Lower cost but similar alternatives to these American Funds in my Roth IRA?

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kenanjs
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Joined: Fri Dec 20, 2013 11:15 am

Lower cost but similar alternatives to these American Funds in my Roth IRA?

Post by kenanjs » Wed May 16, 2018 4:01 pm

Hello - I have recently ended my 5 year relationship with my financial adviser to try to trim costs and learn how to handle my own money. My wife and I, through IRA conversions years ago and on going backdoor Roth IRA annual contributions, each have around 110K dollars divided equally in the following American Funds. These are all class A shares so I did pay a front end load which drives me nuts so part of me thinks it makes sense to stay put but the expenses (below) are still pretty high and being 42 years old I hope to have quite a few years to see it grow and ideally pass it on to my kids without needing it.

Here they are - anyone willing to suggest alternatives with similar exposures that I can access through Vanguard or suggest just keeping as is? Many thanks!

American Funds AMCAP Fund® Class A (AMCPX) expense 0.68
American Funds Developing World Growth and Income Fund Class (ADWGAX) expense 1.3
American Funds Intermediate Bond Fund of America® Class A (AIBAX) expense 0.62
American Funds SMALLCAP World Fund® Class A (SMCWX) expense 1.07
American Funds The New Economy Fund® Class A (ANEFX) expense 0.78
American Funds Washington Mutual Investors Fund Class A (AWSHX) expense 0.58

lack_ey
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Re: Lower cost but similar alternatives to these American Funds in my Roth IRA?

Post by lack_ey » Wed May 16, 2018 4:27 pm

If they're all in a Roth IRA, do you really need a fund-by-fund replacement or just an allocation to replace the whole? If the latter, you might want to detail the weightings you have there.

How closely are you expecting to match exposures? For example, looking at AMCAP, would you call that just a U.S. stock fund, or perhaps a fund focused on U.S. stocks that also holds a bit of cash and international stocks, or maybe a fund that does that while focusing on growth stocks, or a primarily U.S. stock fund that owns some international stocks and cash that is growth oriented but relatively tilted to healthcare and energy rather than technology relative to similar funds? What I mean is that there are various levels of granularity of matching you could be thinking of with respect to finding replacements.

Do you care about active versus passive management? Vanguard has both, and you could also access non-Vanguard funds though unless you have particular desires here I would say it's unlikely you would need to.

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FiveK
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Re: Lower cost but similar alternatives to these American Funds in my Roth IRA?

Post by FiveK » Wed May 16, 2018 5:16 pm

kenanjs wrote:
Wed May 16, 2018 4:01 pm
Here they are - anyone willing to suggest alternatives with similar exposures that I can access through Vanguard or suggest just keeping as is? Many
You can definitely get similar exposures for lower cost at Vanguard or other brokers.

See the entire Three-fund portfolio - Bogleheads article, and at least some of the links therein, for many choices.

Doctor Rhythm
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Joined: Mon Jan 22, 2018 3:55 am

Re: Lower cost but similar alternatives to these American Funds in my Roth IRA?

Post by Doctor Rhythm » Wed May 16, 2018 6:06 pm

Agree - definitely get out of the current American Funds, and while you're at it, consider rebalancing. A lot of options via Vanguard or others, but a minimalist approach might be:

A total US index stock fund (VTSAX)
A (mostly) developed market international index stock fund (VTIAX)
A total US bond fund (VBTLX)

You could also just invest in a target date fund suitable for your horizon for a slightly higher expense ratio (but still way lower than what you're paying now). Vanguard's target date funds use the three funds listed above plus an international bond index fund.

jalbert
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Re: Lower cost but similar alternatives to these American Funds in my Roth IRA?

Post by jalbert » Wed May 16, 2018 6:57 pm

kenanjs wrote:
Wed May 16, 2018 4:01 pm
Hello - I have recently ended my 5 year relationship with my financial adviser to try to trim costs and learn how to handle my own money. My wife and I, through IRA conversions years ago and on going backdoor Roth IRA annual contributions, each have around 110K dollars divided equally in the following American Funds. These are all class A shares so I did pay a front end load which drives me nuts so part of me thinks it makes sense to stay put but the expenses (below) are still pretty high and being 42 years old I hope to have quite a few years to see it grow and ideally pass it on to my kids without needing it.

Here they are - anyone willing to suggest alternatives with similar exposures that I can access through Vanguard or suggest just keeping as is? Many thanks!

