#43264 - 05/08/08 12:20 PM
Why is Virginia (Va) so popular?
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jpl
Registered: 05/01/08
Posts: 5
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I understand American funds history of actually capturing some Alpha, and being a top notch manager.
But in looking at the morningstar data (http://www.morningstar.com/529/529Table.html)
the VA plan has 3-500% more in assets than even the closest states.
Is it because the Va plan is marketed the best, and pushed the hardest by brokers? Curious to others thoughts.
I'm still deciding on where to open a plan, and the 5.75% load on the Va A shares really bugs me. I cant find a direct sold plan that offers anywhere near the flexibility though, or the exposure to all the asset classes that American does.
Thanks.
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#43266 - 05/08/08 01:49 PM
Re: Why is Virginia (Va) so popular?
[Re: jpl]
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Drew
Registered: 01/09/00
Posts: 2422
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It stands to reason that products with commission loads are much more heavily recommended in some quarters--and in some quarters products which are not commissionable are actively ignored. And if the fund promoter can build in a front end load--wouldn't you if it was your job to run said fund?
An advisor or sales person is entitled to be compensated--work is not free--its your call as to how much "help" you want to pay for.
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Drew
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#43268 - 05/08/08 03:02 PM
Re: Why is Virginia (Va) so popular?
[Re: Drew]
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Dopps
Registered: 01/23/02
Posts: 1178
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Loaded mutual funds only make sense for the long-term investor (preferably one who remains invested for at least 10 years). If this is you, then you simply must adopt a long-range perspective on the sales charge--for example, spread over a 20-year investment span, a 5.75% up-front charge equates to an average of under .3% per year.
Now, compare American's fund expense ratios to industry averages, which you will see that American proudly publicizes because they are significantly below those of their peers. Let's take a real example--Growth Fund of America. Its expense ratio, for non-529 A shares, is .62%, vs. an average of 1.32% for all multi-cap growth funds (according to American's web site). Even if you add the aforementioned additional .3% due to the sales charge for a 20-year investor, you are giving up only .92% per year with this fund vs. 1.32% for its peers. Consider other popular American Funds expense ratios--EuroPacific (.74% vs. peer aveage of 1.47%), Washington Mutual (.57% vs. peer average of 1.19%), AMCAP (.65% vs. peer aveage of 1.08%)...the list goes on.
Last, let's talk performance. American Funds is loaded with 4 and 5 star funds (rated by Morningstar), which means that such funds have beaten the majority of their peers over the long haul.
So, why is American Funds so popular? Low cost, coupled with high performance. Sounds pretty solid to me. Plus, you get an advisor to go with it, so you don't have to do this alone.
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#43269 - 05/08/08 03:13 PM
Re: Why is Virginia (Va) so popular?
[Re: Dopps]
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X terminator
Registered: 03/08/07
Posts: 45
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"Is it because the Va plan pushed the hardest by brokers?
No, I think it just goes to show that most advisors do whats best for their clients and its just the very few bad ones that get the "notariety" that makes the rest of the good advisors look bad!
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#43270 - 05/08/08 05:34 PM
Re: Why is Virginia (Va) so popular?
[Re: X terminator]
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Dopps
Registered: 01/23/02
Posts: 1178
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Bravo, X!
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#43271 - 05/08/08 05:36 PM
Re: Why is Virginia (Va) so popular?
[Re: X terminator]
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jpl
Registered: 05/01/08
Posts: 5
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Thanks for the scoop so far, interesting opinions...
It's not necesarily fair to compare American funds to 'averages' though.
Most mutual funds dont even beat the index they are benchmarked too, so the 'average' mutual fund is most likely a loser.
My alternative choice to American would be state sponsored plan with rock bottom expenses (Utah, Illinois...). Their fees as well are below the peer average as well, without the overall added expense of the front load.
It seems to me that the combination of very low fees and access to passively managed index funds (state sponsered plans) would be an attractive option. But as someone who just started looking into 529's, I was surprised to see that wasnt the case at all when it comes to AUM.
American funds do have a great history, put past performance is no indication of future returns. And paying an extra 5.75, esp during down years, jumps out as a red flag to me.
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#43274 - 05/08/08 05:53 PM
Re: Why is Virginia (Va) so popular?
[Re: jpl]
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X terminator
Registered: 03/08/07
Posts: 45
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Loads are for those seeking professional financial advice. It seems clear you are not...so why would you consider a 529 that pays an advisor for service you aren't getting???? A 5.75% load is not a red flag...thats if you understood what it is...furthermore, class C shares doesn't have a 5.75% charge...(it has a higher expense ratio to pay the advisor giving advice and a 1 yr s/c)
Most advisors see American Funds as "top tier"! Thats why AUM are so high and have been for years!...There are a number of DIYIs who use IA, Utah, and I think NY....IL w/ VG funds is fairly new....but I am sure the "total" AUM of all these DIY plans are quite high.
Edited by X terminator (05/08/08 05:55 PM)
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#43276 - 05/08/08 06:05 PM
Re: Why is Virginia (Va) so popular?
[Re: X terminator]
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jpl
Registered: 05/01/08
Posts: 5
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X-
I'm still undecided about the route to choose, thats all. Throw in the fact that I'm a new father, I'm just trying to make an educated decision.
As for the total AUM of IA, UT, NY, and IL... it's still about 40% less than just VA!
No doubt that American funds are top tier... I'm trying to determine if the advice (fees) is worth it, factoring in intagibles as well.
I almost feel like I'm missing something.
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#43277 - 05/08/08 06:12 PM
Re: Why is Virginia (Va) so popular?
[Re: X terminator]
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TexasCFP
Registered: 08/23/01
Posts: 729
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The American Funds success in attracting assets to their 529 accounts is mirrored in their retail accounts. They have more assets than Fidelity and Vanguard, and about as much as the next few mutual fund families combined. All plans that utilize advisors pay about the same fees, so that's not why advisors choose American Funds over all other fund companies by a wide margin.
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David Hollands, CFP
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#43278 - 05/08/08 06:15 PM
Re: Why is Virginia (Va) so popular?
[Re: X terminator]
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Dopps
Registered: 01/23/02
Posts: 1178
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jpl, in all due respect, you seem to focus on expenses and ignore performance. The key here is what you EARN net of expenses, so you are only looking at half of the equation. Passively managed index funds will give you AVERAGE performance, which you already crowned as a "loser". True, past peformance is no guarantee of the future, but you simply can not ignore it. You seem to have difficulty getting past the 5.75% load, but I urge you to stop looking at it in the short term and instead view it as a cost spread out over the life of the investment. If you simply can not get past this, then you are most likely a candidate for a direct-sold plan. As X indicated, decide first if you want to use an advisor or do it yourself. If the latter, then don't spend your valuable time considering advisor-sold plans like American.
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