Anyone have thoughts about American Funds vs Vanguard for investing?

[Ranger Dan]

I had some money rolled from ESOP shares of a former company into an American Funds IRA. A friend had recommended an advisor and he took care of it. It's been doing fine, but I'm not a micromanager. My wife came along with me during my annual "check up" and she brought her retirement info for their review. They recommended that she move money from her Vanguard IRA to American Funds too. This led to her doing some google searching and it's not a clear step up. One of the biggest differences is that she doesn't have to pay Vanguard any fees, but American Funds does charge fees. I guess you could take her specific Vanguard investments and compare it to the proposed American Funds investments, and factor in the fees.

In general, however, is American Funds a high performing company? The advisor said that they were one of the few that routinely out-performend the index. I would appreciate your thoughts, input, suggestions.

 

[Coultr77]

No comparison vanguard all the way. American funds does well in bull markets because they are blended funds but you really give up on the diversification. Also vanguard typically is less expensive from internal fees and sales charges.

 

[91Joe95]

Every fund needs to be individually ananlyzed based on its results and its fund manager. If a fund did well but has changed managers, its something to seriously consider. Fees vs. no fees again is based on performance. Not all high fees are bad, but they do cut in to your returns. A really good manager overcomes that. As far as companies, again, its individual funds. That said, I never cared for vanguard funds in general. If you can find a good stock picker often you can outperform a fund, but obviously that's a much different philosophy than what you do.

 

[Sharkies]

Lowest fees will win out in the long run (25+ years) guaranteed. If your time horizon is less than that, ymmv. Otherwise, for the kiddies on the board, lowest fee fund that mimics the s&p 500 will win out long term.

 

[Psualum2007]

Just buy into individual large blue chip dividend stocks you'll do better than a fund.

 

[Agoodnap]

Ok, I have investments at both Vanguard and American. That said, here is the strategy that I direct my Financial guy to follow.

1. Buy Funds that invest in companies that are leaders in their industry.
2. These companies must pay dividends.
3. The companies must have historically increased their dividend payments regularly.

Important to continuously re-invest the dividends.

With this strategy you'll lag the Bull markets but you'll seriously lag the Bear markets. So that recovery from a downturn will be much less. A typical example:

Bull Market over 3 years: +38% This strategy +33%
Bear Market over 2 years: -19% This strategy -10%

 

[bdgan]

I had some money rolled from ESOP shares of a former company into an American Funds IRA. A friend had recommended an advisor and he took care of it. It's been doing fine, but I'm not a micromanager. My wife came along with me during my annual "check up" and she brought her retirement info for their review. They recommended that she move money from her Vanguard IRA to American Funds too. This led to her doing some google searching and it's not a clear step up. One of the biggest differences is that she doesn't have to pay Vanguard any fees, but American Funds does charge fees. I guess you could take her specific Vanguard investments and compare it to the proposed American Funds investments, and factor in the fees.

In general, however, is American Funds a high performing company? The advisor said that they were one of the few that routinely out-performend the index. I would appreciate your thoughts, input, suggestions.

Why would you pay a front end sales charge to invest in American Funds?
(unless you can purchase those funds through an employer plan where the sales charges are waived)

 

[Ranger Dan]

Why would you pay a front end sales charge to invest in American Funds?
(unless you can purchase those funds through an employer plan where the sales charges are waived)

American Funds isn't a 401k for me. The benefit for moving from ESOP is to diversify in case that company wasn't performing well. I could have rolled it into my companies 401k, but then I would be limited in the options for investments. American Funds apparently has a different marketing/sales strategy. They don't advertise like Fidelity and Vanguard. They rely on financial advisors to sell their product. I'm not sure how Vanguard and Fidelity get paid if they aren't charging fees, but they must be getting paid somehow...

