Put everything in American Funds ?

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sfnative2008
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Put everything in American Funds ?

Post by sfnative2008 » Thu May 14, 2009 9:41 pm



Greetings!
Newbie here. Glad I found your site. Last October, my Financial Advisor recommended three family funds from American but other advisors recommend other funds. So I'm confused on what to choose.

My Stats:
- 42 y/o single. Plan to work 25+ years. I'm willing to invest in stocks and stock /bonds since I have time on my hands.
- Working PT, paying my own medical coverage
- Reg Savings Acct: $30k in CD
- CD:$7K. Will invest $100/month
- Reg IRA: $7k
- 401K (former employer): $24K
- No mortgage, or debt or kids

My F.A. recommends:
- Growth Fund of America
- Investment Company of America
- American Balanced Fund

But Kiplinger, L.A. Times recommends:
- New World Fund
- Fundamental Investors
- Washington Mutual Investors
- Capital Income Builder
- Income Fund of America

I don't know if these are load funds (sales charge), with mgt fees, and 12b-1. I asked him what the overall fees are and he said $10/year.

Also are these the average rates?
- Mgmt Fees: 1-1.5%
- Load (Sales): Below 5%. How do I know if I'll earn this money back?
- 12b-1: Should always be avoided?

AS you can tell, I'm not a financially saavy. I'll meet with him next week and want to arm myself with questions before hand so that I' don't make a rush judgement.

Thanks so much!

SFnative...

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White Coat Investor
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Post by White Coat Investor » Thu May 14, 2009 9:55 pm

Wow! I wish I had time for a detailed reply, but instead I'll just pop open this bag of popcorn, sit back and watch the show.

In the meantime, take a look at some of these:

http://www.bogleheads.org/readbooks.htm
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

caklim00
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Post by caklim00 » Thu May 14, 2009 9:56 pm

I don't have much time to put in a detailed response at the moment, but I would seriously consider seeing if you can meet with this FA at a later date. I recommend going to the library and checking out 'The Four Pillars of Investing' by William Bernstein. You don't need to be in a rush especially when it comes to loaded funds.

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baw703916
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Re: Put everything in American Funds ?

Post by baw703916 » Thu May 14, 2009 10:00 pm

sfnative2008 wrote:
- Growth Fund of America
- Investment Company of America
- American Balanced Fund
Growth Fund of America: 5.75% front-end load, 0.62% Expense ratio (the ER isn't too bad)

Morningstar's page on it:

http://quicktake.morningstar.com/FundNe ... mbol=AGTHX


Investment Company of America: 5.75% load, 0.57% expense ratio

http://quicktake.morningstar.com/fundne ... mbol=AIVSX

Balanced Fund: 5.75% load, 0.59% ER

http://quicktake.morningstar.com/fundne ... mbol=ABALX

These aren't terrible in terms of expense ratio, but the load makes them a better deal for your advisor than for you.
Question: would you be investing in these funds in a taxable account? If so, these aren't good choices; none of them is particularly tax efficient.

I would definitely not follow this advisor's recommendation.

Best wishes,
Brad
Last edited by baw703916 on Thu May 14, 2009 10:03 pm, edited 1 time in total.
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peter71
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Post by peter71 » Thu May 14, 2009 10:03 pm

Hi,

I'll give you my quick opinion which is that while American Funds are OK you can easily avoid loads, management fees and keep expense ratios well below 1.5% . . . if you're not averse to taking a little risk given your time horizon your age appropriate Vanguard Target Retirement Fund would be a good place to start . . . .

http://vanguard.com/

Note, unlike most people here, I don't actually own any Vanguard funds (limited 401k choices plus a wish to do more exotic stuff like invest in small developing country indexes) but I think a self-managed portfolio at Vanguard would be a great place for you to start . . .

All best,
Pete

cheapskate
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Post by cheapskate » Thu May 14, 2009 10:04 pm

sfnative

Do yourself a big favor

1) Fire your advisor.
2) Open up an account with Vanguard and invest in just 1 fund - the target retirement 2030. It holds 85% equities and 15% FI. Since you plan to work for another 25 years, 2030 seems about right.
3) Reinvest dividends and capital gains, assuming you can cover taxes on those with incremental savings.

Load funds are for suckers. Don't go there.

exeunt
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Post by exeunt » Thu May 14, 2009 10:30 pm

Your adviser is ripping you off. In fact, he's less of an adviser and more of a salesman. That sales load you're paying him goes into his pocket. And for what? You aren't going to beat the market with some random adviser (if he could beat the market, he wouldn't be helping you out for a paltry fee).

