American Funds (no load) v. Vanguard

[catccc]

I have some cash I've been sitting on for many years (earliest record is about ~$10K in 2004, and I've saved more and gotten nominal interest over the last 10 years, it's now ~$130K. I am maxing out my 401K and my Roth, I don't think there are other retirement vehicles I can stick this in. Originally the plan was to save $50K to put down on a house, but the $50K mark has come and gone, and I don't know what kind of house I want to buy, and so this money has been doing nothing for me.

Since 2003, I've been investing in various employers' 401Ks, and maxing out the Roth. The Roth has always been with American Funds. During a low income year (stay at home mom), I rolled over all of the 401K balances to American funds. I also had invested small amounts periodically into another non-retirement invest account with AF. The result is total contributions to the AF account of $116K, and investment gain of $73K over 10 years. I think this is pretty good, and when I look at my $130K of cash, I'm downright embarrassed that I let gains like that slip away.

Sorry for all the backstory, here's my question:

Obviously (right?) my move now is to stop pretending we're going to buy a house in the near future, and invest this money. Should I put it in AF or open a Vanguard account? I don't pay any sales charge to AF, which is a big savings (5.75%), but their expense ratios are still higher than Vanguard's. Or, since I already have the AF account, just split the $ and put half in Vanguard and half in AF? Or should I consider other alternatives? Dump some into the kids 529s (yields state tax benefit). Other tax saving moves? IRAs are already maxed out. ($5,500 seems like such a joke...)

 

[Animorph]

You might check out the tax efficiency of your possible choices at Morningstar. A nice low-turnover Vanguard index fund like Total Stock Market that you can leave alone for years would be nice in a taxable account, though watch the dividends. I don't know how AF does with that, though from M* they seem well respected, and their performance is generally good if you don't have to pay the load.

I never liked the restrictions on 529s (education expenses, time frame, available investments), but it has been noted here that you may be able to make the contribution and withdraw it for education expenses relatively quickly. That might gain you a deduction.

 

[CaliforniaMan]

...
I never liked the restrictions on 529s (education expenses, time frame, available investments), but it has been noted here that you may be able to make the contribution and withdraw it for education expenses relatively quickly. That might gain you a deduction.

Might want to check out a UTMA account. I setup one each for my kids when they were very young, and I was the trustee. They become trustee at some age, usually 18, but I had mine set to the max, 25 years, assuming they would be 'responsible' by then, which they were. I think it is still available, not much restrictions on use, as long as it is for their benefit. You can set them up with various financial institutions, VG being one.

 

[samclem]

I can't see any reason to go with American Funds for the new money--Vanguard is cheaper and costs do matter. I'd also move the money from your Roth account to Vanguard. The situation with any money already in your taxable AF equity accounts is a little less straightforward, as selling/moving the money would be a taxable event. At the very least I would send all dividends from the taxable AF account to funds you set up at Vanguard.

529's can be a smart move. Again, costs matter so look for a low-cost provider among the offerings of your state's plan.

Good luck!

 

[MRG]

I have an issue dealing with any company that charges 'less educated investors' 6% to join their 'club'.

Not sure why, but my perceived uneducated investor costs, cross a boundary. I don't have an issue with many 'ethical' investments( I own big tobacco stocks). This company's customer acquisition techniques are against my core values, glad you were able to dodge FE loads.

Some of their funds have good returns, despite high ERs. YMMV.
MRG

 

[catccc]

Here's an article highlighting AFs performance:
American Funds Throws Gauntlet to Passive Investors

I always have a hard time deciding these things.

I think I'm going splitsies with the house funds between AF & Vanguard, but not before contributing to the kids 529s. Already opened last year w/ NY, one of the lowest cost plans around. Lucky to live in PA where a state tax deduction is available for contributions to any state's plan. Thanks all for the input!