We were also told that we are putting too much into our tax deferred savings, and should do some saving into funds where the money is accessible without penalty. This makes sense. My wife and I are pretty well on our way in the retirement area (not so much that we can retire early), but we don't have access to large chunks of savings. The advisor is suggesting American Funds for this option as well. We will have to do a comparison down to the fine detail and see what is better for us. I just wanted to see if anyone had any general thoughts on American Funds.

 

[bdgan]

American Funds isn't a 401k for me. The benefit for moving from ESOP is to diversify in case that company wasn't performing well. I could have rolled it into my companies 401k, but then I would be limited in the options for investments. American Funds apparently has a different marketing/sales strategy. They don't advertise like Fidelity and Vanguard. They rely on financial advisors to sell their product. I'm not sure how Vanguard and Fidelity get paid if they aren't charging fees, but they must be getting paid somehow...

We were also told that we are putting too much into our tax deferred savings, and should do some saving into funds where the money is accessible without penalty. This makes sense. My wife and I are pretty well on our way in the retirement area (not so much that we can retire early), but we don't have access to large chunks of savings. The advisor is suggesting American Funds for this option as well. We will have to do a comparison down to the fine detail and see what is better for us. I just wanted to see if anyone had any general thoughts on American Funds.

Financial advisors get paid by earning a commission selling funds like American. You give them $100k, they get a $5k commission, and invest the remaining $95k.

I suggest you visit a Fidelity or Schwab office near you before jumping in with a commission based advisor.

 

[Doc-M]

Avoid American Funds due to front end load. Go with Fidelity or Vanguard.

 

[sluggo72]

Dan buy Investment co of America by American funds pay whatever and in 10 yrs you'll say the best investment I've ever made.

 

[sluggo72]

Avoid American Funds due to front end load. Go with Fidelity or Vanguard.

Which fidelity fund? Which vanguard fund ??

 

[Ranger Dan]

Morningstar graded a bunch of the funds in a article I read tonight. There were C, B, and A grades. Fidelity was graded a B, and both American and Vanguard were among the 4 total fund steward companies in the A grade category. They did seem to put Vanguard out in front of the other three A grades, because of their low fees.

 

[bdgan]

Morningstar graded a bunch of the funds in a article I read tonight. There were C, B, and A grades. Fidelity was graded a B, and both American and Vanguard were among the 4 total fund steward companies in the A grade category. They did seem to put Vanguard out in front of the other three A grades, because of their low fees.

Don't look at it that way. Every fund family has some good funds and some that aren't so good. Visit a Fidelity office and a representative will suggest some model portfolios and funds. Same with Schwab or Vanguard but I think your dealings with Vanguard can only be by phone.

 

[Safety Blitz]

I had some money rolled from ESOP shares of a former company into an American Funds IRA. A friend had recommended an advisor and he took care of it. It's been doing fine, but I'm not a micromanager. My wife came along with me during my annual "check up" and she brought her retirement info for their review. They recommended that she move money from her Vanguard IRA to American Funds too. This led to her doing some google searching and it's not a clear step up. One of the biggest differences is that she doesn't have to pay Vanguard any fees, but American Funds does charge fees. I guess you could take her specific Vanguard investments and compare it to the proposed American Funds investments, and factor in the fees.

In general, however, is American Funds a high performing company? The advisor said that they were one of the few that routinely out-performend the index. I would appreciate your thoughts, input, suggestions.

RangerDan... I've been using Vanguard funds for more than 25 years. I like the low fees and the ease of moving my money from fund to fund when I reallocate my portfolio. I have about a dozen funds active. Some have minimal amounts, but I keep them active so I'm not closed out if the markets change. I have never used American Funds, so I can't offer an opinion there, but Vanguard has served my needs extremely well. Best of luck to you. Going to be some interesting times ahead.

 

[Coultr77]

Morningstar graded a bunch of the funds in a article I read tonight. There were C, B, and A grades. Fidelity was graded a B, and both American and Vanguard were among the 4 total fund steward companies in the A grade category. They did seem to put Vanguard out in front of the other three A grades, because of their low fees.

