I need a pep talk

[lhamo]

Bunny,

Youre doing alot or work to post what 99% of readers here already know. The 1% who doesnt know it, obviously will never be convinced so youre wasting your time .

Actually, I have posted here in the past about whether or not I should hang on to my American Funds (which I was forced to buy in a 403(b) managed by a "professional" who I found to know less about financial management than I did -- maybe he and Art G are related?) or roll everything over to Vanguard. The general advice I remember getting was that once you had paid the fees upfront, American Funds performance was generally pretty good so no need move things around.

Thank you cfb, for the detailed analysis. I will be reconsidering my options.

lhamo

 

[2B]

Easy. They dont say what he wants them to say.

Many "investment professionals" offer to sell a product at a high price while creating the perception that the product is superior and gives greater rewards to the buyer.

If you take that perception away, the professional must find actual value to associate with the increased price.

Someone who isnt that good just tries to find a more gullible customer.

CFB,

I'm usually in favor of letting sleeping dogs lie, so to speak, but when trolls repeatedly spread false information it should become easy to immediately flip to a ready reference to quash it. Also, American funds need a slight bit of [-]punishment[/-] truth prominently posted on this site as compensation for ArtG's actions.

You are more familiar than I am with how the search features work but could you make sure there is an easy way to find the American Funds performance comparison in the future? I think it would be worth it even if you posted your final comparison charts as a new thread.

 

[cute fuzzy bunny]

Hey, its entirely possible that theres something missing from the picture. Unfortunately the proponents of these funds arent providing any concrete information. Had Art provided the parameters around the numbers in his "book" I might have seen something to explain it.

On further analysis, it seems that many of these American funds have a value slant, many carry small cap stocks or international stocks/emerging markets, and they also tend to hold a fair amount of cash. Several also hold a lot of oil/energy stocks.

All good ideas to increase returns and dampen volatility.

Where I think it gets shady is when they compare that mix to the S&P 500. Large cap blend vs a mix of stocks of varying capitalizations, value tilt, small and foreign and emerging market. Definitely not apples to apples.

If they didnt nick you for the front end load and high expenses, the funds might actually be a good one-stop-shopping solution.

One can duplicate this by taking your money and splitting it into 10 parts. Buy 1 part money market/cd's, 4 parts TSM, 1 part TIM, 1 part small value, 1 part large value, 1 part international value and one part energy/oil stocks.

Another concern about American funds is that money has poured into them over the last few years. Theres definitely signs of serious fund bloat. The article below notes that Smallcap World only keeps 32% of its money in small stocks, vs 60% just a few years ago. I'd be a little disappointed if I wanted small caps and bought a fund with the word "smallcap" in its name, and ended up with less than a third of my money in small caps.

Money Magazine: Why success could spoil American Funds - August 1, 2006

The second link is a really interesting article talking about investing as a 'winners game' or 'losers game'. Its an older paper, but very well written and has some good data points.

Index funds vs active funds

 

[FinanceDude]

Pleased to be of service. I just wanted to get to the straight story.

By the way, I forgot to mention that there are two other share classes that help you avoid the 5.75% front end load. The class B shares skip the load, you cant sell them for six years without incurring the load, and they charge you ~1.5% a year ER. The class C shares cant be sold for a year without incurring the sales load, are also ~1.5% a year, and after ten years convert automatically to a share class that requires an annual advisors fee payment.

I guess after holding an investment for ten years, you may need a little paid help with it?

What about breakpoints??

 

[cute fuzzy bunny]

Are you really sure you want me to get some of this on you?

Sure, if you want to soak six figures into a particular fund you can drop the front end load to a couple of percent when buying a fund that underperforms a simple 3 or 4 component portfolio with no sales fees.

None of the charts above incorporate the front end loads.

I did read the prospectus' for the funds in question and they all do claim to have beaten the S&P 500 over ten years, but not for 5 years and barely for one year. But the numbers they stated dont jibe with other sources for s&p500 returns. Which isnt the index I'd compare many of these funds with anyhow.

 

[Gone4Good]

Sorry, still no dog in this fight, but don't Vanguard breakpoints start at $0?

 

[cute fuzzy bunny]

Yep, but the bastards dont start writing you checks at the $100k point like American does to its financial representatives.

