Income - American Funds Investment Company of America (AIVSX):
Front Load: 5.75%
Management Fee: 0.34%
12b-1 Fee: 0.24%
10-year Annual Return: 8.82%
10-year Annual Return Less Load: 8.18%

S%P 500 10-year Annual Return: 9.75%
Vanguard 500 Index Investor (VFINX) 10-year Annual Return: 9.62%

That's odd... Dave says it's easy to beat the market when you have one of his smart investor pros.
Take it from Dave, you just paid stupid tax.
Transfer everything to Vanguard.
Quit giving your hard-earned money to slick-talking salesmen.

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mhadden1
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Re: Basic question!

Post by mhadden1 » Thu Mar 22, 2018 1:20 am

mrpotatoheadsays wrote:
Thu Mar 22, 2018 12:48 am
My thoughts are that Dave Ramsey got rich off of people like you.
...
Dave says it's easy to beat the market when you have one of his smart investor pros.


Pros with the heart of a teac... I mean pickpocket. :annoyed

OP shouldn't feel too bad though - he can keep a lot more of his money going forward. :moneybag
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.

TwstdSista
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Re: Basic question!

Post by TwstdSista » Thu Mar 22, 2018 4:15 am

Move out of American funds, and fast. Vanguard, Fidelity, and Schwab are all great options. Just be aware that there will be a trade fee to sell the funds you are in, and that fee may be more or less at your current location vs. Vanguard, Fidelity, or Schwab.

You should research this to pay the least amount possible, especially since you have such a small value account. But do sell the American Funds, even if the cost seems prohibitive. You are losing money every day to that expense ratio. Your future self will thank you for it!

learn4fun
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Re: Basic question!

Post by learn4fun » Thu Mar 22, 2018 7:17 am

Thanks everyone! What is the argument against American Funds that I can give as my reasoning? I am sure I will be shown some graph of the American Funds performance beating these others over the years.

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dougger5
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Re: Basic question!

Post by dougger5 » Thu Mar 22, 2018 7:24 am

learn4fun wrote:
Thu Mar 22, 2018 7:17 am
Thanks everyone! What is the argument against American Funds that I can give as my reasoning? I am sure I will be shown some graph of the American Funds performance beating these others over the years.
You shouldn't need an argument. The new custodian (Vanguard or whomever) will take care of the transfer, with no need for you to contact AF.

You might have to contact them at some point to close the account - but it'll be empty, so the the horse will have left the barn at that point.
"I've been ionized, but I'm okay now." -Buckaroo Banzai

Silk McCue
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Re: Basic question!

Post by Silk McCue » Thu Mar 22, 2018 7:25 am

No need to explain yourself or justify your decision. The salesperson has a good sounding rebuttal to every concern you raise. Their job is to keep you, up sell you, and get you to refer friends. There job isn't to help you keep most of your money. The advice here does that.

mrpotatoheadsays - gave a good analysis of performance a few posts up. You are lucky to have come here early in your investing life. Following through on the advice given will provide a massive benefit to your returns over a lifetime of investing.

Cheers.

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mhadden1
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Re: Basic question!

Post by mhadden1 » Thu Mar 22, 2018 7:35 am

Hey Silk,

Do what is best for you, not the adviser/company. Keep more of your returns.

Here is a shocker - sometimes those guys stretch the truth because the facts threaten their livelihood.
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.

trueson1
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Re: Basic question!

Post by trueson1 » Thu Mar 22, 2018 7:57 am

Always remember - this is your money. Don't be ashamed to take control of it. Even if it means telling some salesman to take a hike. Be Bold. You are the best caretaker of your future!

And don't be ashamed of past mistakes - we have all made our share. Learn and move ahead. And you came to the right place for the information you need to be a successful investor.

Best Wishes - you will be fine!
Last edited by trueson1 on Thu Mar 22, 2018 7:58 am, edited 1 time in total.

Silk McCue
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Re: Basic question!

Post by Silk McCue » Thu Mar 22, 2018 7:58 am

mhadden1 wrote:
Thu Mar 22, 2018 7:35 am
Hey Silk,

Do what is best for you, not the adviser/company. Keep more of your returns.

Here is a shocker - sometimes those guys stretch the truth because the facts threaten their livelihood.
I'm confused by your reply to me. Are you just reinforcing my answer or did you misunderstand what I was saying.

Cheers.

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mhadden1
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Re: Basic question!

Post by mhadden1 » Thu Mar 22, 2018 8:13 am

Silk McCue wrote:
Thu Mar 22, 2018 7:58 am
I'm confused by your reply to me. Are you just reinforcing my answer or did you misunderstand what I was saying.
Silk,

Sorry to confuse. I encourage you to sell your American Funds and leave the adviser, because the costs you pay are too high. Don't talk to the adviser more than necessary since undoubtedly the adviser will try to convince you to stay.