Look at the stock intersection for American funds, this really is a no brainier you literally can not build a true portfolio in American funds. Private message me if you want

 

[FrontFlipper1]

I agree. American Funds are limited in their diversification. I also agree there are way too many no load (no sales charge in human speak) funds available. Finally Fidelity, Vangaurd, or Thrivent Funds is like comparing Kmart, Walmart, and Target. Each has its benefits. Invest according to your time line. The sooner you are gonna use it the more conservative you should be. And remember you aren't gonna use all of your nest egg the first 5 years of retirement. Diversify your money from a time perspective. Be more aggressive with the stuff you will use when you are 80.

 

[Ranger Dan]

I agree. American Funds are limited in their diversification. I also agree there are way too many no load (no sales charge in human speak) funds available. Finally Fidelity, Vangaurd, or Thrivent Funds is like comparing Kmart, Walmart, and Target. Each has its benefits. Invest according to your time line. The sooner you are gonna use it the more conservative you should be. And remember you aren't gonna use all of your nest egg the first 5 years of retirement. Diversify your money from a time perspective. Be more aggressive with the stuff you will use when you are 80.

Thanks, I've been doing the IRA/401k thing since my early 20's (over 25 years). I'm not asking about my long term investing strategy... I'm asking whether American Funds is specifically a more desirable funds management company than Vanguard.

 

[mn78psu83]

Ok, I have investments at both Vanguard and American. That said, here is the strategy that I direct my Financial guy to follow.

1. Buy Funds that invest in companies that are leaders in their industry.
2. These companies must pay dividends.
3. The companies must have historically increased their dividend payments regularly.

Important to continuously re-invest the dividends.

With this strategy you'll lag the Bull markets but you'll seriously lag the Bear markets. So that recovery from a downturn will be much less. A typical example:

Bull Market over 3 years: +38% This strategy +33%
Bear Market over 2 years: -19% This strategy -10%

Important to continuously re-invest the dividends.

Compounding by reinvesting dividends is a beautiful thing.

 

[mn78psu83]

Thanks, I've been doing the IRA/401k thing since my early 20's (over 25 years). I'm not asking about my long term investing strategy... I'm asking whether American Funds is specifically a more desirable funds management company than Vanguard.

I'm asking whether American Funds is specifically a more desirable funds management company than Vanguard.

NO. They are more desirable to some and not to others. Some will prefer American Funds, some Vanguard. You really have to do the due diligence yourself. You have to determine which matches up better with your approach to investing. With which one will you be more comfortable?

 

[bdgan]

Thanks, I've been doing the IRA/401k thing since my early 20's (over 25 years). I'm not asking about my long term investing strategy... I'm asking whether American Funds is specifically a more desirable funds management company than Vanguard.

Let me try one last time Dan. American Funds has some good funds and some bad funds as do all of the fund/brokerage companies. The problem is that they are sold by fee based advisors. It's a very expensive way to go unless you can purchase their fund through an employer plan that gets a fee waiver. Hook up with those guys on your own and there's a good chance they'll also try to sell annuities with high fees. I'd stay away.

Fidelity, Vanguard, and Schwab are much better choices IMO. All of them offer a good selection of 4* & 5* low cost mutual funds and ETFs. My only issue with Vanguard is that you're going to get your support over the phone. Fidelity & Schwab have offices in many localities where you can get face to face service. It sounds like you could use that type of help and it won't cost you a dime.

 

[sluggo72]

Thanks, I've been doing the IRA/401k thing since my early 20's (over 25 years). I'm not asking about my long term investing strategy... I'm asking whether American Funds is specifically a more desirable funds management company than Vanguard.

There answer is yes, hands down. If you really get down to it , vanguard doesn't even manage many of their funds, they are just marketers of the fund re: vanguard Wellington, vanguard Windsor are managedby someone other than employees Of vanguard.
Fwiw the portfolio managers at American funds have over $1,000,000 of their own money in the funds they manage. They have skin in the game

 

[kgilbert78]

They (American) rely on financial advisors to sell their product. I'm not sure how Vanguard and Fidelity get paid if they aren't charging fees, but they must be getting paid somehow....