 

[FinanceDude]

Are you really sure you want me to get some of this on you?

Hey, you're the one quoting 5.75% on everything, which is inaccurate..........

But the numbers they stated dont jibe with other sources for s&p500 returns. Which isnt the index I'd compare many of these funds with anyhow.

It's not like you can fake a prospectus...... Basically, Fido has a trillion dollars, American has a trillion dollars, and Vanguard has a trillion dollars in assets. In your eyes, there must be a lot of idiots out there for American to have a trillion dollars in assets..........American Funds are not designed to "beat in index", never have. I would discuss on, but you aren't willing to have a logical discussion, so I will move on..........

 

[FinanceDude]

Sorry, still no dog in this fight, but don't Vanguard breakpoints start at $0?

I can duplicate an index fund with ETFs for less than what Vanguard charges for annual expenses, but that's another thread.......

 

[mb]

The general advice I remember getting was that once you had paid the fees upfront, American Funds performance was generally pretty good so no need move things around.

Thank you cfb, for the detailed analysis. I will be reconsidering my options.

lhamo

I think that is still the case but that just because they are good funds doesn't mean they will consistently beat the indexes.

Many years ago I had both some pre-tax and after-tax money at American but I ended up rolling it all over to Vanguard because I wasn't willing to put any new money into it and incur a load and it was a pain keeping track of many small accounts.

MB

 

[slouch]

Is it standard practice for investors to pay the full load price when working with an adviser? I honestly don't know, but I assumed that the 5.75% front end load was just the sticker price (e.g., the adviser could return the fees to the client based on whatever fee structure was put in place between the client and adviser). Am I way off base here?

 

[FinanceDude]

Is it standard practice for investors to pay the full load price when working with an adviser? I honestly don't know, but I assumed that the 5.75% front end load was just the sticker price (e.g., the adviser could return the fees to the client based on whatever fee structure was put in place between the client and adviser). Am I way off base here?

There are different fee structures and share classes. However, a discussion of those won't happen on here..........

 

[cute fuzzy bunny]

Oh, I'm sorry, apparently you DO want some on you!

Hey, you're the one quoting 5.75% on everything, which is inaccurate..........

I'm sorry, I thought I just acknowledged otherwise. My bad. I said "If you want to throw massive amounts of money at funds that dont make as much money as cheap indexes, they wont sucker you for quite as much of a front end load"

Is that easier to read?

It's not like you can fake a prospectus......

No, but you can pick your start and end dates judiciously, and decide what you do and dont include for costs and returns. That seems to be what happened. How unusual for an expensive fund full of front end loads to do some chicanery to get people to buy in!

Otherwise, go analyze what the #1 finance site did wrong and report back to us.

American Funds are not designed to "beat in index", never have.

Thats a good thing. Because it appears that they dont. And with 5 minutes of 'work' on shaping a portfolio, which I'm most pleased to offer for way less than 5.75%, you can thoroughly beat these funds and not be a sucker.

I would discuss on, but you aren't willing to have a logical discussion

Tell me where you got that? I offered some charts from a major financial web site, gave my opinion, and one proponent said he had "some books" that said otherwise, while you cut and ran. Offer me a logical discussion and I'll be glad to engage it. Point me at data, offer me facts. So far what I see is that American funds charge too much, return too little, and stray substantially from their investment targets.

Do note though that I have ten thousand notebooks full of why actively managed funds fail, and while I've been fairly nice about it up to this point, will gladly post those ad nauseum.

so I will move on.

You were smart in the first place to divorce yourself from this loser of a discussion. I'm truly sorry you changed your mind.

For the rest of us, American funds underperform. Their primary proponent is a salesman who offers lame platitudes and then declares victory in the absence of confirming data. Their secondary proponent suggests that if you throw enough money at them, they wont soak you as badly on the entry to the poorly returning funds that he makes a ton of money from on referrals, and then suggests that you accept his livelihood without any supporting data because "he's done".

 

[73ss454]

I'm glad you're here CFB, it'll be interesting to see what they have to say about your info.

I paid these crazy commissions for many years with Oppenheimer as my advisor saw fit to line his pockets. Hey, buyer beware, I'm just glad I woke up though a bit late.

 

[2B]

I can duplicate an index fund with ETFs for less than what Vanguard charges for annual expenses, but that's another thread.......