Go it alone. It's not hard. Stick all your money into a target-date retirement fund and you'll do better than 95% of investors working with financial "advisers."

Best of luck to you.

IL Int Med
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Post by IL Int Med » Thu May 14, 2009 10:30 pm

cheapskate wrote:sfnative

Do yourself a big favor

1) Fire your advisor.
2) Open up an account with Vanguard and invest in just 1 fund - the target retirement 2030. It holds 85% equities and 15% FI. Since you plan to work for another 25 years, 2030 seems about right.
3) Reinvest dividends and capital gains, assuming you can cover taxes on those with incremental savings.

Load funds are for suckers. Don't go there.
I agree completely, except I'd say

1) Fire the *salesman* - almost all of the 5.75% front load goes straight from your pocket to the "advisor" and his firm

yobria
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Re: Put everything in American Funds ?

Post by yobria » Thu May 14, 2009 10:56 pm

Before risking your money with this "Financial Advisor", why not spend a few hours educating yourself about investing?

http://www.bogleheads.org/forum/viewtopic.php?t=172

Nick

retiredjg
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Post by retiredjg » Thu May 14, 2009 11:23 pm

sfnative2008, welcome to the forum!

You do not need to pay a load (commission), 12b-1 fees, or high ERs. And you do not need a financial advisor, but if you do use one, you need to know what s/he is talking about. Once you get a handle on a few basic ideas, investing can be very simple. Once you learn the basics, you will find you don't need an advisor.

I'd suggest you read a couple of books. There are several good ones listed in the link below called "Investment Planning". I think Bogleheads' Guide is a good one to start with.

You can also get investment advice here. Check out the other link at the bottom of this message.

Please see Bogleheads Investment Philosophy on the Bogleheads Wiki for basic information about the type of investing that is often discussed here.

You should consider postponing the appointment with the advisor until you have done a little reading. You might find you don't want to use those services. If you are not comfortable with what you learn here, you can always meet the salesperson at a later date.
Last edited by retiredjg on Fri May 15, 2009 8:29 am, edited 1 time in total.

HotRod140
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Put everything in American Funds ?

Post by HotRod140 » Fri May 15, 2009 5:57 am

RUN !!, do not Walk away from this so called adviser !! just do a little reading here and go about it yourself. Just a side question. Would this happen to be a Merrill Lynch adviser?

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Post by JW-Retired » Fri May 15, 2009 7:09 am

sfnative2008 wrote: Also are these the average rates?
- Mgmt Fees: 1-1.5%
- Load (Sales): Below 5%. How do I know if I'll earn this money back?
- 12b-1: Should always be avoided?
AS you can tell, I'm not a financially saavy. I'll meet with him next week and want to arm myself with questions before hand so that I' don't make a rush judgement.
mgmt fees: It's a disgrace but they are average for managed funds. Minimize fees ..... they have a terrible effect on your savings over time. Vanguard and Fidelity have index funds with mgmt fees around 0.1% and managed funds for less than 0.5% if you prefer those.
If you invest $10,000 at 6% without fees for 25 years it grows to $42,919. If you are paying 1.5% fees it only becomes $30,054. Huge to minimize them.

Loads: These are completely unnecessary if you go directly to the fund company instead of through a commissioned salesman. That is all your "Financial Advisor" is. Repeat to yourself.....salesman, salesman. Simple arithmatic says, if you pay a 5.75% load up front, then no matter what the investment return is, your account will be forever 5.75% smaller than it would have been without the load.

12b-1 fees: These pay the salesman in lieu of loads, or sometimes in addition to them. The salesman will probably tell you his front loads are better then 12b-1 type fees since over time the 12b-1 costs you more. So what, avoid both.

meeting next week: Don't meet with him/her next week. He will have well practiced BS answers for all your questions and you will get hosed. Educate yourself first for a couple of months. Post more detailed questions here. Then go if you still think you need to.

Re: FA versus Kiplinger & LA times: In my opinion, the recommendations of the FA and in magazines/newspapers are equally worthless, but at least the newpaper won't charge you a big fee.
JW

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Regal 56
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Post by Regal 56 » Fri May 15, 2009 7:27 am

You should be warned that some financial advisors are less than forthcoming about how they're compensated. I recently sat next to a family member as she asked her advisor what she was paying for his work. His exact reply: "It's free." Not a word about loads, transaction fees, fees on reinvested dividends, 12b-1 fees, and higher than normal expense ratios on money market accounts. Interestingly, a few years ago the firm for which this advisor worked was fined by the SEC for failing to disclose to its clients compensation deals between it and mutual funds it was recommending. Beats me how this firm's advisors can still get away with telling clients that their advice is "free."

