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american funds vs vanguard indexes over time

post #1 of 11
Thread Starter 
i have most of my mutual ira funds through american funds. my question is that over the period of 30 years, contributing 5k a year i would pay about $8600 just in loads to get into these funds. is it possible that these could outperform a variety of vanguard index funds even after paying the loads over 30 years? (generally af expenses are about .70% vs vanguard .20%).

would it be wise to continue to contribute to american funds based on year after year compounding at 5k a year, or open a 2nd portfolio of vanguard index funds and contribute $2500 to the american funds ira funds and $2500 to the vanguard ira funds each year? i wasnt sure if that would be he best move since i may lose on the amount of compounding but cut the amount of the loads in half over 30 years (approx $4300 instad)
post #2 of 11
Thread Starter 
anyone have any input please?
post #3 of 11
Im assuming you are probably already very well diversified within the American Funds, opening a second account to get into Vanguard just because there is a lower management expense ratio (MER) will just leave you with too much overlapping investments in your portfolio.

I dont know what the performance of Vanguard is vs American Funds, but you also risk the Vanguard fund under performing your current fund.

If you really want to diversify into different funds, there are plenty of no load funds you can choose from.
post #4 of 11
Thread Starter 
i also want to note that i already have about 15k with american funds and my thought is that if i startd a second portfolio with vanguard from scratch, i may be missing out on added compounding since the af has already been established. or, as i said earlier, should i contribute $2500 to each company as one is a load and one is no load. (this would cut the amount of the load in half since id only be contributing 2500 a year instead of 5000. any thoughts?
post #5 of 11
Vanguard shows their historical performance right on their site. That's after MER even. They also don't have a front end load for their index funds.

You should be able to whip up a quick cost comparison chart between the two with the historical data both provide.. and take your load into account.

I think you'll find Vanguard is cheaper and over time will result in a much greater return. Of curse, that's for you to figure out since you'll have to match funds that are alike between the two.

Also... IMO you should never, ever, have to pay a load on a fund no matter what.. even with an actively managed fund (which I advocate against buying into) you can usually find a DSC option, and assuming you're gonna hold the fund for more than 6 years this would help reduce the fees and charges.

Now, about managed funds:
No actively managed fund has beat the market year after year once you start looking at time frames of 20-30 years plus... some funds can beat the market in a rolling period of a few years.. but over time the market always wins. Why pay the MER for something that won't beat the market anyway?
post #6 of 11
Thread Starter 
i did side by side comparisons on the vanguard website and all of the american funds outperformed the top vanguard index funds over time even after the loads. after seeing it right in front of me i dont see how you could go wrong while getting some good advice from the advisor in the process
post #7 of 11
Quote:
Originally Posted by budd1234 View Post
i did side by side comparisons on the vanguard website and all of the american funds outperformed the top vanguard index funds over time even after the loads. after seeing it right in front of me i dont see how you could go wrong while getting some good advice from the advisor in the process
That doesn't sound right.

Which fund do you own?
post #8 of 11
Thread Starter 
capital world growth and income, investment company of america, american balanced fund, and capital income builder. from what i saw each of these funds had a higher return over the long run than all of the vanguard index funds i compared. unless i am mistaken, try the side by side for yourself. it looked pretty clear
post #9 of 11
For what it's worth, I'm in a similar situation (all current IRA money in AF, but considering a move to Vanguard index funds). I really got turned on to the idea of moving to a Vanguard index fund portfolio after listening to (and reading articles from) Paul Merriman (www.FundAdvice.com). He makes a compelling case for a broadly diversified portfolio of index funds spread across large & small cap, growth & value, domestic & international index funds, thereby giving you the broadest possible diversification with the lowest amount of risk.

What I've done to evaluate my choices is to create a portfolio at Marketwatch.com, and I have added into that portfolio both the funds at American Funds that I own, as well as the Vanguard portfolio I'm considering moving to. Every morning, I download a .CSV file of the previous day's results, and am tracking them for about the next year or so to see what happens, and which fund family comes out ahead.

(BTW - So far Vanguard is somewhat ahead on their returns - and of course Vanguard is ahead in having lower expenses)

Hope that helps
post #10 of 11
In this topic, I have a situation somewhat similar to ones discussed. I rolled over $250 K form my 403b plans to AF IRAs per advise from my financial adviser in the year 2005 when I retired. I paid 2.5% load fee ($6250) at that time. Bulk of the money is in Am. Balanced Fund. Some (~40K) is in grandkids college fund (growth and income builder). I am truly concerned about the anual expenses that are tacked on top of the sales charges. Does the expense ratio include the 12b-1 part? I am seriously looking at Vanguard funds. I still need to find out if there will be a charge from AF when I roll over my IRA to Vanguard fund. Also, how easy is it to switch the college funds to Vanguard. Any help will be greatly appreciated.
post #11 of 11

Lets say you invest $10 in 3 separate portfolios. In the first one, you ended up paying $150 in fees and expenses, and your account is worth $25. You liquidate it, and receive a check in the mail for $25. In the second one, you ended up paying $6 in fees and expenses, and your account is worth $25. You liquidate it and receive a check in the mail for $25. The last one you paid nothing in fees and expenses, and your account is worth $25. You liquidate it and receive a check in the mail for $25.

 

Which portfolio would you have liked to be in?

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