Exorbitant fees?

[baltimore]

Cgorab states, "The performance of the asset allocation portfolios is greater than all of the American 529 portfolios"

This is a meaningless statement unless you also include the time period. Because they have a lower front end cost, they should always out perform the American Funds for a very short time period. Of course, a very short time period has no meaning and if someone is investing for a short period, the proper comparison needs to be "C" shares and not "A" shares.

[user_660]

RI doesn't seem that bad...but American funds do have lower operating expenses and I'd still stick with American Funds first.

[tjkohler]

You need to look at a longer period just because of the 6%. For instance if I'm going to hold onto something for two years then it has to beat the S&P500 by an average of 3.1% + maintainance fees each year.

You are correct in that you need to look at the 5 and 10 year averages and not each and every year, but I don't know where you got that I was asking each and every year. Show me 5 that have beat the S&P500 for 10 years. I know when I was looking 3 years ago (helping the wifes company decide who to use for their SIMPLE 401K) I couldn't find them. I remember finding funds that did as good as the S&P500 that would charge a large front load AND a large maintaince fee, to the point that they would have to beat the index by 5+% every year just to be even with an index.

Honestly, show me 5 funds that have beat the S&P500 (I'll reduce it to 10 years) for 10 years. Many places can do it a couple years, I'd rather see people take the 'risk' (I can't even say the S&P500 has much risk, I would say it's the lowest risk investment as far as stocks go) of only making 10.5% a year for ever when they don't have a large choice (401Ks and 529s). For those who don't know that's what the S&P500 has made in it's history.

[user_660]

"T": not sure if you are asking ME specifically or or just to anyone...but here are five funds (net all ALL expenses):

Washington Mutual
Growth Fund of America
American Mutual
Amcap
Investment Company of America

I can certainly provide more.

I would have to disagree on the S&P 500 being a lower risk stock investment. Though risk is subjective to a degree and has numerous variables to it.

But many of the American Funds, for example, are lower risk funds than the S&P 500 (and still outperform).

Also, lets keep the sales load in perspective. upfront sales loads are not appropriate for short-term investment horizons , so it makes no sense to compare this. There are alternative compensation methods for advice given for these shorter term investment time frames.

If we look strictly at a pure cost to cost basis (which is not prudent in real life, but thats what some insist on doing) the upfront sales charge (for long term investments ie 8-10yrs plus) is by far the least expensive method for paying for advice.(keep that in mind...."paying for advice" and not compare this to someone who does not need or want to pay for advice)

[cgorab]

The statement regarding performance of the CollegeBoundfund options vs the American options can be made regardless of share class, or even A @ NAV, not taking into account sales charges, which will make the CollegeBoundfund look even better. You can't look at performance for 5 yrs or longer because the 529 portfolios have not been around that long. To look at the underlying funds is not accurate either, since American's 529 portfolios are more expensive than their mutual funds (added internal fees) and the CollegeBoundfund portfolios are actually cheaper than their underlying mutual funds (lower 12b-1 fees, but with the same payout to advisors). Many just automatically make the argument for American because their is some idea that they are ultimately the cheapest and best performing in the industry right now, but I believe that most have just been jaded and have jumped on the American bandwagon. I believe that most of these individuals never take a glance to see what else is out there. Plus, with so much $ charging into American funds over the past few years, I can't imagine that I'm the only one worried about what will happen if/when they falter. They're definitely getting the lion's share of the mutual fund flows, and it all seems to be a bit irrational, i.e. not based on anything concrete, but moreso an abstract idea of who they are.

[tjkohler]

Mark, thanks. I was asking anyone. Again I'm not trying to be difficult I just want to know.

Looking those funds up I don't see them beating the index:
AMERICAN FDS WASHINGTON MUTUAL (AWSHX) In 1994 it was about 17, today it's 31. That's an 82% gain. The rest of Washignton Mutual funds are only a year or so old.
The S&P500 was well under 500, now it's 1200. It's went up 170%.
Link comparing the two: http://finance.yahoo.com/q/bc?t=my&s=AWSHX&l=on&z=m&q=l&c=&c=%5EGSPC

Growth Fund of America, 1994 about 12, today 27 = 125% gain. Still lower than S&P500 at 170%. http://finance.yahoo.com/q/bc?t=my&s=AGTHX&l=on&z=m&q=l&c=&c=%5EGSPC

Amcap: http://finance.yahoo.com/q/bc?t=my&s=AMCPX&l=on&z=m&q=l&c=&c=%5EGSPC

American Mutual: http://finance.yahoo.com/q/bc?t=my&s=AMRMX&l=on&z=m&q=l&c=&c=%5EGSPC

None of those even come close. Am I doing something wrong here? Heck American Mutual has actually not made any money.

