American Funds (No Loads) vs Vanguard Index Funds

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jmnbqb
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American Funds (No Loads) vs Vanguard Index Funds

Post by jmnbqb » Thu Jan 10, 2019 10:35 pm

Hello,

I'm new to the Bogleheads forum, but I've read through several threads discussing the advantages of passively managed Vanguard index funds over actively managed mutual funds, even ones through American Funds that have been advertised as outperforming index funds consistently. However, all of the posts I've read assumed that the mutual funds with American Funds included front-end loads and 12b-1 fees, which resulted in Vanguard index funds still being the better choice, but that may not be the case here (which is where I need some help).

I opened a Roth IRA at the beginning of the year through Edward Jones, and I maxed out my contribution for both 2017 and 2018. My adviser (who is a fiduciary) bought a mixture of mutual funds, mostly through American Funds, all of which are F3 or R6 classes. As an example, one of the funds is the New Perspective Fund (FNPFX) Class F3, which if it were Class A would come with a 5.75% front-end load and a total annual fund operating expense of 0.75%, but the Class F3 come with no loads, no 12b-1 fees, and a total annual fund operating expense of 0.45%.

I know mutual funds through American Funds have a higher expense ratio than index funds, but with them outperforming index funds over the previous 20 years, it seems like it may warrant them as a better portfolio selection, especially if I'm not paying any loads on my selections. I believe the biggest downfall to my Roth IRA is the 1.35% AUM fee that comes with the Guided Solutions Fund program with Edward Jones, but if my adviser is making decisions like this that would result in better gains for me than making decisions myself, maybe it is worth it to continue to keep my plan with him instead of switching to Vanguard.

Am I missing something here? Thanks.
Last edited by jmnbqb on Fri Jan 11, 2019 7:32 pm, edited 1 time in total.

NYC_Guy
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Re: American Funds (No Loads) vs Vanguard Index Funds

Post by NYC_Guy » Thu Jan 10, 2019 10:51 pm

You are paying nearly 2% in fees. Say your expected annual return over the next ten years is 8%. You’re surrendering 25% of your return to your advisor. I would suggest that the likelihood that those particular funds outperform an index fund portfolio over the next 10 years, adjusted for that (illustrative) 25% drag is substantially less than 50%.

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Re: American Funds (No Loads) vs Vanguard Index Funds

Post by lassevirensghost » Thu Jan 10, 2019 10:55 pm

At least a 5.75% load, while egregiously high, would amortize over time. You are just paying that 1.35% over and over and over.
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Re: American Funds (No Loads) vs Vanguard Index Funds

Post by tibbitts » Fri Jan 11, 2019 12:22 am

jmnbqb wrote:
Thu Jan 10, 2019 10:35 pm
Hello,

I'm new to the Bogleheads forum, but I've read through several threads discussing the advantages of passively managed Vanguard index funds over actively managed mutual funds, even ones through American Funds that have been advertised as outperforming index funds consistently. However, all off the posts I've read assumed that the mutual funds with American Funds included front-end loads and 12b-1 fees, which resulted in Vanguard index funds still being the better choice, but that may not be the case here (which is where I need some help).

I opened a Roth IRA at the beginning of the year through Edward Jones, and I maxed out my contribution for both 2017 and 2018. My adviser (who is a fiduciary) bought a mixture of mutual funds, mostly through American Funds, all of which are F3 or R6 classes. As an example, one of the funds is the New Perspective Fund (FNPFX) Class F3, which if it were Class A would come with a 5.75% front-end load and a total annual fund operating expense of 0.75%, but the Class F3 come with no loads, no 12b-1 fees, and a total annual fund operating expense of 0.45%.

I know mutual funds through American Funds have a higher expense ratio than index funds, but with them outperforming index funds over the previous 20 years, it seems like it may warrant them as a better portfolio selection, especially if I'm not paying any loads on my selections. I believe the biggest downfall to my Roth IRA is the 1.35% AUM fee that comes with the Guided Solutions Fund program with Edward Jones, but if my adviser is making decisions like this that would result in better gains for me than making decisions myself, maybe it is worth it to continue to keep my plan with him instead of switching to Vanguard.