By moving to low-cost index funds at a company like Vanguard, you will keep more of your returns. :happy
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.

Silk McCue
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Re: Basic question!

Post by Silk McCue » Thu Mar 22, 2018 8:30 am

mhadden1 wrote:
Thu Mar 22, 2018 8:13 am
Silk McCue wrote:
Thu Mar 22, 2018 7:58 am
I'm confused by your reply to me. Are you just reinforcing my answer or did you misunderstand what I was saying.
Silk,

Sorry to confuse. I encourage you to sell your American Funds and leave the adviser, because the costs you pay are too high. Don't talk to the adviser more than necessary since undoubtedly the adviser will try to convince you to stay.

By moving to low-cost index funds at a company like Vanguard, you will keep more of your returns. :happy
Thanks. Now I understand. I am not the original poster but did respond to their post with advice in line with yours. learn4fun is the poster.

Cheers

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mhadden1
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Re: Basic question!

Post by mhadden1 » Thu Mar 22, 2018 9:13 am

Silk McCue wrote:
Thu Mar 22, 2018 8:30 am
mhadden1 wrote:
Thu Mar 22, 2018 8:13 am
Silk McCue wrote:
Thu Mar 22, 2018 7:58 am
I'm confused by your reply to me. Are you just reinforcing my answer or did you misunderstand what I was saying.
Silk,

Sorry to confuse. I encourage you to sell your American Funds and leave the adviser, because the costs you pay are too high. Don't talk to the adviser more than necessary since undoubtedly the adviser will try to convince you to stay.

By moving to low-cost index funds at a company like Vanguard, you will keep more of your returns. :happy
Thanks. Now I understand. I am not the original poster but did respond to their post with advice in line with yours. learn4fun is the poster.

Cheers
Sorry, my bad.
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.

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oldcomputerguy
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Re: Basic question!

Post by oldcomputerguy » Thu Mar 22, 2018 9:44 am

learn4fun wrote:
Wed Mar 21, 2018 8:56 pm
I am a fairly young investor but was hoping to get advice as I am finally done with student loans and hope to invest more moving forward.
Welcome to the forum, and congratulations on paying off the student loans. I know from experience with my wife's college education that it's a great feeling.
My main question revolves around my roth ira which I want to max out now each year. Its currently through an adviser and uses american funds. There is a 5.75% load charge and .2% annual on going fee (from what I understand). I think there is also a small maintenance fee once a year of $5-10.
You can do better.
I don't have a ton in it as I have just been putting in $100/mo over the past few years, but as I start to max it out, is it best to keep it where its at or think about making the switch to Vanguard, Fidelity, Schwab, or even something like betterment?
I don't have that much personal experience with Schwab (my wife's 401k is there) or Betterment (none at all), but either Vanguard or Fidelity will serve you well. The selection between the big fund houses is an ongoing topic of discussion here. Look for low-cost index funds rather than a particular brokerage house. Fidelity, Vanguard and Schwab all have them.
If I should switch, is it best just to leave the american funds account as is and open a different one since I already paid the load fees?
The load fees you've already paid are a sunk cost, and are gone no matter what. So don't let that influence your thinking.

You didn't mention specifically which American Funds you're invested in, but a quick check of their fund offerings reveals that they offer nothing cheaper than a 0.27% expense ratio (R-6 share class of some of their bond funds; everything else is more expensive), so there are definitely some less expensive alternatives out there. To avoid the higher expense ratio of the American Funds, and to avoid the ongoing management fees, I'd suggest you move your Roth somewhere else. If you decide to do this, pick where you want your Roth to be held, then contact that fund company and ask for their help in moving your Roth IRA. They can do the heavy lifting. Do Not tell your adviser ahead of time that you're moving your account; he'll fight you every step of the way. Just let the new fund company handle it.
I dont really know enough to even question if I am in the best american funds but I guess that is where you trust in your adviser!
On the contrary, your "adviser" does not have your best interest at heart. This is apparent if for no other reason than the fact that he put you into front-end load funds that line his pocket at the expense of your investment returns. You do not have to (and should not) trust this "adviser".
If I go the Vanguard route, how hard is that to do with very little knowledge?
Granted it's a little intimidating at first, but you can do it. You should take some time and learn about the basics of long-term investing. It's not rocket science. I'd suggest you start with "If You Can" by Professor William Bernstein (who is himself a participant in the Bogleheads community). It's short (about fourteen pages) and gives you a great road map to learn more about investing. You should also check out the Bogleheads wiki page on Getting Started in investing, and find and read a copy of "The Bogleheads Guide to Investing".
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

alex_686
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Re: Basic question!

