American Mutual Funds... very expensive :(

[DMFA]

Muaddib wrote:

I put 3 years of contributions to roth IRA with an American funds TDF.

the fund did well over that time, beating S&P

when I transferred to VG, I had literally zero gains to show for it due to the front load and high ER

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This is very common.  Say you've got $10,000 to invest and the fund's makeup will gain 10% a year for 10 years.

Putting it in a 5.75% load, 1.12% ER fund like American Funds gives you $22,068 (9425 x [1.0888^10]), while putting it in a no-load, 0.05% ER fund like VG, Fido, Schwab, etc gives you $24,782 (1,000 x [1.095^10]), which ends up as a 12.3% difference at that point.  Consider that percent difference at a higher investment, and across a longer term...it can mean hundreds of thousands after that many years.

When looking at returns for high-expense funds, it's important to recognize that the returns are reported net of expenses; hence a fund which returned 10% with an ER of 1.5% actually returned 11.5%; basically speaking, the active managers need to cover the spread of their ER against the index to make the fund worthwhile.  This is why most active funds cannot regularly beat their best-fit index, and an investor is well-served to choose the lowest-cost index fund available.

[Muaddib]

I put 3 years of contributions to roth IRA with an American funds TDF.

the fund did well over that time, beating S&P

when I transferred to VG, I had literally zero gains to show for it due to the front load and high ER

[PhysicianOnFIRE]

Good for you! And sorry for your losses. Our nearly 100% Vanguard portfolio returned 11.5% last year.

When I was 18, my Dad helped me start an IRA with the "advisor" three doors down from his office. ED Jones and 5.75% front-loaded American Funds were my introduction to investing.

Now, I'm a Do-It-Yourself Investor.

[Craigy]

Congrats!!!

American Funds came up recently in discussion with a client, whose broker recommended them. I was shocked at the fees, and that someone could recommend anything like that in good conscience.

[wfbdo44]

UPDATE.... I've gone ROGUE and became my own financial advisor (and my husband's).  Got rid of ALL crappy American Funds... invested in Vanguard and through our state 529.  Thanks to this group!  I'm hoping it makes a significant difference in the end.  Hubby and I are both physicians in our mid 40s and will likely work 10-15 more years in various positions depending on the state of medicine at that time.  Always good to have options!!!

[wfbdo44]

Thanks to all for the advice!!!!  And confirmation to move forward in a better direction!

[The White Coat Investor]

Sorry you mistook a commissioned salesman for a financial advisor. It has happened to most of us.

 

Yes, you need to move. If you need advice, get a real advisor. If you don't, then start functioning as your own advisor.

[jfoxcpacfp]

wfbdo44 wrote:

previous FA

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music to my ears

[raddds]

"It seems like we’d be continuing to make this mistake over and over.  I’m tempted to switch the money out to Vanguard accounts instead."

Your intuition is confirmed. Move to Vanguard asap.

[VagabondMD]

Sunk cost. Your lesson cost you $6000 or so, not the end of the world, and much less expensive than getting stuck with whole life.

So long as there are no tax consequences, move the money to lower cost index funds with the same objectives.

For sure, either way, do not add new money to these accounts.

[wfbdo44]

Our previous FA recommended American Mutual Funds... A share funds.    The upfront sales charge was 5.75%.  We now have $100,000+ so the upfront sales charge is 3.5%.  Both of our Roth IRAs and some of our children's 529 are in these accounts.  The accounts made 6% last year (after all fees were removed) which seems low vs how well the market did.

My question... should we move our money out of here?  We paid the upfront sales charge so our new FA advised keeping the money in, however, we still have a high upfront sales charge, 3.5% on any additional money we put in.  It seems like we'd be continuing to make this mistake over and over.  I'm tempted to switch the money out to Vanguard accounts instead.

Any advice is greatly appreciated!