Am I missing something here? Thanks.
I have no particular issue with AF, but what will you do if your AF underperforms a reasonably comparable index over one year? Two? Three? Will you ever give up on it? I've also invested in active funds with a history of outperformance. There will be periods of underperformance. Some of mine have underperformed for up to several years, and sometimes I've bailed on them. With some, that turned out to be the best decision, with others, definitely not.

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Re: American Funds (No Loads) vs Vanguard Index Funds

Post by fujiters » Fri Jan 11, 2019 6:23 am

You may be interested in one of the many threads on Bogleheads that discuss Edward Jones:

https://www.google.com/search?q=site%3A ... ward+jones

I think you'd do well to invest your IRA directly with Vanguard and invest in Vanguard funds (the total us market admiral fund, VTSAX, has an ER of 0.04%). Investing with Fidelity and using their 0 ER funds would also be a great option.
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Re: American Funds (No Loads) vs Vanguard Index Funds

Post by Jags4186 » Fri Jan 11, 2019 7:29 am

You can buy F1 shares of American Funds at Schwab. ERs in the 0.70% range and no transaction fee and no advisor fee.

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Re: American Funds (No Loads) vs Vanguard Index Funds

Post by nisiprius » Fri Jan 11, 2019 7:33 am

My personal opinion is that there is no way an advisor can add 1.35%/year of pure return, 1.35% of "alpha," through superior choices or superior portfolio construction. Not even close.

He can appear to do it a) by the luck of the particular time period, and b) by increasing the risk of the portfolio. And then when the risk shows up and his choices result in a really bad year, excusing them after the fact by saying they shouldn't count because it was the result of incredible bad luck that nobody could possibly have foreseen.

I'll bet this guy has used what I call the "salesperson's hypothetical" that implies something without ever stating it. "Why would you care about a 1.35% fee if I can improve your returns by more than that?" He hasn't said he can.

I am prepared to believe that there might be such a thing as skill and that skilled managers might be able eke out, let's say 0.50% per year or so.

Advisors can't justify their fees as paying for themselves through superior investment choices. In order to tolerate a 1.35%, you have to be able to see other valuable services that your advisor is providing for you that you are willing to pay for. It is my belief, not based on experience because I'm not in that category, that someone with a $5-$10 million net worth who is a small businessman might well find it worthwhile to pay money to a financial planner who has a financial overview of his completely financial life and can see taxes, investment, insurance, alimony etc. as part of a single big picture.

I think American Funds are OK, but you should not be paying someone 1.35% to hold them. Get out, transfer those to a regular brokerage account, stop paying the fees. Unless you can identify other work he does for you that you think is worth the money you're paying him.
Last edited by nisiprius on Fri Jan 11, 2019 7:38 am, edited 1 time in total.
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Re: American Funds (No Loads) vs Vanguard Index Funds

Post by Jack FFR1846 » Fri Jan 11, 2019 7:38 am

EJ advisors do not manage your portfolio. The mother ship decides what needs to sell and that's what you get. If the advisor does anything different, they're jepardizing their job. Don't be fooled into thinking that your advisor is anything other than a clerk to do what the mother ship tells them to do.

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Re: American Funds (No Loads) vs Vanguard Index Funds

Post by pqwerty » Fri Jan 11, 2019 7:51 am

You found this site and posted this question which means you are already suspicious of the product you are buying. Stick with your instinct, get out now.

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Re: American Funds (No Loads) vs Vanguard Index Funds

Post by stan1 » Fri Jan 11, 2019 8:14 am

jmnbqb wrote:
Thu Jan 10, 2019 10:35 pm
My adviser (who is a fiduciary) bought a mixture of mutual funds, mostly through American Funds, all of which are F3 or R6 classes. As an example, one of the funds is the New Perspective Fund (FNPFX) Class F3, which if it were Class A would come with a 5.75% front-end load and a total annual fund operating expense of 0.75%, but the Class F3 come with no loads, no 12b-1 fees, and a total annual fund operating expense of 0.45%.

I know mutual funds through American Funds have a higher expense ratio than index funds, but with them outperforming index funds over the previous 20 years, it seems like it may warrant them as a better portfolio selection, especially if I'm not paying any loads on my selections. I believe the biggest downfall to my Roth IRA is the 1.35% AUM fee that comes with the Guided Solutions Fund program with Edward Jones, but if my adviser is making decisions like this that would result in better gains for me than making decisions myself, maybe it is worth it to continue to keep my plan with him instead of switching to Vanguard.