(EDIT) As you can see I would never pay 5.75% up front to get into these funds so that I could lose to the indexes which are free to get into. Please help me guys, as I seem to be missing something.

[This message has been edited by tjkohler (edited March 09, 2005).]

[user_660]

"C":"Many just automatically make the argument for American because their is some idea that they are ultimately the cheapest and best performing in the industry right now,"

I'd disagree with that simply because most advocates of the American Funds have been recommending them for years and decades and surely NOT based only on what is happening now in the industry...which would be a very poor reason for making an investment decision.

"C": but I believe that most have just been jaded and have jumped on the American bandwagon."

Again, I'd have to disagree as most advisors have't jumped on their bandwagon at all...in fact most advisors were still high on the AFs and recommending them in the mid late 90s when the AFs didn't keep up with other high flying fund groups.

"C": "I believe that most of these individuals never take a glance to see what else is out there."

I don't know about that as I have experienced many advisors that recommmend fund groups in addition to AFs.

"c": " Plus, with so much $ charging into American funds over the past few years, I can't imagine that I'm the only one worried about what will happen if/when they falter."

Actually this is NOT a problem with AFs as it would be with most other fund groups. The way their management system is set up , having a great deal of assets is not a problem (I suggest you read the book by Charles Ellis call " Capital" a story of long term investment success.)

"c": "They're definitely getting the lion's share of the mutual fund flows, and it all seems to be a bit irrational, i.e. not based on anything concrete, but moreso an abstract idea of who they are."

Not really, they get the lions share simply because of their low expenses, low turnover, management philosophy, risk management, NOT jumping on investment bandwagons, and track record. They simply just perform for a very reasonable cost...what more could one want?

But I do agree that there are other very good fund groups out there and they should be used as well.

[user_660]

"T" I read your post and will have to get back to you on this, but as a quick observation, it looks like you are just counting appreciation and not dividends. I could be wrong but when you say WMI started at 17 and went to 31 over the given time period, thats the conclusion I come to. Am I off?

[rsinj]

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[This message has been edited by rsinj (edited March 27, 2005).]

[user_660]

"R" Thats what I thought. Thanks for checking and clarifying that!

[tjkohler]

Adding in the dividend of http://finance.yahoo.com/q/hp?s=AWSHX without the advantage of compounding the interest off those reinvested dividends (granted that will raise it) adds $14 over that period of time. Bringing it to just under the S&P500 performance. So if you would reinvest that you'd probably be looking at another 20-30% or so which should bring you about 0-10% higher then the index. Adding in the 6% load and the higher yearly expenses ... what would you have. This is going to be pretty close, would have to pull out a spreadsheet to make sure I got every penny of those $0.145 dividends and their compounded interest. But the point is still there. This one doesn't easily outperform the index.
Growth Fund of America has a bit more in dividends ($15 for those 13 years) which does bring it higher than the index. I'd like to do the math and figure out how much the 6% upfront load and higher expenses affects it.
Amcap still underperforms with their dividends included.
American Mutual also underperforms with their dividends.

You have shown me though that my initial research was probably done incorrectly because I don't remember taking into account their dividends not showing up when listing their annual returns against an index.

[stjoseph73]

Mark A,

I wasn't making a comparison directly between AF's large value funds and GFA. My comment was that AF's large value funds' performance within that category has slipped toward the middle of the pack during the last 5 years. On the other hand, GFA has managed to stay near the top of the Large Growth category.

I've read AF's explanation of the multiple portfolio counselor system. I've read Ellis. I've thought about it. I am still unconvinced that it is some magic bullet against asset bloat.

I disagree concerning the "bandwagon." Yes, there have been many advisors that have used AF funds for years. But you don't have funds grow from $30B-$40B to $80B over 5 years without a lot of advisors/brokers suddenly "discovering" AF.

[tjkohler]

"But you don't have funds grow from $30B-$40B to $80B over 5 years"
I would hope you'd get that almost exclusively from earnings / appreciation. That's only about 14% a year if it's ALL earnings / appreciation.

