Moving mutuals to Vanguard

[AJL]

I've gotten a little advice as to "why" alot of you either do not use or have ceased to use a financial advisor. I plan on moving to Vanguard and have sent for the paperwork to make the changes. Question I have is this - Vanguard has about 100 funds to choose from I believe. I have researched some of the charts and looked at the charges involved in purchases, redemptions and expense ratios. I was informed by one poster that VEIEX was a pretty good choice in an earlier topic, and that fund seems to be doing well in past performances. Since all of my funds are IRA they will just be a rollover. Appears that Vanguard charges around $5 to $10 dollars per M in its initial purchase. Have any of you not chosen to change "all" of your mutual funds toward Vanguard? I realize that its the individual choice of funds, but not having used Vanguard before, I'm a little leary on just what to buy at this point? Stay with maybe 2 or 3 or ?? Currently I have about 7 mutual funds - American, Forward Banking & Finance, Seiligman, Putman. Most are doing ok for the year so far but the thought of putting even a couple of a % in my advisors pocket in lieu of mine is getting quite disturbing. There is about 80K in funds. Any advice would be appreciated.

[justin]

You can't go wrong with Target Retirement 20XX or one of the Lifestrategy funds - the main difference between each of these funds is the riskiness (allocation with each fund between stocks and bonds). Look at the funds, figure out how risk averse you are, and pick one. They are "one size fits all" funds and have a good mix of other funds in them for diversification. That's the easy approach. Look around at the VG website and they have an online tool/questionaire you can fill out and it will tell you how risk averse you are.

Your choices can get much more complicated, and you can "roll your own" by picking some different funds. If you are up for some reading and research, you may want to take this approach. In the meantime, you can park your funds in the Target Retirement fund or Lifestrategy fund of your choosing. I just checked and neither of these fund series has any kind of redemption charge.

You mentioned a $5-$10 fee per thousand for initial purchases at VG. I think the only fund with a sales fee up front is the emerging markets international fund (with 0.5%, or $5 per $1000). There may be one or two others hiding somewhere I haven't seen. Dunno for sure. Otherwise, there shouldn't be a sales fee on any of the VG funds. Redemption fees may apply if you sell shortly after you buy (1-2% usually).

[Mountain_Mike]

This brings up a question I have been thinking about. Before I "knew better" I acquired some Class A shares of several different American Funds. I have been reluctant to transfer them, since I have already paid the sales charge. Reivested dividends are exempt from the sales load, so as near as I can tell the damage has already been done. Is this an accurate assessment?

[JohnP]

Justin is correct that VEIEX (Emerging Markets) has a front load (or charge) of 0.5%. *It also has a back end load (or sale charge) of the same amount; *VG justifies this on the basis that it is more expensive to go into the financial markets of the emerging countries to purchase these equity shares. *VEIEX is the only fund at VG that has these buy/sell charges. *

We own VEIEX (about 10% of our equity holdings) and have been very pleased - YTD it is up over 24%. *VEIEX is an international fund and I have choosen to limit international exposure to about 20%, if that is a concern to you. *Just remember that past performance is not a guarantee of future performance. *

Best Regards
JohnP

[Texas Proud]

Remember that Vanguard is a FAMILY of funds... all of thier funds are different and should be viewed as such...

I have allmost all of my money at Vanguard in about 8 or so different funds between taxable and ROTH..

I also have some of the emerging market... maybe 5 or so %

[AJL]

If I would have found this site a year ago I would have saved a chunk of money-excuse me while I slap myself! I drew out my 401K (and rolled it over) on advice from the 401K advisor, after losing my job, along with others at the company that were approaching 50+ years old and could no longer enjoy the 6% employer contribution. I put my trust in my new found friend-you guessed it, another financial advisor. My new buddy almost insisted that I take the proceeds and invest in his "Pick of the Century" which he was putting most of his clients in and they were all tickled to follow suit according to him. Meanwhile, I found this website and thru process of questions & answers by persons that actually gave you the "straight skinny" ,I started to see the light at the end of the tunnel. After looking at different aspects of my decision- which are the front end loads, expense ratios, etc., and getting my pocket fleeced, I'm ready to make a change. Problem is, being 58 now, I would like to be a little aggressive in my investing to make up for "time being stupid". But, like Rocky - you don't want to lose what you got! Most of the picks in the past that I have made myself have done fairly well while the ones that the so called financial advisors have picked haven't done so hot. And they are supposedly the experts. The only "saving grace" is that at least I have some company in this department according to some of the posts. Once I make this change to Vanguard, I'll be back for some additional info - thanks.

[justin]

Quote:

Originally Posted by Mountain_Mike This brings up a question I have been thinking about. Before I "knew better" I acquired some Class A shares of several different American Funds. I have been reluctant to transfer them, since I have already paid the sales charge. Reivested dividends are exempt from the sales load, so as near as I can tell the damage has already been done. Is this an accurate assessment?