Am I missing something here? Thanks.
Your EJ portfolio would have to beat a total market index fund portfolio by roughly 2% year after year. Many think past performance is not a good metric because it can't predict the future, but let's assume past performance is a good metric. For the last 1 year, 5 year, 10 year, and 20 year periods have the funds in your portfolio beaten the market by at least 2% year after year? The performance metric you cite deserves a lot of scrutiny.

Costs matter (a lot). You have inserted multiple parties (advisor, EJ employees) who have to make a living at your expense. If you had an index fund based portfolio at Vanguard you managed yourself those costs don't exist.

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Re: American Funds (No Loads) vs Vanguard Index Funds

Post by cheezit » Fri Jan 11, 2019 9:07 am

I am a happy Vanguard customer, but it should be noted that it's easy to put together a low-cost broad-market portfolio at other brokers as well. The wiki even has instructions on how to assemble such a portfolio at other brokerages.

The key things to remember are:
1) overperformance of an actively managed fund over a given trailing period, even a relatively long one, has poor predictive power over returns going forward - slightly worse than a coinflip.
2) BUT costs are for sure, whether they be the expense ratio or advisor fees or whatever.

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Re: American Funds (No Loads) vs Vanguard Index Funds

Post by Raybo » Fri Jan 11, 2019 9:16 am

Take a hard look at the claim that American Funds beat index funds and you see a few things.

First, AF compares against the index, not the actual return with dividends reinvested. So, yes they might beat the index, but not the actual return.

Second, AF compares it funds against the S&P 500. But, the funds being compared aren't only their Large Cap funds. It is well known that the return of different asset mixes vary. Thus, comparing a fund like New Perspectives to the S&P 500 is like comparing the acceleration of a car to a truck.

Third, focusing on the cost of the fund and ignoring the cost of the advisor is truly bait and switch. A fee of 2%, whether it comes from the fund or the advisor, still greatly reduces your return.

This is not to say that American Funds are a bad investment. You likely will do well with them, assuming the market does well. Don't believe everything your EJ advisor tells.
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Re: American Funds (No Loads) vs Vanguard Index Funds

Post by retiredjg » Fri Jan 11, 2019 9:34 am

jmnbqb wrote:
Thu Jan 10, 2019 10:35 pm
Am I missing something here? Thanks.
Not entirely. You already realize that the 1.35% AUM is a problem. What you may not realize is that you are paying 1.8% a year for a fund that would cost you about 0.10% at Vanguard and probably other places as well. And you will pay that every year, not just once.

On a $100k investment, that is an additional $1,700 a year that goes to someone other than you. Every year. And since the money is not yours, you are also losing the earnings that money would have earned for year after year.

I think you make a decent argument that the fund alone may perform as well as an index or even outperform an index during some time periods. But adding on the AUM changes all that. The AUM sends your advisor's kids to college, not your kids. It is much much harder for you to make money when paying out 1.35%.

Also, you should realize there will be times that managed funds like this will underperform an index. The reason you don't see funds like that is that they disappear after a year or two of underperformance. They may get absorbed into something else or otherwise made invisible. That way, the salespeople are not forced to sell things that have done badly. They always have the advantage of showing you good returns so you will buy.

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Re: American Funds (No Loads) vs Vanguard Index Funds

Post by goingup » Fri Jan 11, 2019 9:50 am

You seem to be a young/new investor, presumably with a small portfolio. Right now you may not think 1.35%AUM and .45ER is very much. Imagine taking nearly 2% out of a $100,000 or $1,000,000 portfolio. Ouch.

American Funds are excellent managed funds, but the EJ advisor that is attached to them is too much drag. Think really hard before you direct after-tax money to your EJ broker. American Funds are not tax-efficient and best kept in tax-advantaged accounts.

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Re: American Funds (No Loads) vs Vanguard Index Funds

Post by onourway » Fri Jan 11, 2019 10:12 am

As far as managed funds go, American Funds are decent, if you can avoid the front-load fees and get a share class with a reasonable fees. That said, there is no way I would pay EJ or any other advisor an additional 1.35% to get them. Over the very long-term, you should hope that your American Funds will simply match their index after fees. If you look at the performance of their funds, any out-performance usually comes from some narrow time period, usually early in the fund's life. After that they tend to track the indexes fairly closely.