I started to do that but I found that the ETFs for some of the subsets frequently traded with high bid/ask spreads. They also would go through periods of relative inactivity. It seemed only the hot ETFs would have a high volume and close spreads. For SPY that is always true. For the others, it depends.

FA industry exists because for two reasons. There's one group of people that find all this investment and finance stuff "too complicated" and they "need" help rather than learn to do it themselves. The other reason is that people believe (because they want to despite the studies showing it doesn't) that a "professional" can get a higher return than a diversified portfolio of index funds.

 

[FinanceDude]

I'm glad you're here CFB, it'll be interesting to see what they have to say about your info.

I paid these crazy commissions for many years with Oppenheimer as my advisor saw fit to line his pockets. Hey, buyer beware, I'm just glad I woke up though a bit late.

Oppenheimer's expense ratios are double or more than American.......

 

[FinanceDude]

I'm glad you're here CFB, it'll be interesting to see what they have to say about your info.

I paid these crazy commissions for many years with Oppenheimer as my advisor saw fit to line his pockets. Hey, buyer beware, I'm just glad I woke up though a bit late.

CFB is not looking for a discussion, but a fight...........

 

[73ss454]

Thanks for the reminder on Oppenheimer, another one of the stupid things I did in my life.

 

[73ss454]

CFB is not looking for a discussion, but a fight...........

Maybe, but he seems to have his ducks in a row, no.

 

[FinanceDude]

Maybe, but he seems to have his ducks in a row, no.

Well, he did compare the American Funds to the Vanguard TOTAL MARKET INDEX, and then complained that the American Funds compare themselves to the S&P 500? Morningstar and their brethren set up their software to have the S&P 500 Index as the "benchmark", so how is that American's or anyone else's fault?

There is no real pure index to compare American's portfolios to. They use a multicap strategy with a value bent. Their goal is not to beat the index, which should mean they should be out of business in the eyes of many on here, but they're not........

All I know is I have been invested in them for 15 years, have made plenty of money, and know I'm taking less risk than full market risk to do so. I have yet to have ONE client leave American to go somewhere else, Vanguard or otherwise. Mutual funds are a very small part of my business.......

Rant on.......

 

[FinanceDude]

Thanks for the reminder on Oppenheimer, another one of the stupid things I did in my life.

Don't feel bad. Oppenhiemer had some real "whiz kids" for a while, with big returns. Unfortunately to go with those returns, the managers in their value funds were buying stuff like Tyco and CMGI........

 

[Bestwifeever]

But FD, your clients choosing not to leave American Funds is not the same as documentation that those funds have outperformed corresponding index funds, which is what CFB is asking from you. That people choose to use FAs rather than manage their own finances is not the same as documentation.

IMO your profession is important for people who do not want to manage their own finances. I bet if asked to, you could explain to those people about how they could save $$ by not having a FA, and their eyes would glaze over and they would go to the next FA because they just don't want to do the work involved. They are paying you to do that work and I imagine (I don't know how you're compensated) the funds are paying you a commission too. Hey, good for you, no problem from me with that, it's just business.

 

[73ss454]

I would think that another good reason why American funds are still in business is because of brokers sending their clients money to them. A steady infusion of $ never hurts.

 

[FinanceDude]

But FD, your clients choosing not to leave American Funds is not the same as documentation that those funds have outperformed corresponding index funds, which is what CFB is asking from you. That people choose to use FAs rather than manage their own finances is not the same as documentation.

I have never stated that American Funds outperform the index funds. What is irrefutable is that the risk they take is less than owning the entire market.......

IMO your profession is important for people who do not want to manage their own finances. I bet if asked to, you could explain to those people about how they could save $$ by not having a FA, and their eyes would glaze over and they would go to the next FA because they just don't want to do the work involved. They are paying you to do that work and I imagine (I don't know how you're compensated) the funds are paying you a commission too. Hey, good for you, no problem from me with that, it's just business.

Like I said when I joined this forum over two years ago,I'm not on here to get new clients..........

I work on a fee basis, and buy and sell ETF's and stocks for my clients. I have very little mutual fund business...........

 

[FinanceDude]

I would think that another good reason why American funds are still in business is because of brokers sending their clients money to them. A steady infusion of $ never hurts.

Huge business in 401Ks is the real reason........