Capital Group-American Funds.....

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Norsky19
Posts: 78
Joined: Fri Jun 19, 2015 3:25 am

Capital Group-American Funds.....

Post by Norsky19 » Sat Oct 05, 2019 2:21 am

Hello All,

My daughter just got a job...the company uses American Funds in their 401k. She has no other investments and is 26 years old. No home just renting. No car payments and no debt. She asked me to help her pick a fund. I'm a Vanguard indexer and am having trouble picking. Tough part right now is she doesn't exactly know what funds are provided in her plan.

If you could choose a fund from the American Funds for a 26 year old who's debt free, what would you recommend??

Thanks!

Norsky

frcabot
Posts: 211
Joined: Mon Mar 26, 2018 12:59 am

Re: Capital Group-American Funds.....

Post by frcabot » Sat Oct 05, 2019 2:49 am

American Funds has some very good funds with reasonable ERs but it’d help to know which funds are offered and which classes. The Growth Fund of America is usually a good choice.

Also, whole life insurance would be an excellent investment for her. (Just kidding)
Last edited by frcabot on Sat Oct 05, 2019 3:01 am, edited 1 time in total.

Topic Author
Norsky19
Posts: 78
Joined: Fri Jun 19, 2015 3:25 am

Re: Capital Group-American Funds.....

Post by Norsky19 » Sat Oct 05, 2019 3:00 am

Thanks! I'm wondering if the Target date funds from American are in her 401k.....hope she gets back to me soon so I can provide y'all with better info!

frcabot
Posts: 211
Joined: Mon Mar 26, 2018 12:59 am

Re: Capital Group-American Funds.....

Post by frcabot » Sat Oct 05, 2019 3:03 am

Norsky19 wrote:
Sat Oct 05, 2019 3:00 am
Thanks! I'm wondering if the Target date funds from American are in her 401k.....hope she gets back to me soon so I can provide y'all with better info!
Target date funds usually aren’t the best option for actively managed funds, because the fund company throws in a bunch of less popular, underperforming, higher expense ratio funds, and then charges an additional expense ratio on top of the underlying expense ratios. At her age, she could really just be 100% in the growth fund, which is one of the lowest priced funds that AF offers (and is well-regraded). The growth fund is one of the most popular funds so I’d imagine it’s offered.

As she gets older, assuming she stays with the same company and same 401k provider, she may need to adjust her asset allocation. But probably not for a decade or so...
Last edited by frcabot on Sat Oct 05, 2019 3:04 am, edited 1 time in total.

Topic Author
Norsky19
Posts: 78
Joined: Fri Jun 19, 2015 3:25 am

Re: Capital Group-American Funds.....

Post by Norsky19 » Sat Oct 05, 2019 3:04 am

This is her new employer: https://wildfire-defense.com/index.html Pretty cool concept. Still looking for a benefits tab.... :)

Topic Author
Norsky19
Posts: 78
Joined: Fri Jun 19, 2015 3:25 am

Re: Capital Group-American Funds.....

Post by Norsky19 » Sat Oct 05, 2019 3:07 am

frcabot wrote:
Sat Oct 05, 2019 3:03 am
Norsky19 wrote:
Sat Oct 05, 2019 3:00 am
Thanks! I'm wondering if the Target date funds from American are in her 401k.....hope she gets back to me soon so I can provide y'all with better info!
Target date funds usually aren’t the best option for actively managed funds, because the fund company throws in a bunch of less popular, underperforming, higher expense ratio funds, and then charges an additional expense ratio on top of the underlying expense ratios. At her age, she could really just be 100% in the growth fund, which is one of the lowest priced funds that AF offers (and is well-regraded). The growth fund is one of the most popular funds so I’d imagine it’s offered.

As she gets older, assuming she stays with the same company and same 401k provider, she may need to adjust her asset allocation. But probably not for a decade or so...
Good info! I was also thinking 100 growth.....I'm also trying to convince her to open her own Roth IRA with Vanguard and invest above and beyond her 401k. Eventually she could roll over her 401k into a Traditional IRA as well.

frcabot
Posts: 211
Joined: Mon Mar 26, 2018 12:59 am

Re: Capital Group-American Funds.....

Post by frcabot » Sat Oct 05, 2019 3:11 am

Yes. I checked the 2060 retirement fund offered by AmFunds. It holds 16 different funds — just like I said, an overly complicated offering with a lot of underperforming and muddled underlying funds.

Topic Author
Norsky19
Posts: 78
Joined: Fri Jun 19, 2015 3:25 am

Re: Capital Group-American Funds.....

Post by Norsky19 » Sat Oct 05, 2019 3:28 am

Yikes!

I also like the "American Mutual Fund" along with the Growth.....
Still wish the company was with Vanguard though.....

User avatar
darkhorse346
Posts: 210
Joined: Sat Jan 10, 2015 5:53 am

Re: Capital Group-American Funds.....

Post by darkhorse346 » Sat Oct 05, 2019 5:44 am

Simple suggestion: Just start off with one of the long-dated target retirement funds and focus on savings rate instead. Savings rate, especially at a young age, will be more important that quibbling over which fund(s) to pick.