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Re: American Funds (No Loads) vs Vanguard Index Funds

Post by nisiprius » Fri Jan 11, 2019 10:18 am

jmnbqb wrote:
Thu Jan 10, 2019 10:35 pm
...My adviser (who is a fiduciary)...
Serious question. How do you know that your advisor is a fiduciary? Do you have something on paper signed by your advisor himself that says so? That is, that the particular person who is giving you advice is a fiduciary?

(As opposed to, say, making an offhand remark that they do some random thing because they were once expecting that sometime in the future, there would be regulations requiring them to meet the fiduciary standard?)
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Re: American Funds (No Loads) vs Vanguard Index Funds

Post by nedsaid » Fri Jan 11, 2019 10:23 am

lassevirensghost wrote:
Thu Jan 10, 2019 10:55 pm
At least a 5.75% load, while egregiously high, would amortize over time. You are just paying that 1.35% over and over and over.
I am a fan of American Funds but I would not pay a 1.35% Assets Under Management fee year after year to gain access. Also, Vanguard has very good active funds with lower expense ratios than American Funds. I also saw some of the American Funds available at Fidelity Brokerage for no load.
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Re: American Funds (No Loads) vs Vanguard Index Funds

Post by Olemiss540 » Fri Jan 11, 2019 10:27 am

nisiprius wrote:
Fri Jan 11, 2019 10:18 am
jmnbqb wrote:
Thu Jan 10, 2019 10:35 pm
...My adviser (who is a fiduciary)...
Serious question. How do you know that your advisor is a fiduciary? Do you have something on paper signed by your advisor himself that says so? That is, that the particular person who is giving you advice is a fiduciary?

(As opposed to, say, making an offhand remark that they do some random thing because they were once expecting that sometime in the future, there would be regulations requiring them to meet the fiduciary standard?)
Edward Jones acting as a fiduciary? That's hilarious....

Wonder why they spent sooooo much money (lobbying) killing the fiduciary act in congress?
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Re: American Funds (No Loads) vs Vanguard Index Funds

Post by ruralavalon » Fri Jan 11, 2019 10:29 am

Welcome to the forum :) .

jmnbqb wrote:
Thu Jan 10, 2019 10:35 pm
Hello,

I'm new to the Bogleheads forum, but I've read through several threads discussing the advantages of passively managed Vanguard index funds over actively managed mutual funds, even ones through American Funds that have been advertised as outperforming index funds consistently. However, all off the posts I've read assumed that the mutual funds with American Funds included front-end loads and 12b-1 fees, which resulted in Vanguard index funds still being the better choice, but that may not be the case here (which is where I need some help).

I opened a Roth IRA at the beginning of the year through Edward Jones, and I maxed out my contribution for both 2017 and 2018. My adviser (who is a fiduciary) bought a mixture of mutual funds, mostly through American Funds, all of which are F3 or R6 classes. As an example, one of the funds is the New Perspective Fund (FNPFX) Class F3, which if it were Class A would come with a 5.75% front-end load and a total annual fund operating expense of 0.75%, but the Class F3 come with no loads, no 12b-1 fees, and a total annual fund operating expense of 0.45%.

I know mutual funds through American Funds have a higher expense ratio than index funds, but with them outperforming index funds over the previous 20 years, it seems like it may warrant them as a better portfolio selection, especially if I'm not paying any loads on my selections. I believe the biggest downfall to my Roth IRA is the 1.35% AUM fee that comes with the Guided Solutions Fund program with Edward Jones, but if my adviser is making decisions like this that would result in better gains for me than making decisions myself, maybe it is worth it to continue to keep my plan with him instead of switching to Vanguard.

Am I missing something here? Thanks.
I am not familiar with the F3 share class.

American Funds R6 shares have moderate expense ratios and can be a good choice in work-based plans like 401ks. R6 shares have no sales load, and as I understand it are offered only in retirement accounts.

In selecting funds to use I always suggest striving for a combination of broad diversification (to decrease risk) and low expense ratios (to increase net return).

American Funds R6 shares often meet that criteria, even though actively managed. But in general I prefer a good index fund over a good actively managed fund.