Caveat emptor.

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Post by bottlecap » Fri May 15, 2009 7:57 am

Welcome! Postpone the meeting with the advisor and read a few books from the suggested reading list. Then, if you still want to meet with the advisor, you can do so armed with knowledge to speak with him. Chances are you won't want to speak with him. Most of the books are easy reads, so it shouldn't take you much more than a month or two, depending on how dedicated you are to it.

Ultimately, I don't think there is anything wrong with American funds except that there is no reason for you to pay extra fees, especially the front end loads. And no, you never get those fees back. You'll always be down at least 3% (or whatever the fee is) from what you would have been.

Good luck!

JT

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Re: Put everything in American Funds ?

Post by YDNAL » Fri May 15, 2009 8:25 am

sfnative2008 wrote:AS you can tell, I'm not a financially saavy. I'll meet with him next week and want to arm myself with questions before hand so that I' don't make a rush judgement.
sfnative,

YES... you are not financially saavy.

NO.... you don't need this guy/gal.

Investment Planning

Synopsis (in sequential order):
Educate Yourself
Investment Plan
Asset Allocation
Portfolio Construction
Investing Priority

You want to start in the last step(s) and should stop NOW, and begin to execute as suggested in the link.
Last edited by YDNAL on Fri May 15, 2009 8:27 am, edited 1 time in total.
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nisiprius
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Post by nisiprius » Fri May 15, 2009 8:26 am

The Boglehead approach to mutual fund investing is to use passively managed index funds that have costs and expense ratios that are as low as possible.

Since Vanguard generally has the widest range of such funds and among the lowest, often the lowest costs, Vanguard funds are often suggested. But many other mutual fund companies offer perfectly good index funds with no loads and low expense ratios.

Bogleheads believe investing just isn't that complicated and, for an ordinary retirement saver with an ordinary income, investing in mutual funds is a perfectly reasonable do-it-yourself task.

Even if you don't agree with this approach, it's the place to start your thinking. Before you go with an advisor and actively managed funds, be sure that you can articulate an answer, an answer that satisfies you, to the question "Why shouldn't I just do it myself, using a simple plan and two or three or four low-cost index funds?" (Or even one fund, like the Target Retirement series).

This is very important: "Look! In the past ten years, this fund I'm suggesting did way better than the index" is not, not, not a good argument. There's a reason why every piece of literature has the disclaimer "past performance is no guarantee of future results." The reason is that it's true. The advisor chooses to talk about the funds that today, in hindsight, did well. But how do you know he isn't just choosing funds that happened to have a lucky streak?

(The reason American funds are controversial is that some of them have done quite well, and, yes, some forum members think more than luck is at work).

Remember that even if the advisor isn't suggesting anything terribly bad, their interests are not the same as yours. They have incentives to make you feel confused and stupid and inadequate, so you'll rely on them. In choosing products for you, even if they are doing a good job, they will still tend to limit their choices to those that also have something in it for them.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Post by curly lambeau » Fri May 15, 2009 8:46 am

Run away.

Don't debate the move with the advisor.

Also worrying about what Kiplinger and the LA times rate as the best funds is nearly as dangerous as being taken to the cleaners by this salesman.
Last edited by curly lambeau on Fri May 15, 2009 8:48 am, edited 1 time in total.

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nisiprius
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Post by nisiprius » Fri May 15, 2009 8:47 am

P. S. "Which funds should I buy," "Which are the best funds," etc. is the wrong, wrong, wrong question.

Among the questions you need to answer, long before you choose funds, are these. You need to answer these in a way that is thoughtful, carefully considered, and with enough understanding that you're confident and comfortable that you understand the questions and are happy with your own answers. It doesn't take long to educate yourself to the point where you can do this. I've never used an advisor so I don't know what they do, but if they haven't gone over this with you, in a good, comfortable, leisurely way, then shame on them.

1) What is my level of risk tolerance? At this point in my savings and investment career, how big a loss of my portfolio could I take without feeling panicky and departing from my plan?

2) What percentage of stocks and what percentage of bonds should be in my overall portfolio?