American Funds AMCAP Fund® Class A (AMCPX) expense 0.68
American Funds Developing World Growth and Income Fund Class (ADWGAX) expense 1.3
American Funds Intermediate Bond Fund of America® Class A (AIBAX) expense 0.62
American Funds SMALLCAP World Fund® Class A (SMCWX) expense 1.07
American Funds The New Economy Fund® Class A (ANEFX) expense 0.78
American Funds Washington Mutual Investors Fund Class A (AWSHX) expense 0.58
The loads you paid are sunk cost. They covered fund marketing and advisor income. There is no inherent value added to performance of the funds due to the load. In the absence of the loads, American Funds products are not bad products if someone wants active management. Thus, your highest priority is opening accounts at a low cost provider such as Vanguard so that you do not incur a load on future contributions. Rolling the existing funds over to a low cost provider like Vanguard is certainly beneficial as well.

If you want to invest without an advisor and do not wish to manage it yourself, you can use products like Vanguard Target Retirement or LifeStrategy funds. These are mutual funds that in turn hold other mutual funds so that they are a well diversified portfolio in a single fund. The fund provider functions as an advisor by designing the portfolios of funds held and managing the portfolio of funds by rebalancing when needed. At Vanguard, the cost is only about .07% more than holding the underlying funds as Admiral shares.

You just pick a retirement year for the Target retirement funds, or the level of how aggressive you wish to be with the LifeStrategy funds.
Risk is not a guarantor of return.

jadedfalcons
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Re: Lower cost but similar alternatives to these American Funds in my Roth IRA?

Post by jadedfalcons » Wed May 16, 2018 7:58 pm

Be sure you spend some time on portfoliovisualizer.com comparing different investments. Primarily New Economy. That's been a fantastic fund in my portfolio over the years and is still a recipient of my IRA contributions. Don't rush to drop it.

kenanjs
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Joined: Fri Dec 20, 2013 11:15 am

Re: Lower cost but similar alternatives to these American Funds in my Roth IRA?

Post by kenanjs » Wed May 16, 2018 8:08 pm

Many thanks for the comments. I did the hard part of moving everything over to vanguard in the fall and just let it sit there. I just sold the american funds. when the money is available - I may do the target retirement fund or get in gear and read more about the three fund approach. Thanks again. My goal is to not screw this up.

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whodidntante
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Re: Lower cost but similar alternatives to these American Funds in my Roth IRA?

Post by whodidntante » Wed May 16, 2018 8:19 pm

I think American Funds has a penchant for growth stocks. There are a lot of growth stock funds available, including some passive ones. There might not be any passive international growth funds because growth stocks tend to lag over time.

I would sell it all and replace it with low cost passive options. If you don't want a particular tilt, I would use:
ITOT iShares Core S&P Total US Stock Mkt ETF 0.03% ER
IXUS iShares Core MSCI Total International Stock ETF 0.11% ER
Along with treasury notes and/or brokered CDs of approximately two years duration.

VTI and VXUS if you're at Vanguard.

NoHeat
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Re: Lower cost but similar alternatives to these American Funds in my Roth IRA?

Post by NoHeat » Wed May 16, 2018 8:29 pm

As a a US stock fund, AMCPX has performed just fine compared to the S&P 500, despite its annual fees, over quite a few years.

So there’s probably no reason to hurry in replacing it. But I would eventually swap it for a lower-fee offering, and for sure I wouldn’t pay a front-end load to buy more.

I agree that the loads you already paid are sunk costs, and should be ignored in deciding how to proceed. Fixating on sunk costs as a reason not to sell an asset is a common behavioral error for investors.

Regarding American Funds in general, some of the lower-fee no-load R6 institutional class funds are available to me through TIAA, but are not available to most individual investors; surprisingly they have regularly outperformed benchmarks over many years, defying the mantra that active management always loses to passive indexing. That’s in part due to emphasizing growth sectors like technology, which is a scheme that might not always work.

Jags4186
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Re: Lower cost but similar alternatives to these American Funds in my Roth IRA?

Post by Jags4186 » Wed May 16, 2018 9:03 pm

NoHeat wrote:
Wed May 16, 2018 8:29 pm
Regarding American Funds in general, some of the lower-fee no-load R6 institutional class funds are available to me through TIAA, but are not available to most individual investors; surprisingly they have regularly outperformed benchmarks over many years, defying the mantra that active management always loses to passive indexing. That’s in part due to emphasizing growth sectors like technology, which is a scheme that might not always work.
Active funds as a whole must underperform the market. That doesn’t mean there aren’t active funds that have beat the market—certainly there are many. There’s just no guarrantee the ones that have beaten the market in the past can continue to do so.

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