As a result, the more American's advisors sells to you the more they make--good or bad. And they make their money up front. If the investment ends up not being any good, the sales folks still have gotten their commission. That can be a conflict of interest. Vanguard makes money by small fees and volume. If they keep your money--and do well for you--you will stay with them over the long haul. They are happy to have a smaller piece of a larger pie over time.

Full disclosure, I have Vanguard for much of my 403-B portfolio (I work for a non-for-profit, so it uses a slightly different system than a 401k--but is essentially the same thing), This was on the recommendation of my brother, who is a CPA (and a PSU business grad).

 

[rutgersal]

vanguard has done very well for my family. strong performance + low fees.

 

[Nittany Security]

Damn! You guys sound so damn smart what the hell are you doing on this board

 

[troutrus]

There are folks out there who think that schwab, vanguard, whoever does not charge fees because they don't show fees on your statement. Pretty funny. I guess those outfits are just in it for the love of the game.
Ask your "advisor" to show you what fees you paid last year and see what they say.

 

[indynittany]

Comparing Vanguard to American funds is like comparing apples to oranges. Vanguard has lower fees because their funds are passively managed. American funds are actively managed. Historically, the passive approach outperforms in a bull market because a) everything is going up and b) lower fees. However, in a bear or sideways market, the actively managed approach tends to do better.

Put another way, you can probably wash your car in one of those self service bays as well as a drive through place and save some money. But is it worth doing it that way in the middle of winter?

 

[mn78psu83]

There are folks out there who think that schwab, vanguard, whoever does not charge fees because they don't show fees on your statement. Pretty funny. I guess those outfits are just in it for the love of the game. Ask your "advisor" to show you what fees you paid last year and see what they say.

Good point. It's all part of the due diligence any investor should undertake before they make a decision. Show me the numbers, the facts. What are the various funds rates of return after all fee deductions? With which funds is it more likely that you will have to report capital gains in a given year (I'm assuming we're also discussing investing in a taxable account here - "We were also told that we are putting too much into our tax deferred savings, and should do some saving into funds where the money is accessible without penalty."). There are a lot of funds that do so and you are responsible for the taxes. You can end up with large taxable distributions. I've seen people gobsmacked by it and scrambling to find losses to offset those gains. Under which conditions have passively managed funds outperformed? Under which conditions have actively managed funds outperformed? Fund turnover rates? And so on and so on.

By looking at all of the various points of comparison you will be able to determine which one is best for YOU. Not blindly follow what is best for someone else. I have personally always preferred actively managed funds (American is my favorite group) and common stocks. Since I left the business, I've never tried to compel someone else to choose actively managed funds, but rather have laid out the fundamental differences and told them to do the research. This is important for individual investor psychology. You should be able to handle the fear and greed thing better, if you've done your research and tempered expectations in line with a realistic set of possible investing outcomes on the basis of the chosen approach. Everyone likes return and dislikes risk in varying ratios.

Ranger Dan is pretty methodical from what I can tell from his DIY posts, so he should have fun doing his research.

 

[sluggo72]

Good point. It's all part of the due diligence any investor should undertake before they make a decision. Show me the numbers, the facts. What are the various funds rates of return after all fee deductions? With which funds is it more likely that you will have to report capital gains in a given year (I'm assuming we're discussing a taxable account here). There are a lot of funds that do so and you are responsible for the taxes. You can end up with large taxable distributions. I've seen people gobsmacked by it and scrambling to find losses to offset those gains. Under which conditions have passively managed funds outperformed? Under which conditions have actively managed funds outperformed? And so on and so on.

Fwiw all mutual funds ror are always quoted after all fees are deducted

 

[mn78psu83]

Fwiw all mutual funds ror are always quoted after all fees are deducted

True. Thanks.