Post by alex_686 » Thu Mar 22, 2018 9:51 am

learn4fun wrote:
Thu Mar 22, 2018 7:17 am
Thanks everyone! What is the argument against American Funds that I can give as my reasoning? I am sure I will be shown some graph of the American Funds performance beating these others over the years.
Welcome to Bogleheads.

Lets flip the question. What is the argument for American Funds? The standard line of argument, and not just from Bogleheads, is that one should invest in low cost index funds unless one has a strong opinion that a active manager can produce superior results after accounting for the manager's fees. This is a pretty high hurdle.

Past results have not predictive power of future returns, study has shown time and again. So please ignore graphs.

To go back to your original question, Bogleheads tilts heavily towards index funds - which I approve of. It also tilts towards "Do It Yourself" (DIY), which I think depends on the investor. What services does your adviser provide? Do you think it is worth the fee? Only you can answer this question. However, in my experience people can either educated themselves or move to a lower cost target date or life style fund.
Last edited by alex_686 on Thu Mar 22, 2018 9:52 am, edited 1 time in total.

JW-Retired
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Re: Basic question!

Post by JW-Retired » Thu Mar 22, 2018 9:52 am

learn4fun wrote:
Thu Mar 22, 2018 7:17 am
Thanks everyone! What is the argument against American Funds that I can give as my reasoning? I am sure I will be shown some graph of the American Funds performance beating these others over the years.
No use giving them any reasoning or talking to them at all. Just call Vanguard, fill out their paperwork, and they will move the funds for you. American funds will get the (very routine) message.

I have moved all my account assets away from several different providers and never gave any of them prior notice. Just mailed the new account papers to Vanguard and poof in a week or less the former funds assets showed up there. I never heard a peep from any of the old providers. :beer

You do need to get the paperwork right but Vanguard can help with that. If you like Fidelity or Schwab better I'm sure they could do the same.
JW
Retired at Last

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ajw360
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Re: Basic question!

Post by ajw360 » Thu Mar 22, 2018 11:45 am

Just to be clear. You don't have to call anyone. You can do all of this online at either Vanguard, Schwab or Fidelity.

learn4fun
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Re: Basic question!

Post by learn4fun » Fri Mar 23, 2018 12:40 pm

Thanks to everyone for the help! I am leaning towards Vanguard. Any recommendations on what funds I should review to potentially switch to my Roth IRA to at Vanguard? I am fairly young (under 30) and would not plan on pulling this out until retirement.

Also one other quick question - I just got a 403b from a new job. I can choose roth or pre-tax for my contribution. If I choose roth, is the money thats contributed count towards my max $5,500 yearly for the roth IRA or is that different? Want to make sure I keep an eye on that if so.

Lastly, Is TIAA viewed highly on this forum or high front load, fees, etc?

Thanks again.

Silk McCue
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Re: Basic question!

Post by Silk McCue » Fri Mar 23, 2018 1:17 pm

I think you would be well served by clicking on "Start Here" on the main page or here https://www.bogleheads.org/wiki/Getting_started and spend some upfront time learning about the boglehead investment philosophy and how to apply it. The information that folks have put together will be very valuable and enlightening.

Once you have done that you will be in a better position to get advice on details that are unclear from those resources.

This is not me trying to brush you off but rather me actually trying to help you jump start your education so that you will have a clearer view of the big picture.

Cheers

learn4fun
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Re: Basic question!

Post by learn4fun » Sat Mar 24, 2018 3:38 pm

Thanks again! I am starting to read and learn.

Anyone have answers for my last two questions?

"Also one other quick question - I just got a 403b from a new job. I can choose roth or pre-tax for my contribution. If I choose roth, is the money thats contributed count towards my max $5,500 yearly for the roth IRA or is that different? Want to make sure I keep an eye on that if so.

Lastly, Is TIAA viewed highly on this forum or high front load, fees, etc?"

22twain
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Re: Basic question!

Post by 22twain » Sat Mar 24, 2018 4:33 pm

403b plans and IRAs have separate contribution limits. You can contribute a total of $18.5K to the former and $5.5K to the latter (if you're under 50 years old). The IRA limit is for the combined total of traditional and Roth IRAs.

TIAA is decent, although their plans can be confusing, especially when it comes to the options for getting your money out after you retire. No front-end loads, except maybe for a few accounts that I don't have available in my plan. Each institution negotiates its own plan with TIAA, so the details (fund/account offerings, expenses, etc.) can vary significantly from one place to another. I've been in a TIAA plan for many years at a small college, recently retired but not yet withdrawing money. My expense ratio for CREF Stock is around 0.45%. Bigger institutions get a lower ER, really small places get a higher one.

Sometime this year I'll probably roll over a good chunk of my accumulation to an IRA at the place where I have my taxable account and Roth IRA, so as to reduce the ER and make it easier to do Roth conversions.
My investing princiPLEs do not include absolutely preserving princiPAL.

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