3) What do I personally believe about the "efficient market?" Do I personally believe it is possible to pick stocks? Do I personally believe it is possible to be in the market when it's going up and out of the market when it's going down? If so, why? If not, then how should I invest?
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Post by retiredjg » Fri May 15, 2009 8:54 am

nisiprius wrote:P. S. "Which funds should I buy," "Which are the best funds," etc. is the wrong, wrong, wrong question.
Excellent point. Something we all know and forget to say!

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Post by peter71 » Fri May 15, 2009 9:08 am

Hi Again,

As an academic social scientist I'm skeptical of the whole idea of using questionnaires and such to supposedly precisely estimate one's risk tolerance, but given you're saying you're ok with some risk after a big decline I think the conventional Target Retirement Fund assumptions (which are probably too risky for most people) would probably be OK for you . . .

To put a finer point on why your adviser doesn't seem to be particularly talented, here's the top 10 holdings of the three funds that he recommends. Notice that there's HUGE overlap between the three (almost all very vanilla US large companies) so even if you're the sort of person who wants to pay an adviser I wouldn't guess this is the guy . . .

All best,
Pete

GROWTH FUND

Google
Oracle
Apple
Cisco
Microsoft
Philip Morris
JPM
Target
Berkshire
Roche

INVESTMENT CO.

Microsoft
AT&T
Philip Morris
Oracle
Shell
Verizon
Schlumberger
Pepsi
Target
Merck

BALANCED:

Walmart
Chevron
Berkshire
Coke
Microsoft
AT&T
Shell
Philip Morris
Cisco
Oracle

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Post by ohiost90 » Fri May 15, 2009 10:41 am

peter71 wrote:To put a finer point on why your adviser doesn't seem to be particularly talented, here's the top 10 holdings of the three funds that he recommends. Notice that there's HUGE overlap between the three (almost all very vanilla US large companies) . . .

GROWTH FUND

Google, Oracle, Apple, Cisco, Microsoft, Philip Morris, JPM, Target, Berkshire, Roche

INVESTMENT CO.

Microsoft, AT&T, Philip Morris, Oracle, Shell, Verizon, Schlumberger, Pepsi
Target, Merck

BALANCED:

Walmart, Chevron, Berkshire, Coke, Microsoft, AT&T, Shell, Philip Morris
Cisco, Oracle
Wait, you mean just holding many different funds doesn't mean you are diversified? :)

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Post by DocHolliday » Fri May 15, 2009 4:03 pm

sfnative,

In case you somehow missed the message.

You do not have to be some financial wizard to do your own investing. However, you can be very intelligent and get taken by investment brokers or financial advisors. Many of the posters at this site learned their financial lessons the hard way.

Avoid the financial advisor. Read at least one of the Boglehead books. You can then set up your investment strategy. Choose inexpensive funds and keep it simple. It is not that tough.

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Most Americn Funds have beaten Vanguard Index Funds

Post by fredd » Fri May 15, 2009 5:28 pm

This of course is pure heresy here. Facts are facts, but over long periods of time the American Funds have performed extremely well versus, the two gold standards of index investing the Vanguard 500 and Total market index. In fact over the past ten years, ending April 30 2009, both Vanguard Funds have negative annual returns, while the vast majority of American Funds had positive returns, even at the maximum sales load.
In the international arena, once again the American
Funds have more than held their own versus the Vanguard index funds.
In the fixed income arena, Vanguard has the clear advantage, due to a significantly lower cost structure, and less opportunity for portfolio managers to "strut their stuff"

fredd

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Post by Steelersfan » Fri May 15, 2009 5:34 pm

I have one American Fund that has performed very well for me for the last decade. I'm actually ahead of the indices even after allowing for the upfront loads and higher ER's.

But once I found the time to learn the benefits of passive investing (through Vanguard for me) that's where all my new money has gone. I think I was just "lucky" to invest in the right fund at the right time.

I don't think investing in American funds is necessarily a mistake, and if it gets someone to invest it's a good thing. I just believe now that passive investing is better in the long run.

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Post by mark500 » Fri May 15, 2009 6:13 pm

I own three American Funds, all A shares. I did not have to pay the absurd load they charge. The funds have done ok. Eventually, I will switch to funds with lower expense ratios.

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Post by ObliviousInvestor » Fri May 15, 2009 8:04 pm

Having previously been one of those salespeople recommending American Funds, I really want to highlight what nisiprius said above:

"Remember that even if the advisor isn't suggesting anything terribly bad, their interests are not the same as yours."

That's exactly true. Remember, this advisor probably receives ~ 40% of the sales load. That's how he's paid.

