American Funds sales charges?

You better think real seriously about trying to get 5.5% a year out of your portfolio. Depending on assumptions and asset mix, you've got around a 20% chance of running out of money in 20 years. The favorite "rule of thumb" around here is that 4% is a more reasonable withdrawal rate.

American funds do have a good rep, but you have hit on the major problem.

Only if you like giving money away.

Nope.

-- Doug

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Why indeed.

Nope.

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You don't have an advisor, you have a salesman. You wouldn't consider the guy down at Larry's Friendly New and Used cars to be your "transportation advisor", would you?

As others have said, that's pretty aggressive. Depending on how much you want to leave behind, you might consider some immediate fixed annuities.

Vanguard has some new managed payout funds, that supposedly guarantee a certain level of return. They are pretty new, and I don't know much about them.

Besides the sales charge, AF funds carry higher expense ratios. Check the chart for GFA against the S&P:

Also EPG against Vanguard's EAFE index:

As always, past performance does not guarantee future results, and that's only 10-15 years of results. Still, no evidence that the AF funds you mention are world-beaters.

Brian

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I don't follow how the above statement correlates to the link. That chart doesn't have much to do with expense ratios. Sure, higher expense ratios lead to "investment drain", but nearly a dozen other factors could be the cause for that performance variance. GFA invests primarily in LCG, avoids LCV, and can hold as much as 25% of its assets in non-S&P equities and debt. According to M*, both GFA and EPG have expense ratios that are less than half the average for their respective categories. If one was FORCED to by loaded funds, these aren't bad choices.

That aside, I'm in the no-load passive index fund camp.

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Sorry, I didn't word that well. I meant to show that the AF funds don't justify higher ERs, because the either come close to or lag indexes or index funds.

Brian

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If your advisor is recommending American Funds, or any load fund, it probably means that your advisor is receiving a commission on your investments in those funds. In other words, the advisor is really working for the fund company (or companies), not for you.

One place to find alternatives is

A quote:

Three pieces of advice if you're thinking of buying a load fund:

1. Don't do it. 2. Don't do it. 3. If you choose to ignore Rules 1 and 2, ask your broker why he or she is recommending this fund. Ask if the fund has other classes of shares, and, if so, which class would be best for you.

The fundadvice.com website is run by a Seattle-area financial advisor who operates on the fee-for-service principle. He claims--truthfully, as far as I can tell--that the reason he is dispensing free advice is the hope that some of the people who read that advice will become his clients, and the general view that better-informed investors make for a better investment climate overall. Whatever his reasons, the site is packed with advice, most of which seems to make a lot of sense.

As for Vanguard...I've been their client for more than 10 years and am very satisfired. They have a wide variety of funds with the lowest fees in the industry, and their service and (especially) their system design is exemplary. They are definitely geared toward buy-and-hold investors, and their online facilities are definitely less fancy than others I've seen, but if that's what it takes to achieve their low costs, I'm all for it.

If you want to roll over $100K or more to a Vanguard IRA, they'll assign a person to help you with the paperwork. If you can scrape together $500K (it appears you're almost there already), which doesn't all have to be in an IRA, they'll work up a financial plan for you at no charge. Even if you don't have $500K to invest at the moment, you'd pay at least $25K in commissions if you put it in American funds -- you can buy an awful lot of planning services for that price.

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I didn't see anything in the literature about these funds that would suggest that they guarantee a particular return. Are you sure about your impressions?

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And then number four: Head for the door.

(A still better way, to save time, is to head for the door at the first hint of a "load fund."

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As far as I know, these funds target a specific payout *ratio* not a specific cash value or cashflow. There are three portfolios with different target asset allocations (and thereby different levels of aggressiveness) and the plan is to pay out as close to a specific percentage of the assets each month - in some months part (even most) of that payout will be in the form of return of principal if the underlying portfolio hasn't realized enough income or cap-gains to may that payout percentage. This means that the payout will go up and down each month as the portfolio goes up and down, and in a sustained downturn, you could be liquidating a good bit of your investment in one of these funds. They certainly have no guarantee of how long such payments will be sustainable!

It's not the norm, but I've seen rare occasion in which a lack of investment choices make a loaded fund a viable choice.

Consider that many state specific muni bond funds are only available with loads. The highly populated states often have no-load state specific munis, but many states do not. Depending on the specifics, it may or may not be worth paying the load to get the tax benefits.

Of course, if anyone knows of an Alabama Muni Bond Fund that M* gives

3+ stars and has no-load, I would greatly appreciate a link.

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Ask and ye shall find :-)

Dupree AL Tax-Free Income (DUALX)

Alabama Tax-Free Bond (ALABX) (prospectus)

If you're open to backdoors of varying complexity, there's:

Eaton Vance AL (class A) - available at retail level with no load via Schwab. Without the load, M* rates it 4*.

Franklin's AL fund (without the load, 5*); if you can buy any F-T funds w/o a load (e.g. if you've been grandfathered into the Mutual Series Z shares), then after seven days, you can transfer w/o load into any F-T fund.

Can't help you with MFS, though.

Mark Freeland snipped-for-privacy@nyc.rr.com

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(DUALX)

(ALABX)

(prospectus)

Muchas, muchas gracias!

I have a client (an LLC, actually) with $100k in money market because we have been trying to find an alternative to the MFS loaded AL fund. I was really hoping to avoid that MFS load. Apparently my "google- ability" fell short on this one.

Thanks again.

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Just think of how bad off the poor client would have been before the internet and Google even existed. The internet, in financial planning, as in many other things, is liberating!

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Seconded!

I don't even remember how I survived before limitless information was readily available in an instant. The only trick is being able to separate the wheat from the chaff.

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