[cgorab]

American Funds had $84 billion of new flows in 2004, which was 1 out of every 3 dollars. I'm sure that's because the people that were selling American for the past 20 years really stepped up their sales, while every else in the industry lie dormant. Even if you're a staunch supporter of American Funds (which is usually exclusive), you have to admit that it's an anomaly. There were many (most) that simply sold them because it was easy.

[tjkohler]

Looks like I have to revamp the way I look at mutual funds. I still do my own investing stock by stock. I think that as long as you have under a million and have the time, that is the best return you can get. Once you get over a (or a few) million I think it may get harder to find the number of companies you need to get involved with.

[user_660]

posted March 09, 2005 03:48 PM
--------------------------------------------------------------------------------StJoseph73:
"Mark A,
I wasn't making a comparison directly between AF's large value funds and GFA. My comment was that AF's large value funds' performance within that category has slipped toward the middle of the pack during the last 5 years. On the other hand, GFA has managed to stay near the top of the Large Growth category.

I've read AF's explanation of the multiple portfolio counselor system. I've read Ellis. I've thought about it. I am still unconvinced that it is some magic bullet against asset bloat.

I disagree concerning the "bandwagon." Yes, there have been many advisors that have used AF funds for years. But you don't have funds grow from $30B-$40B to $80B over 5 years without a lot of advisors/brokers suddenly "discovering" AF."

Thanks for clarifying. The reason for the high inflow to AFs is due to the fact that many more people are now (and have been) seeking advisors and many of these advisors use AFs. "T" also makes a valid point to this growth as well.

One could also argue that AFs have been dealing with this asset "bloat" for decades now as they have had many funds in the top 10 in assets.

"C" :"American Funds had $84 billion of new flows in 2004, which was 1 out of every 3 dollars. I'm sure that's because the people that were selling American for the past 20 years really stepped up their sales, while every else in the industry lie dormant. Even if you're a staunch supporter of American Funds (which is usually exclusive), you have to admit that it's an anomaly. There were many (most) that simply sold them because it was easy."

Again, to repeat my reply above to StJoseph73, the reason for this is that many people have been seeking financial advice (vs actually the advisors actually stepping up sales)and many advisors sell AFs...plus they did "well" during the bubble burst so YES, they are an easy sell and investors are more comfortable with their performance.

[This message has been edited by Mark A (edited March 09, 2005).]

[baltimore]

Thanks for the great thread. It's so nice to see such differences of opinions without anyone taking anything personally.

[pazzyr]

Baltimore- regarding some of your points...

"You are right that we can never predict. However, doesn't a long track record mean something? How many years in a row has the Legg Mason Value Trust beaten the S & P?"

Bill Miller has had a great run, and I'm happy for the people who've invested in his fund over the years, but as you know and I've stated before, no one has a crystal ball, you CANNOT buy past performance. If you (or anyone) can guarantee he can beat the S&P for another 14 years, that person would be making seven figures on Wall Street.

"Your point about "A" shares and dollar cost averaging is correct (I think that 7 years is more appropriate), but there is a simple solution. When someone is going to need money within approximately 7 years, the money should be invested in "C" shares"

Baltimore, I know you must get paid for your services but the investor still gets hurt in the short term w/C shares because instead of deffering the load, the tradeoff is the investor will pay higher annual expenses...the point is don't invest in a loaded fund if there is any chance of needing the money in the short term (5-7 years).

I will say that I agree that a good advisor can bring tremendous value. The problem is finding that right person. If you don't think I'm right, then just look at all the basic questions we get on this board daily from investors who are supposedly getting 'advice' from advisors of load funds.

[rsinj]

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[This message has been edited by rsinj (edited March 27, 2005).]

[baltimore]

Cgorab, I'd still like you to back up the following statement. "The performance of the asset allocation (of the College Bound 529) portfolios is greater than all of the American 529 portfolios."

You later stated that it was true for all asset classes. I'm not arguing with you, but I'd like to verify this statement because it sounds impossible. The one thing that you did not mention was the time frame. An assertion like this can't be proven true or false without a starting date and an ending date.

My guess is that you are comparing each plan since its inception date. This would be an unfair and meaningless comparison since the underlying market conditions make more of a difference than actual fund selection.

Otherwise, please give us an actual starting date and ending date of your comparison so that we can prove you right or wrong. Comparisons need to be apples to apples.

P.S. My post would be identical even if you made the assertion that Virginia beat RI.