Also, which exact fund to invest in should be the 4th or 5th question on the list. Determining an appropriate asset allocation comes first. (And that means bonds vs. stocks not "growth" vs. "growth and income.")
Mike Piper, author/blogger

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woof755
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Post by woof755 » Fri May 15, 2009 8:32 pm

You asked a very insightful question about fees.

His answer was an insult to your intelligence. "$10 per year"

He knows better. He doesn't want you to know better.

One thing I look for in someone I depend on is that he or she have "the heart of a teacher" (I think I'm borrowing that from Dave Ramsey, though I am not a fan of his). My accountant, my will / trust lawyer...that's what I look for.

This guy doesn't have the heart of a teacher. He has that of a salesman.

Why should you pay American Funds $6 for every $100 you invest when you can invest with Vanguard (or Fidelity, or T. Rowe Price for that matter) for free?

I agree with the two main thrusts of the responses above: do some reading, and buy a Target Retirement fund.

Glad you found this site.
"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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Post by NightOwl » Fri May 15, 2009 10:37 pm

Hi sfnative,

Here's a long thread in which American Funds are discussed. It includes a post about my own experience with these funds.

http://www.bogleheads.org/forum/viewtop ... 02&start=0

This forum helped me realize that the advisor who put me in American Funds (with the front load) didn't do me any favors, and that if I didn't educate myself about investing, I would continue to be a mark.

Hope it helps.

NightOwl

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nisiprius
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Re: Put everything in American Funds ?

Post by nisiprius » Sat May 16, 2009 5:50 am

- Load (Sales): Below 5%.
Oh, gee, I thought that argument had been settled back in the seventies. Never buy a fund with a sales load. Just say no. Friends don't let friends buy load funds. (Unless, of course, the load is waived, which is sometimes is, so ask).

The seventies were the decade when no-load funds started to emerge and there were endless articles and debate about them. Here's what Andrew Tobias says in The Only Investment Guide You'll Ever Need (a once-great book that alas has failed to keep up with the times). I'll bet this is the same text that appeared in the 1978 edition.
The first step in choosing among mutual funds is the only one that is at all clear-cut. There are funds that charge initial sales fees of 3% or more, known as the "load;" and there are others that charge no load. Choose a no-load fund. To do otherwise is to throw money out the window.

Statistical studies show that no-load forms perform just as well as load funds. This stands to reason, because the load goes not toward superior management of the fund, but to the salesmen who sell it. And they have no influence over its performance. Yet most people still buy load funds. As long as there are people out selling, there will be people buying. Don't be one of them.
sfnative2008 wrote: - Mgmt Fees: 1-1.5%
I don't know what "typical" management fees are. I know that the impact of a 1 to 1.5% fee on investment performance is large. It's not negligible. You only pay a "load" once. You pay that management fee year after year after year for ten, twenty, thirty years and it compounds just like compound interest but in reverse. And remember it doesn't come off your earnings, it comes off the top.

I'm not saying a management fee is unreasonable. But I think it only makes sense for high-net-worth people making complex investments who are getting a lot of personal, detailed service. I'm not one of those people so I know very little about it.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Post by dbr » Sat May 16, 2009 9:40 am

One bottom line here is that if you engage with an "advisor" you are going to have to pay that person and his cronies something one way or another. The question is, do you want to pay as part of your investing activity or do you want to keep as much of your money as possible. A starting point is to avoid anyone who lies about what your investing is actually costing.

NB Even Vanguard is not very explicit about trading costs in mutual funds in the sense these costs are not published up front. The industry as a whole still lacks transparency.

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Post by johnjtaylorus » Sat May 16, 2009 12:07 pm

Sfnative, instead of meeting again with such an "advisor," go to your library this afternoon and get Bogle's Common Sense on Mutual Funds.

Or Malkiel's Random Walk Down Wall Street.

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Re: Most Americn Funds have beaten Vanguard Index Funds

Post by YDNAL » Sat May 16, 2009 12:35 pm

fredd wrote:This of course is pure heresy here. Facts are facts, but over long periods of time the American Funds have performed extremely well versus, the two gold standards of index investing the Vanguard 500 and Total market index. In fact over the past ten years, ending April 30 2009, both Vanguard Funds have negative annual returns, while the vast majority of American Funds had positive returns, even at the maximum sales load.
In the international arena, once again the American Funds have more than held their own versus the Vanguard index funds.
In the fixed income arena, Vanguard has the clear advantage, due to a significantly lower cost structure, and less opportunity for portfolio managers to "strut their stuff"

fredd
fredd,

I didn't read all responses in full detail but believe no one is discussing American Funds per se.