I would never use Edward Jones for a Roth IRA. The 1.35% annual fee literally destroys your returns long-term.
Last edited by ruralavalon on Fri Jan 11, 2019 12:08 pm, edited 3 times in total.
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Re: American Funds (No Loads) vs Vanguard Index Funds

Post by JBTX » Fri Jan 11, 2019 10:29 am

jmnbqb wrote:
Thu Jan 10, 2019 10:35 pm
Hello,

I'm new to the Bogleheads forum, but I've read through several threads discussing the advantages of passively managed Vanguard index funds over actively managed mutual funds, even ones through American Funds that have been advertised as outperforming index funds consistently. However, all off the posts I've read assumed that the mutual funds with American Funds included front-end loads and 12b-1 fees, which resulted in Vanguard index funds still being the better choice, but that may not be the case here (which is where I need some help).

I opened a Roth IRA at the beginning of the year through Edward Jones, and I maxed out my contribution for both 2017 and 2018. My adviser (who is a fiduciary) bought a mixture of mutual funds, mostly through American Funds, all of which are F3 or R6 classes. As an example, one of the funds is the New Perspective Fund (FNPFX) Class F3, which if it were Class A would come with a 5.75% front-end load and a total annual fund operating expense of 0.75%, but the Class F3 come with no loads, no 12b-1 fees, and a total annual fund operating expense of 0.45%.

I know mutual funds through American Funds have a higher expense ratio than index funds, but with them outperforming index funds over the previous 20 years, it seems like it may warrant them as a better portfolio selection, especially if I'm not paying any loads on my selections. I believe the biggest downfall to my Roth IRA is the 1.35% AUM fee that comes with the Guided Solutions Fund program with Edward Jones, but if my adviser is making decisions like this that would result in better gains for me than making decisions myself, maybe it is worth it to continue to keep my plan with him instead of switching to Vanguard.

Am I missing something here? Thanks.
Recently I evaluated 401ks for a small company. One of them included American funds, but they got them at lower expense ratios, similar to what you mentioned above. Of course the advisers mentioned AF superior long term performance.

What I found was that over the last 10-15 years, AF came very close to their respective index for a few of their largest fund. So I took from that:

- they seem to be able to overcome a modest fee level
- they did NOT outperform during those periods.

I think the outperformance came from periods prior to 15 years ago.

I would not be uncomfortable having an American fund with a 0.5% expense ratio and no front load in lieu of an index fund. However I would not take any fund/advisor at all with a 1.3% additional fee. So maybe American funds can "make up" 0.5% expense with performance, but I highly doubt the can make up 0.5+1.3=1.8%.

Just put it all in a vanguard target date fund in your own account and be done with it.

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Re: American Funds (No Loads) vs Vanguard Index Funds

Post by retiredjg » Fri Jan 11, 2019 11:04 am

nisiprius wrote:
Fri Jan 11, 2019 10:18 am
jmnbqb wrote:
Thu Jan 10, 2019 10:35 pm
...My adviser (who is a fiduciary)...
Serious question. How do you know that your advisor is a fiduciary? Do you have something on paper signed by your advisor himself that says so? That is, that the particular person who is giving you advice is a fiduciary?
And here's the piggy back question.

When the "new fiduciary" rules went into effect under a previous administration, I believe that an advisor was required to act as a fiduciary for retirement accounts (such as an IRA). That's why all the front loads went away and AUM costs went up. If that is correct, that may have all gone by the wayside when the current administration did away with the new rules.

So even if your salesperson was a fiduciary at one time, that may not longer be accurate.

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Re: American Funds (No Loads) vs Vanguard Index Funds

Post by 02nz » Fri Jan 11, 2019 11:12 am

jmnbqb wrote:
Thu Jan 10, 2019 10:35 pm
I know mutual funds through American Funds have a higher expense ratio than index funds, but with them outperforming index funds over the previous 20 years, it seems like it may warrant them as a better portfolio selection, especially if I'm not paying any loads on my selections.
The closest Vanguard index equivalent I can think of for the American Fund you mentioned is the All-World Stock Index (VTWSX). FNPFX has outperformed it over the past 1, 3, and 5 years by a very modest margin, but not enough to overcome a 1.35% fee.

Be very wary when "advisors" make claims about past performance. In addition to the usual caveat about past performance not being a predictor of the future, it's possible to come up with just about any result you want, including by choosing the period you're looking at, choosing an index or competitor fund that isn't really comparable, not accounting for costs, not accounting for dividends in the index.