 

[tboyer]

EXPENSES EXPENSES EXPENSES. For long term investments, expense ratio is basically everything. Especially in a low-inflation environment.

Vanguard has the lowest expenses in the industry because of the way Vanguard is constituted -- i.e. Vanguard is not stockholder owned. It is more like a mutual insurance company run for the benefit of its policyholders -- Vanguard is essentially run as a nonprofit business whose goal is to keep expenses as low as possible for Vanguard investors. If Vanguard has a good year, instead of paying dividends, they reduce their management fees for the following year. Nobody else in the industry works that way.

There are other investment families that offer low-expense products, like Fidelity, but Vanguard is always going to do better on expenses because of the way it's structured.

 

[tboyer]

There are folks out there who think that schwab, vanguard, whoever does not charge fees because they don't show fees on your statement. Pretty funny. I guess those outfits are just in it for the love of the game.
Ask your "advisor" to show you what fees you paid last year and see what they say.

It's true that sometimes you have to look closely to know the expenses being charged -- particularly the management fee. Vanguard in fact is VERY upfront about fees because their fees are the lowest in the industry. And the more money you have with them, your fees are lower -- kind of a volume discount. Some of our Vanguard stock funds have annual fees of under 40 basis points. Anybody paying even 1 percent these days is losing a lot of their capital over time -- let alone some of these funds that are 3-4 percent.

I'm not aware of a good argument for managed funds these days. Over time the returns will be revert to the mean -- i.e. you do just as well with index funds or ETFs. That's tough for the industry because a lot of people are still employed managing funds and selling high expense funds. But the reality is, it's hard to know what value they add for the high cost.

40 years ago if you had a genius fund manager like a Peter Lynch, you could sometimes beat the market for 5-6 years running. Arguably that was worth high expenses, even worth the 3 percent load that Fidelity charged. But that just doesn't really happen much any more because the markets are so much faster to react and more efficient. Even hedge funds are having trouble justifying their existence these days. Yeah managers will have a good run for a year or two. But that is not a reason to get into that fund -- in fact that is often a good reason to avoid that fund.

A lot of the success of hedge funds in the 90s and 00s was, as we've since learned, simply insider trading, high-speed trading intercepts and other frauds and ripoffs. Most hedge fund managers really aren't smarter than the market, as much as they'd like you to believe otherwise.

 

[GregInPitt]

American Funds isn't a 401k for me. The benefit for moving from ESOP is to diversify in case that company wasn't performing well. I could have rolled it into my companies 401k, but then I would be limited in the options for investments. American Funds apparently has a different marketing/sales strategy. They don't advertise like Fidelity and Vanguard. They rely on financial advisors to sell their product. I'm not sure how Vanguard and Fidelity get paid if they aren't charging fees, but they must be getting paid somehow...

We were also told that we are putting too much into our tax deferred savings, and should do some saving into funds where the money is accessible without penalty. This makes sense. My wife and I are pretty well on our way in the retirement area (not so much that we can retire early), but we don't have access to large chunks of savings. The advisor is suggesting American Funds for this option as well. We will have to do a comparison down to the fine detail and see what is better for us. I just wanted to see if anyone had any general thoughts on American Funds.

I obviously don't know what your access is to Roth type accounts, but in addition to having money in post-tax accounts, it's also great to have money in Roth accounts which are another option for access to funds in years where you may have pushed yourself into (or near to) higher tax brackets.

I personally would not invest in funds with high front end loads such as American Funds. It takes years of beating the market by these funds to make up for the initial loss of principle that the loads represent. I stick to Fidelity and Vanguard, and am in the process of moving funds from my company 401 into Vanguard IRA's, although my former company's 401 offers a fixed income option not offered to the public that I will keep some $ in going forward....

For me, no question I would go with Vanguard over any high load funds, including American Funds.

 

[PSU77sh]

Tboyer. Did not know that about Vanguard. Interesting. Thank you.