The issue is knowing and understanding some of the basic principles of investing, arriving at the correct AA for your needs and risk-tolerance, diversifying globally, being tax-efficient, reducing expenses, etc. All of this comes before selecting this American fund or that Vanguard fund, etc.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

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2030

Post by tibbitts » Sat May 16, 2009 1:28 pm

cheapskate wrote:sfnative

Do yourself a big favor

1) Fire your advisor.
2) Open up an account with Vanguard and invest in just 1 fund - the target retirement 2030. It holds 85% equities and 15% FI. Since you plan to work for another 25 years, 2030 seems about right.
3) Reinvest dividends and capital gains, assuming you can cover taxes on those with incremental savings.

Load funds are for suckers. Don't go there.
He plans to work for 25 more years; the only problem is, his employer probably plans on him working for one more week. And he's so old (over 25 - a real old-timer) his career may be pretty much over. 85/15 seems a little radical for that situation. Seriously, from experience I can tell you it's pretty hard to hang on at 85/15 during those extended periods of unemployment combined with huge market drops, even if you're fairly young.

Paul

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Post by baw703916 » Sat May 16, 2009 2:01 pm

I hope we didn't scare off the OP.

Brad
Most of my posts assume no behavioral errors.

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Re: Most Americn Funds have beaten Vanguard Index Funds

Post by woof755 » Sat May 16, 2009 4:33 pm

fredd wrote:This of course is pure heresy here. Facts are facts, but over long periods of time the American Funds have performed extremely well versus, the two gold standards of index investing the Vanguard 500 and Total market index. In fact over the past ten years, ending April 30 2009, both Vanguard Funds have negative annual returns, while the vast majority of American Funds had positive returns, even at the maximum sales load.
In the international arena, once again the American
Funds have more than held their own versus the Vanguard index funds.
In the fixed income arena, Vanguard has the clear advantage, due to a significantly lower cost structure, and less opportunity for portfolio managers to "strut their stuff"

fredd
Apples to oranges. American funds have performed well, but possibly due to inclusion of international exposure or bond exposure. They're not pure from an asset class perspective.

Always the comparison to vanilla SP500 index. My (former) American Funds advisor did this to me when I was making the transfer.
"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

peter71
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Re: Most Americn Funds have beaten Vanguard Index Funds

Post by peter71 » Sat May 16, 2009 6:48 pm

woof755 wrote:
fredd wrote:This of course is pure heresy here. Facts are facts, but over long periods of time the American Funds have performed extremely well versus, the two gold standards of index investing the Vanguard 500 and Total market index. In fact over the past ten years, ending April 30 2009, both Vanguard Funds have negative annual returns, while the vast majority of American Funds had positive returns, even at the maximum sales load.
In the international arena, once again the American
Funds have more than held their own versus the Vanguard index funds.
In the fixed income arena, Vanguard has the clear advantage, due to a significantly lower cost structure, and less opportunity for portfolio managers to "strut their stuff"

fredd
Apples to oranges. American funds have performed well, but possibly due to inclusion of international exposure or bond exposure. They're not pure from an asset class perspective.

Always the comparison to vanilla SP500 index. My (former) American Funds advisor did this to me when I was making the transfer.
Well, as someone who called them "vanilla" and "US dominated" above I'd personally be willing to admit that at least the "Growth Fund of America" has had a really good run in terms of security selection, with the fund actually beating Berkishire Hathaway and ranking behind only 2% of large growth funds over the past 10 years:

http://quicktake.morningstar.com/fundne ... mbol=AGTHX

As is suggested in the other thread on American Funds, however, the last two years haven't been great for the fund, so even setting aside all of the questions about this adviser's recommending three pretty similar funds one has to ask the standard questions about whether any stock-picking abilities AF's managers have will persist . . . as you can see by playing with the below chart, BRK/B has crushed AGTHX by 80% over the past 9 years as opposed to the past 10, so if you want to put your faith in managers I'd suggest that going with Buffett is probably the better (and certainly the cheaper) bet!

http://stockcharts.com/charts/performan ... RK/B,VTSMX

All best,
Pete

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Post by thenextguy » Sat May 16, 2009 6:53 pm

mark500 wrote:I own three American Funds, all A shares. I did not have to pay the absurd load they charge. The funds have done ok. Eventually, I will switch to funds with lower expense ratios.
I have American Funds in my 401k and they've done very well. If I had the choice I doubt I'd keep them because I have no idea if they'll continue to do well going forward. But I hear horror stories about 401k plans with only actively managed funds with outrageous fees, so I'm glad that if I had to get stuck with actively managed funds I'm glad they're American Funds.