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Re: American Funds (No Loads) vs Vanguard Index Funds

Post by barnaclebob » Fri Jan 11, 2019 11:51 am

lassevirensghost wrote:
Thu Jan 10, 2019 10:55 pm
At least a 5.75% load, while egregiously high, would amortize over time. You are just paying that 1.35% over and over and over.
No, its 5.75 % thats gone immediately and forever. The amortization routine is the tactic financial advisors use to sell these poor investments. Even if held 20 years, that 5.75% "amortized" over the life of the investment is still more than double or triple a vanguard index fund ER.

If you have no load american funds in your 401k or something like that then they are one of the better of the bad options because the ER's are typically less than 1% on the big ones.

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Re: American Funds (No Loads) vs Vanguard Index Funds

Post by NoHeat » Fri Jan 11, 2019 12:29 pm

I am happy with American Funds R6 class funds in my employer’s plan, like New Perspective RNPGX, and I’m okay with paying 0.45% ER, considering their success.

However, I pay no AUM fee, nor any other fee, and I would never want to. An AUM fee is like a parasite that just eats up so much of what should be yours.

IRAs are easy to transfer elsewhere. If I were the OP, I would look into Vanguard (or Fidelity etc) and just filling out the forms to transfer the account. Then put the entire IRA into a Target Date fund (typically 0.15% expense ratio) or a Boglehead three-fund combination, without tarrying and paying more AUM.

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Re: American Funds (No Loads) vs Vanguard Index Funds

Post by snailderby » Fri Jan 11, 2019 12:56 pm

1. I don't have anything against American Funds. I actually think they have some of the better actively-managed funds in the business if you stay away from share classes with a high sales load or high annual fee.

2. Over a 15-year investment horizon, “92.43% of large-cap managers, 95.13% of mid-cap managers, and 97.70% of small-cap managers failed to outperform [their benchmarks] on a relative basis.” See https://us.spindices.com/documents/spiv ... r-2018.pdf. Some of this is because many actively-managed funds charge high fees (often in the range of 1%-2%) that eat up any additional outperformance. See https://www.wsj.com/articles/double-wha ... 1546630477. But even if we take fees out of the equation and focus on returns before fees, most actively-managed funds in the U.S. equity space have underperformed their benchmarks. See https://www.spglobal.com/en/research-in ... ive-Debate.

3. However, I would be careful about putting too much weight on past performance. The best past-performing funds often revert to the mean after several years. See https://blogs.cfainstitute.org/investor ... -momentum/. And Morningstar Ratings, which are “a measure of a fund's risk-adjusted return, relative to similar funds,” historically haven't been a great predictor of future returns. See www.wsj.com/articles/the-morningstar-mirage-1508946687 and www.wsj.com/articles/how-funds-with-5-s ... 1410120116.

4. Like others have said, I think the bigger problem here is the Edward Jones management fee. A 1.35% annual fee + any other fees that Edwards Jones charges can add up -- a lot -- over time. The Department of Labor has estimated that over a 35-year period, even just a 1% difference in fees can reduce your returns by as much as 28%. See https://www.dol.gov/sites/default/files ... n-fees.pdf.
Last edited by snailderby on Sat Jan 12, 2019 3:13 pm, edited 3 times in total.

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Re: American Funds (No Loads) vs Vanguard Index Funds

Post by anil686 » Fri Jan 11, 2019 1:07 pm

I agree with most of the sentiment espoused in this thread. The AUM is dead weight on your returns and you will trail the index based on that alone.

As far as American Funds go - I like them (like many on this forum who appreciate relatively low cost active managed funds). They have long track records, they follow a consistent strategy and deliver solid returns. They have gone through many managers and have continued to perform as they have. Teasing out the criticism of American Funds, however, is hard on this forum because (myself included) don't always make each point separately. American Funds likes to compare themselves to an index benchmark but very few of their funds are pure in the their style and instead of using a composite benchmark to compare, they choose the biggest component benchmark to compare. So it is not an apricot to plum per se comparison but it is rather a pluot comparison that American funds provides.

The other issue is that their funds are tax inefficient. Not a problem in a tax advantaged account but in a taxable account, the capital gains and distributions will be taxed lowering your overall return significantly.