I'm in the same position as you, I bought a bunch of class A american funds shares, paid the sales load (before I knew any better), and since I've paid it, I'm going to keep them. Keep in mind you are paying a 0.25% 12b-1 fee as part of your expense ratio - this goes straight into your broker's pockets. It doesn't make the fund any better and benefits you zero, but it is a given for most retail investors to be invested in American Funds. I happen to think they are on the "honest" end of the active mutual fund scale, and the total ER on the funds I'm in aren't too bad in spite of the 12b-1 fee. I believe William Bernstein (four pillars) has mentioned if you are going to go with active funds, American Funds is the "least bad".

[Gone4Good]

Quote:

Originally Posted by AJL I'm a little leary on just what to buy at this point?

It sounds as if you need to do a little research into asset allocation. Every investment in your portfolio should serve a purpose and YOU should know exactly why you own it. This goes beyond looking into a fund's recent performance or expense ratios. These are secondary considerations to evaluate specific funds AFTER you've decided what objective you are trying to achieve with your investment (i.e. how this fund fits within, and works together with, the rest of your portfolio).

You mention VEIEX, for example. This is an emerging market equity fund. Emerging markets can be extremely volatile but have had a real nice run lately. There are plenty of reasons to own (or not own) VEIEX. But the person who said this was "a pretty good choice" may have a completely different objective in owning it than you have. He may be speculating on emerging markets. Is that what you want to do? He may also have a small part of his portfolio in VEIEX to give him some international diversification. But regardless of whether VEIEX is right for him, you need to figure out whether it is right for you.

Justin recommended Vanguard's Target Retirement Funds, and I would tend to agree with him. With these funds the only choice you have to make is how aggressively you want to invest (that is how much market volatility you are willing to stomach). The lower numbered funds (2005 & 2015) will be less volatile (and will likely result in lower long-run returns) than the higher numbered ones (2035 & 2045). I'd simply roll all my money into one of these for now. If after you've done some research into asset allocation you can always adjust the portfolio to meet your needs at some later date. Considering that all of your funds are in an IRA, there is no tax penalty for shifting investments around if you decide you want to change your allocations down the road.

[ats5g]

Quote:

This brings up a question I have been thinking about. Before I "knew better" I acquired some Class A shares of several different American Funds. I have been reluctant to transfer them, since I have already paid the sales charge. Reivested dividends are exempt from the sales load, so as near as I can tell the damage has already been done. Is this an accurate assessment?

First, the load is just a sunk cost, which shouldn't factor into the decision to whether or not to sell the funds and move to Vanguard.

As for honest, hmmm..... not really:

NASD Charges American Funds Distributors, Inc. with Arranging $100 Million in Directed Brokerage Commissions for Top Sellers of American Funds

I wonder how those directed brokerage commissions were in the best interests of the funds' shareholders.

The $5 or $10 really only affect those with balances in funds lower than $5,000 or $10,000 [for index funds]. The purchase and redemption fees on VEIEX are paid directly to the fund/current shareholders, so it's not a load, like the loads that brokers charge.

Quote:

Most of the picks in the past that I have made myself have done fairly well while the ones that the so called financial advisors have picked haven't done so hot. And they are supposedly the experts.

I'd bet my right arm that the FA's picks were not based on their investment potential, but on the fees that he/she could charge you plus the extra money that those funds'/products' providers were paying his/her "investment firm" [read: brokerage]. Kind of like the things Ed Jones got dinged for.

- Alec

[justin]

Quote:

Originally Posted by ats5g First, the load is just a sunk cost, which shouldn't factor into the decision to whether or not to sell the funds and move to Vanguard. ... The $5 or $10 really only affect those with balances in funds lower than $5,000 or $10,000 [for index funds]. The purchase and redemption fees on VEIEX are paid directly to the fund/current shareholders, so it's not a load, like the loads that brokers charge.

I thought about "the load is just a sunk cost", it shouldn't matter in evaluating what to do going forward. On the other hand, the class A shares that the sales load has already been paid on have much lower expense ratios than the class C shares (due to a much smaller 12b-1 fee). From this perspective, the sales load is still a sunk cost, but it entitles you to own the class A shares and pay less each year to own them. I agree the decision, going forward, should be framed like so: "is there a better investment out there than these American Funds I already own?"

re: the VEIEX purchase and redemption fee - it is still a sales load no matter how you look at it. The SEC may not require VG to call it that, but you pay a fixed % to buy in and sell out. True, it may benefit the fund and help reduce operating costs for all fund owners, but it is still a real expense. VG has put this clever spin on it - "we don't charge a sales load, just a percentage fee that is for the benefit of you and all other account holders."

Also, to the AJL, the $10 per account fee for having less than $5000 in any particular mutual fund in your IRA won't apply to you since you'll have more than $50,000 invested with VG. The separate $10 fee for index funds w/ balances less than $10,000 will still apply.