I'd suggest that you consider reviewing other sources, e.g., Morningstar, on American Funds and their target funds. Come up with your own conclusions. I've seen a number of posts on Bogleheads concerning the American Funds that are incorrect.

I think long-term investors are well served with Capital Group/American Funds if the fees are low. Yes, I have American Funds AND index funds.

Good luck.

User avatar
Nate79
Posts: 5006
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: Capital Group-American Funds.....

Post by Nate79 » Sat Oct 05, 2019 7:56 am

It's hard to make any suggestions without a list of funds and their expenses. American funds, including their target date funds (the number of holdings in the target date fund is mostly meaningless unless you are an expert and want to direct all the holdings) are excellent products but their expenses are all over the map due to multiple share classes. Some can be quite low expenses and some can be very high.

Opening a Roth IRA is a great idea and make sure to get the match in the 401k if it is offered. Savings rate is far more important of a detail.

Jmo24
Posts: 8
Joined: Wed May 23, 2018 7:46 pm

Re: Capital Group-American Funds.....

Post by Jmo24 » Sat Oct 05, 2019 8:15 am

American funds target dates have actually out performed vanguards over the 3 5 and 10yr. They are low cost compared to most active managers, however, her plan is being offered most likely by a FInancial Advisor so there is probly 1/2 to 3/4 % fee built into the fund expense ratio so maybe contribute enough to get the match then use a Roth IRA for future contributions.

Topic Author
Norsky19
Posts: 78
Joined: Fri Jun 19, 2015 3:25 am

Re: Capital Group-American Funds.....

Post by Norsky19 » Mon Oct 07, 2019 6:06 am

Jmo24 wrote:
Sat Oct 05, 2019 8:15 am
American funds target dates have actually out performed vanguards over the 3 5 and 10yr. They are low cost compared to most active managers, however, her plan is being offered most likely by a FInancial Advisor so there is probly 1/2 to 3/4 % fee built into the fund expense ratio so maybe contribute enough to get the match then use a Roth IRA for future contributions.
Hmmmm that is interesting. Thanks!

cegibbs
Posts: 51
Joined: Sun Jan 25, 2015 7:27 am

Re: Capital Group-American Funds.....

Post by cegibbs » Mon Oct 07, 2019 12:43 pm

Capital Group is an excellent active management shop. I wouldn’t hesitate in using their lower expense shares. Since your daughter is very young, I would suggest that she be 100 equities. American Mutual, New Economy, New Perspective come to mind as excellent options.

You may want to consider posting on the Morningstar Forum under American Funds. Send the inquiry to AlLind. He is a well seasoned American Funds expert. Hopefully he would weigh-in with his thoughts and guidance.

Grt2bOutdoors
Posts: 21228
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Capital Group-American Funds.....

Post by Grt2bOutdoors » Mon Oct 07, 2019 12:46 pm

For Equity:
Growth Fund of America
New Perspective

For Fixed Income
Bond Fund of America.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Dottie57
Posts: 6835
Joined: Thu May 19, 2016 5:43 pm
Location: Earth Northern Hemisphere

Re: Capital Group-American Funds.....

Post by Dottie57 » Mon Oct 07, 2019 12:48 pm

If the 401k has ABALX - balanced fund from AF, it performed well for me over 10 yrs - equities and bonds.

Grt2bOutdoors
Posts: 21228
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Capital Group-American Funds.....

Post by Grt2bOutdoors » Tue Oct 08, 2019 1:40 pm

Dottie57 wrote:
Mon Oct 07, 2019 12:48 pm
If the 401k has ABALX - balanced fund from AF, it performed well for me over 10 yrs - equities and bonds.
Dottie - the OP's daughter is in early 20's, would you still suggest a balanced fund at that age? Why hold so much of retirement money, money meant to grow in low yielding fixed income when retirement is so many decades away?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Dottie57
Posts: 6835
Joined: Thu May 19, 2016 5:43 pm
Location: Earth Northern Hemisphere

Re: Capital Group-American Funds.....

Post by Dottie57 » Wed Oct 09, 2019 6:36 am

Grt2bOutdoors wrote:
Tue Oct 08, 2019 1:40 pm
Dottie57 wrote:
Mon Oct 07, 2019 12:48 pm
If the 401k has ABALX - balanced fund from AF, it performed well for me over 10 yrs - equities and bonds.
Dottie - the OP's daughter is in early 20's, would you still suggest a balanced fund at that age? Why hold so much of retirement money, money meant to grow in low yielding fixed income when retirement is so many decades away?

I had between 30% and 40% bonds during most of my investing years - including when I started. The 401k advisor/salesman would meet with employees every 6 months. He suggested that newbies invested at 60/40 stock to bond so I did. I floated between 35-40% bonds. My results surpassed my dreams.

OP’s daughter can decide for herself. I opted for lower volatility over the big swings of a higher volatility higher percent of stocks.

Post Reply