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Post by peter71 » Sat May 16, 2009 6:58 pm

Hi TNG,

I actually do believe past performance is interesting but I've rarely seen anything quite like the chart on the Growth Fund of America I posted above. They got almost 100% ahead of Berkshire B midway through 2000, but while Berkshire has come roaring back since then it's been (slightly) downhill for AGTHX from there . . . hence, by mid-2010 I assume their 10-year performance won't look nearly as good.

I am certainly interested in what they did in 2000? Does anyone know whether they hold short positions and/or ever go mostly to cash?

All best,
Pete

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Post by woof755 » Sat May 16, 2009 9:29 pm

If you can get in without the load, like in a 401(k), you could do much worse than AF. Expense ratios are well below the average actively managed mutual fund, for the most part.

I have read Rick Ferri on this board mention that the largest of the AF act like "closet index funds" anyways.
"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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Post by Dan Kohn » Sat May 16, 2009 9:38 pm

Please see Bogleheads Investment Philosophy on the Bogleheads Wiki.

Never, ever, pay a load, and fire anyone who suggests doing so.

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Post by jar2574 » Sun May 17, 2009 3:44 pm

Welcome to the forum sfnative!

If you don't want to do any reading, (and I realize not everyone likes to read about this stuff), then just buying a target date retirement fund is probably the best idea. The Vanguard 2030 retirement fund would be a good choice. https://personal.vanguard.com/us/funds/ ... IntExt=INT

If you do a little reading, you'll soon realize that you can get darn good results with only 3 or 4 funds at a place like Vanguard or Fidelity. (40% Total US Stock Market, 20% Total Intl Stock Market, 40% Total US Bond Market could do the trick, for example). With a little reading you can pick a mix of those 3-4 funds based on your risk tolerance and just rebalance once a year.

Don't be afraid of investing on your own! You can do it with a target date retirement fund or with a little reading.

Be afraid of advisors trying to take almost 6% of your money in loads. I wouldn't talk to that particular financial advisor again. His $10 per year answer is dishonest, since he didn't mention the loads.

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WOW WOW WOW

Post by sfnative2008 » Wed May 20, 2009 4:21 am

I had no idea how my FA bamboozled :evil: me and how informative and quickly everyone responded. So much appreciative of everyone's detailed and supportive answers. Thanks so much!

MY FA works for Northwestern Mutual. I've known him for ten years when I opened my IRA (all stocks) into Mason Street Funds/American Century Investments and was suspicious that he didn't contact me at all when my stocks started to dip when the recession started. BTW, they've been charging me an annual $15 fee.

Yes, I've heard of only positive reviews of Vanguard and it's no load funds but somehow I let this *salesman* swindle me. He claims that overtime American Funds has historically performed well and is the oldest mutual firm. Last October, I asked him if the co. is affected by the financial crisis, and he calmly said it wasn't affected and yet I read that they laid off some non-financial staff in one location, I believe in Feb?, and there may be more across pink slips across the board in more offices.

I even reconfirmed my appointment yesterday and he asked me what I wanted to discuss. I told him I've read some average-poor reviews of his suggestions and that there were other funds in the family that had favorable reviews. Like a previous reply said, he's going to find a way to persuade/out smart me.

But smart is the key. So yes, I will cancel my FA appointment, study, research all the resources that everyone suggested. Even though I'm green, I should have followed my Vanguard gut 10 years ago. I guess I'm just anxious because my stocks continue to fall but then don't want to make an emotional and rushed decision based on that.

When I cancel, I have a feeling that he'll know that I've been doing my research. Yeah, who cares but it will be interesting to see what his response will be.

All the Wiser... :idea:

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Post by FredPeterson » Fri Aug 28, 2009 9:14 pm

Sorry to bump an olderish thread, but I want someone to run numbers comparing AGTHX to VIGRX to disprove what I came up with.

What I came up with shows, since a $10,000 investment on 3/11/1993, American Funds Growth Fund of America has outperformed Vanguard Growth Index by close to 30% as of 8/25/2009. This includes an intiial 5.5% sales load on the $10,000 investment (meaning a $10582 invesment in AGTHX) as well as the yearly expense ratio taken at the beginning of the year.

Even if I shorten the timespan to 5 years, AGTHX is beating VIGRX by about 9% and again that includes the initial sales load and all expense ratios.

