A bunch of points....
....The American Funds is an excellent 529 plan. However, there is a problem if your broker did not disclose both the upfront sales charges and the ongoing expenses. The broker should have taken the time to educate you on the difference between "A", "B", and "C" shares along with the differences between load and no load funds.
...5.75% is pretty standard. Some are lower and some are higher. By law, a front end load can be as high as 8%. For the American funds, 5.75% is the maximum. This is only for equity funds and only for accounts with less than $25,000. Bond funds have lower maximum charges of 3.5%. All accounts can be aggregated to start reaching breakpoints..529, IRA, individual account, etc.
...load vs. no load--I think that we make a mistake anytime that we focus on expenses. Expenses are certainly important, but what matters is results. The general argument in favor of an index fund is that they outperform 80% of funds. This is true, but why not pick one of the 20% of funds that have long term track records of beating the indexes?
...load vs. no load #2---ignore everything that I said above. Isn't what really matters is how the individual investor does and not how the fund does? The problem with no load funds is that the majority of investors need hand holding. I read not too long along that John Bogle, the founder of Vanguard Funds, talked about how over a certain period of time Vanguard returned 13%, but the average investor only had a return of under 4%. Peter Lynch, the old manager of Fidelity Magellan Fund, made the same observation. Magellan returned 18% over the time period that he was talking about, but the average investor also had a return of under 4%. Sorry that I don't have the source for this information, and the percentages may be a little off, but the point is that we need to focus on investor performance. The lack of a load allows investors to move their money around very easily. They tend to buy high and sell low.
....the investor should not be buying "A" shares all the way up to the point that they are going to college. "A" shares are not appropriate for short term investing. Once the investor gets to the point that their child becomes a teenager, in most cases, future investments should be in "C" shares. "C" shares have no upfront load and no backend load, for money invested for one year, thus investments don't need to stop when the child is getting close to going to school.
..."B" shares are not no-load. Money gets borrowed to pay the broker. The annual fees are then higher than "A" shares for a number of years and then the shares typically automatically convert to "A" shares. If an investor sells before a certain number of years there is a backend charge that is used to recoup the money that the fund family borrowed to pay the broker. "B" shares are very seldom in the client's best interest. For load funds, short term investing should be in "C" shares and long term investing should be in "A" shares. I predict that within 3 years, "B" shares won't exist.
....I agree completely with Dopps