Their no load fund options (F3 class) are available at Fidelity and I think TD ameritrade transaction cost free without paying an advisor. You are correct - they would be good choices in a Roth or traditional IRA if you were disciplined looking for active management. Hope that helps...

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Toons
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Re: American Funds (No Loads) vs Vanguard Index Funds

Post by Toons » Fri Jan 11, 2019 1:10 pm

Crunch some numbers for insight regarding load :mrgreen:
https://www.bankrate.com/calculators/re ... lator.aspx
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

lassevirensghost
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Re: American Funds (No Loads) vs Vanguard Index Funds

Post by lassevirensghost » Fri Jan 11, 2019 2:08 pm

barnaclebob wrote:
Fri Jan 11, 2019 11:51 am
lassevirensghost wrote:
Thu Jan 10, 2019 10:55 pm
At least a 5.75% load, while egregiously high, would amortize over time. You are just paying that 1.35% over and over and over.
No, its 5.75 % thats gone immediately and forever. The amortization routine is the tactic financial advisors use to sell these poor investments. Even if held 20 years, that 5.75% "amortized" over the life of the investment is still more than double or triple a vanguard index fund ER.

If you have no load american funds in your 401k or something like that then they are one of the better of the bad options because the ER's are typically less than 1% on the big ones.
I think we are quibbling here. I even called the load "egregiously high." I would never compare a 5.75% load to an index fund ER, which is crazy. I simply am making the point that the AUM fee of 1.35% is not clearly better than the load, which the EJ advisor was making it out to sound like. Depending on what point of accumulation you are talking about, they may be more or less equal (that is, equally bad).

Sorry if that wasn't clear.
70% Total World Stock / 30% Total US Bond

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jmnbqb
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Re: American Funds (No Loads) vs Vanguard Index Funds

Post by jmnbqb » Fri Jan 11, 2019 6:44 pm

All,

I want to thank you all for your replies. I took the time to read all of them and appreciate the insights, and I have taken several hours today to think everything over (and review other forum threads). I have made the decision to transfer my Roth IRA to Vanguard as I completely agree with you all on the drag that the 1.35% AUM fee will cause, especially since my retirement horizon is 35-40 years.

As for the AF vs. index fund debate, I have no preference towards actively managed funds, so even though my portfolio may be on the "better" side of active funds, I am anticipating on shifting to a 2-fund portfolio with Vanguard (75% US equity index, 25% international equity index). I don't see the need currently to add a bond index because of how far off my retirement date is as well as my high risk tolerance, but I may decide to add a bond index in a few years and drift towards a 10% or so bond allocation.

All that's left is to initiate the transfer and ride out the EJ account termination fees.

Thanks again,

OP

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ruralavalon
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Re: American Funds (No Loads) vs Vanguard Index Funds

Post by ruralavalon » Sat Jan 12, 2019 8:12 am

jmnbqb wrote:
Fri Jan 11, 2019 6:44 pm
All,

I want to thank you all for your replies. I took the time to read all of them and appreciate the insights, and I have taken several hours today to think everything over (and review other forum threads). I have made the decision to transfer my Roth IRA to Vanguard as I completely agree with you all on the drag that the 1.35% AUM fee will cause, especially since my retirement horizon is 35-40 years.

As for the AF vs. index fund debate, I have no preference towards actively managed funds, so even though my portfolio may be on the "better" side of active funds, I am anticipating on shifting to a 2-fund portfolio with Vanguard (75% US equity index, 25% international equity index). I don't see the need currently to add a bond index because of how far off my retirement date is as well as my high risk tolerance, but I may decide to add a bond index in a few years and drift towards a 10% or so bond allocation.

All that's left is to initiate the transfer and ride out the EJ account termination fees.

Thanks again,

OP
I think that it's a wise decision to move to Vanguard and index funds. The 75/25 mix of domestic/international stocks is reasonable in my opinion. I hope you will consider a modest bond allocation.
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FiveK
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Re: American Funds (No Loads) vs Vanguard Index Funds

Post by FiveK » Sat Jan 12, 2019 6:57 pm

jmnbqb wrote:
Thu Jan 10, 2019 10:35 pm
My adviser (who is a fiduciary) ...

Am I missing something here? Thanks.
Bernie Madoff was subject to a fiduciary standard.

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