 

[bdgan]

There are folks out there who think that schwab, vanguard, whoever does not charge fees because they don't show fees on your statement. Pretty funny. I guess those outfits are just in it for the love of the game.
Ask your "advisor" to show you what fees you paid last year and see what they say.

Completely false. American Funds will charge an up front sales fee (load) and there is still an expense ratio for their fund. Vanguard and Fidelity will not charge through load and their funds will still have a lower expense ratio than American.

BTW, Fidelity & Vanguard both have actively managed funds in addition to passive index funds. You can buy ETF equivalents of their funds from any low commission broker.

 

[GregInPitt]

Completely false. American Funds will charge an up front sales fee (load) and there is still an expense ratio for their fund. Vanguard and Fidelity will not charge through load and their funds will still have a lower expense ratio than American.

BTW, Fidelity & Vanguard both have actively managed funds in addition to passive index funds. You can buy ETF equivalents of their funds from any low commission broker.

Exactly. That's why even though SOME of the load funds outperform SOME of the more highly rated funds from Fidelity and Vanguard, overall the Am. Funds funds do not outperform them. And if you choose to exit an Am. Funds fund in the short run you are definitely a loser in the deal because you won't have recovered your "load" that you lost when the initial investment was made...... But if the guy selling you the load funds is a friend of yours, go ahead and contribute to his retirement .....

 

[Cold Smoke]

I had some money rolled from ESOP shares of a former company into an American Funds IRA. A friend had recommended an advisor and he took care of it. It's been doing fine, but I'm not a micromanager. My wife came along with me during my annual "check up" and she brought her retirement info for their review. They recommended that she move money from her Vanguard IRA to American Funds too. This led to her doing some google searching and it's not a clear step up. One of the biggest differences is that she doesn't have to pay Vanguard any fees, but American Funds does charge fees. I guess you could take her specific Vanguard investments and compare it to the proposed American Funds investments, and factor in the fees.

In general, however, is American Funds a high performing company? The advisor said that they were one of the few that routinely out-performend the index. I would appreciate your thoughts, input, suggestions.

Dan, why would you ask this question of strangers on a message board? Ignore this thread, google and read what Warren Buffet has said/written on this topic for the last 10-15 years. He has not changed his mind during that time. His market forecasts...yes. His investment advice for your situation... no. Summing up his advice, I would choose Vanguard's SP500 ETF fund VOO. I would also educate myself on writing out-of-the-money covered call options on this fund. My two cents.

 

[mn78psu83]

Dan, why would you ask this question of strangers on a message board? Ignore this thread, google and read what Warren Buffet has said/written on this topic for the last 10-15 years. He has not changed his mind during that time. His market forecasts...yes. His investment advice for your situation... no. Summing up his advice, I would choose Vanguard's SP500 ETF fund VOO. I would also educate myself on writing out-of-the-money covered call options on this fund. My two cents.

LINK - Buffett: This is the most important investment lesson in the world

Here's a decent article that explains the strategy on the S&P 500 and covered calls. I would only add that if you don't understand why you're doing it, don't do it.

Covered calls on an S&P 500 Stock Portfolio?

To be fair - if Dan follows your advice, he's still following someone's advice on a message board.

 

[Media Fan]

It was either last year or this year to date, but Vanguard took in approx. 110 percent of the money that went into mutual funds. Pretty clear message.

 

[Ranger Dan]

Dan, why would you ask this question of strangers on a message board? Ignore this thread, google and read what Warren Buffet has said/written on this topic for the last 10-15 years. He has not changed his mind during that time. His market forecasts...yes. His investment advice for your situation... no. Summing up his advice, I would choose Vanguard's SP500 ETF fund VOO. I would also educate myself on writing out-of-the-money covered call options on this fund. My two cents.

Thanks for the response, but I'm not asking for input on specific funds, just checking to see whether anyone had any first hand experience with American Funds and could compare with Vanguard.