This of course an untaxed DRIP comparison.

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Post by grabiner » Fri Aug 28, 2009 11:14 pm

FredPeterson wrote:Sorry to bump an olderish thread, but I want someone to run numbers comparing AGTHX to VIGRX to disprove what I came up with.

What I came up with shows, since a $10,000 investment on 3/11/1993, American Funds Growth Fund of America has outperformed Vanguard Growth Index by close to 30% as of 8/25/2009. This includes an intiial 5.5% sales load on the $10,000 investment (meaning a $10582 invesment in AGTHX) as well as the yearly expense ratio taken at the beginning of the year.
These numbers may be correct, but they are irrelevant. There will always be some funds which outperform an index and some which underperform, but it is unlikely that you can identify which ones they will be. You should choose a fund because its combination of costs and investment strategy fit a role in your portfolio.

Sticking with Vanguard for examples, US Growth was one of Vanguard's best funds in 1999, with an outstanding record going back ten years, and Selected Value had a terrible three-year start. But since 1999, Selected Value has been one of Vanguard's best funds, and US Growth is by far Vanguard's worst fund.
Wiki David Grabiner

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Post by slick_dealer_05 » Sat Aug 29, 2009 5:22 am

You barely have any savings.
Why do you need a financial advisor who takes away another 5% of your pocket change investment at age 42 ?

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Post by bearwolf » Sat Aug 29, 2009 12:07 pm

FredPeterson wrote:Sorry to bump an olderish thread, but I want someone to run numbers comparing AGTHX to VIGRX to disprove what I came up with.

What I came up with shows, since a $10,000 investment on 3/11/1993, American Funds Growth Fund of America has outperformed Vanguard Growth Index by close to 30% as of 8/25/2009. This includes an intiial 5.5% sales load on the $10,000 investment (meaning a $10582 invesment in AGTHX) as well as the yearly expense ratio taken at the beginning of the year.

Even if I shorten the timespan to 5 years, AGTHX is beating VIGRX by about 9% and again that includes the initial sales load and all expense ratios.

This of course an untaxed DRIP comparison.
Fred, Everyone might not read to the end of the thread to see your comment. I recommend starting a new post with your question. I almost didn't make it to the bottom but had some extra time while waiting for something else to complete.

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Post by GammaPoint » Sat Aug 29, 2009 4:01 pm

sfnative,

It seems that everyone has been giving you good advice. You don't need a financial advisor and it's actually very easy to do it on your own. Check out The Four Pillars of Investing or The Bogleheads' Guide to Investing and from either of these simple books you'll have the knowledge you need to begin managing your own money. I recently read both of these books and found them very easy to understand and extremely helpful.[/i]

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Post by Dagwood » Mon Aug 31, 2009 11:58 am

FredPeterson wrote:Sorry to bump an olderish thread, but I want someone to run numbers comparing AGTHX to VIGRX to disprove what I came up with.

What I came up with shows, since a $10,000 investment on 3/11/1993, American Funds Growth Fund of America has outperformed Vanguard Growth Index by close to 30% as of 8/25/2009. This includes an intiial 5.5% sales load on the $10,000 investment (meaning a $10582 invesment in AGTHX) as well as the yearly expense ratio taken at the beginning of the year.

Even if I shorten the timespan to 5 years, AGTHX is beating VIGRX by about 9% and again that includes the initial sales load and all expense ratios.

This of course an untaxed DRIP comparison.
Is there an active fund out there, American Fund or other, that has outperformed a VG index fund over a 30 year period when you account for these additional costs? I am going to guess the answer is no. And is there a selection of active funds, American Fund or others, that would typically be held as a complete portfolio, that would outperform a similar passive group of VG funds when accounting for these additional costs and when held for a 30 year period? Again, I'll venture the answer to that question is a clear "no."

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Post by smallcapvalue » Mon Aug 31, 2009 1:08 pm

Here is my take - You haven't really been 'bamboozled.' These loads are how an advisor typically makes money. Also, American Funds are among the best active funds out there. Sure, Indexing is better - but some even believe in going 50-50. An advisor can help with a lot of things - even though "fee only" is better.

I would see if he has any type of "fee only" planning, where you can setup an account with Vanguard and he can coach you. Otherwise, you can do it yourself - with a couple months of research.

I agree to push back the meeting for a later date as advised already. Start with browsing the boards and the recommended reading (about 5-10 books).

On last thing: throw out everything you already know about investing (what the media or magazines say). Start fresh.

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