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Which Mututal Funds or ETFs do you think are a viable investment option?

In October 2012 I received some money from a defined benefit plan from a previous employer. I rolled it over into a traditional IRA and then into a Roth IRA. SInce my initial investment with American funds, it has grown by about 8.5%. After fees, its more like 6.5%.

Apr 05, 2013 by Matthew from Norwalk, CA in  |  Flag
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6 votes

It depends on your situation and willingness for risk Matthew, but I'd suggest low-cost passively managed (or index) mutual funds & ETFs (ETFs are inherently low-cost & most are index like funds). Vanguard has a nice selection in both categories. It sounds like you found out that expenses can eat away at returns with your American Funds example, so it's important to minimize the expenses.

2 Comments   |  Flag   |  Apr 05, 2013 from Harrisburg, PA

Yes I am losing quite a bit via fees. But on the other hand, I am doing better than other investments.

Flag |  Apr 05, 2013 near Norwalk, CA
Pam Horack, CFP®

I agree with Tracy. Low cost funds and ETFs are key to increasing your wealth.

Flag |  Apr 05, 2013 near River Hills, SC

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1 vote

You are currently in American Funds, presumably in ‘A’ shares. Among other fund families, I do like them. Historically I feel they have performed very well over longer periods of time, though they did not recover so well after 2008 recession. And last year, I felt their performance overall was excellent.

I do not know how much in assets you are talking about, but if you are in fact, in ‘A’ shares, you have already paid the sales charge. I think they have good funds, with good management, and very low expense ratios. Their expense ratios, on all but a couple of equity funds are below 1% and the bond funds are generally in the 60-70 bp range. If you diversify well, you might be best served by just staying at American.

I don’t know when you invested, and if you are including initial sales charges in your calculations of 8.5% growth and 6.5% net of fees, but you likely caught the bulk of the period of 2009, 2010, and partially 2011, which frankly were not their best years. If you consider that your initial sales charge is gone, and only use performance, last year in a well diversified portfolio you would have performed well into double digits net of all expenses. Caution, last year is only one metric to consider.

You can transfer to lower cost no-load funds and ETF’s. But the American Funds are actively traded vs. most no-loads and ETFs which are passive, and I think you may see better performance where you are. Keep in mind, we are not talking of a new investment; you have already paid the load.

Mathew, I also caught your question on investing in OTC stocks. American Funds, in general, are considered to be conservative in their investment strategy. Going from here to OTC stocks would be jumping into a really really hot fire. Whatever you do, avoid them. It is not for you.

View all 6 Comments   |  Flag   |  Apr 05, 2013 from Delray Beach, FL
Michael Steven Greenberg, CFP®

Did it again. I'd recommend you seek out a local financial advisor you feel comfortable with. I think you need advice, and more importantly, discipline. Look into an account managed by a good financial advisor. Depending on the size of your assets, going with an institutional money manager in a managed money account could work well. A good financial advisor can steer you in the right direction. If you think you can 'play' the market, I hope you have tough skin

Flag |  Apr 05, 2013 near Delray Beach, FL

Mr.Greenberg, I really appreciate your shairng that information with me. Believe me, I have no desire to lose my money my hard earned money in the OTC market. I am invested in the American Funds Global Growth Portfolio Class C shares.

Flag |  Apr 05, 2013 near Norwalk, CA

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David Fabian Level 19

The American Funds are going to be some of the most expensive mutual funds in the industry. I would recommend that you move your IRA to a discount brokerage company like Fidelity, Charles Schwab, or TD Ameritrade so that you can select among the entire universe of actively managed mutual funds or ETFs. They have excellent fund screening tools that will allow you to select a fund that meets your criteria. I also agree with Michael's assessment that a financial adviser could provide a great deal of education and analysis of your situation to get you on the right track.

With where we are at in the market cycle you may want to consider moving a portion of your portfolio to ETFs so that you can set a stop loss on the holdings to guard against downside risk. You should be able to find a good mix of low cost investments that allow you to achieve your goals while being able to sleep well at night.

Comment   |  Flag   |  Apr 23, 2013 from Irvine, CA

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Rich Winer Level 20

Matthew, Something sounds strange. I'm not clear if you feel that you've lost 2% to fees since last October or since an initial investment made at at an earlier date. American Funds have many good funds and their management fees are no more than most other actively-managed funds. There are also plenty of other great fund companies and investment options for you. In an IRA or Roth IRA, you can invest in individual stocks, bonds and ETFs as well as mutual funds. Since you own C-share funds, I would guess that you purchased them through a financial advisor. Have you raised your concern about losing 2% to fees with your advisor? What did he or she say? You should certainly not have lost 2% to fees since last October. The total annual expenses for your C-share Global Growth fund is 1.78%. First Eagle Global, which has been a top long-term performer (not as aggressive), charges 1.89% for their C-class. So American Funds is in the ball park. In regard to your specific question, it's impossible to know what investments (stocks, ETF, funds, etc.) would be most appropriate and effective for you without knowing your financial situation, risk tolerance, investment time horizon and specific financial goals. If you're not comfortable with your current advisor and not getting the results you want, you should consider changing advisors. I am located in Woodland Hills, CA and would be happy to talk with you at no cost and with obligation, if you're interested.

Comment   |  Flag   |  Apr 23, 2013 from Woodland Hills, CA

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