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Am I in the wrong share class?

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giacona
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Am I in the wrong share class?  Reply with quote  

I have a Roth IRA with American Funds with about 20K in there. My advisor put me in C shares as he told me I will have more money working for me. I think this is the wrong decision as I should be in A shares. The Expense ratio is much higher in the C shares plus they don't perfrom as well.

Does anyone know if the C Shares can be converted to A shares? Or am I better off just leaving the C shares alone and start new with A shares?
Post Mon Jan 07, 2013 1:56 am
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coaster
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I think what you're asking is if you can convert *without* doing a sell & buy transaction, which is crucial to your decision, and that depends on the fund. It's easy to call the fund company and ask. Don't both with your adviser. In fact, my advice is, don't ever bother with, or bother, period, that adviser, again, and you needn't bother waving goodbye, either. Although his statement about "more money" is technically corrrect, it doesn't take everything into account. And neither does your analysis of the differences between the shares.

Although American Funds is known as an excellent fund company from a portfolio management and performance viewpoint, their A shares carry a steep sales charge, and their C shares carry a redemption fee. So what you want to do is going to cost you. The C shares lose their redemption fee after a year, according to American Funds share class chart, so what you might want to consider is just waiting until that fee times out, meanwhile not adding any more money, and in the meantime finding another *no-load* mutual fund to transfer your IRA to. One without those confusing share classes to trip up investors (and advisors). You can do this yourself, without the help of a so-called advisor. The fund companies are set up to give you all the help you need. I suggest starting your search with Vanguard, T Rowe Price, and Fidelity.

~Tim~
Post Mon Jan 07, 2013 6:48 am
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giacona
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I actually did speak to my broker and it looks like my best bet here is to stop my contribution into C shares and set up a new auto investment into A shares. For me to convert everything now it would cost me a good amount of money. In addition all of my C shares would be sold and I would have to buy all new A shares. Since I got in when the market was low, it's not a smart move right now. The good news is after 10 years my C shares will automatically convert into F1 shares and they have a low expense ratio smilar to the A shares. I don't like the fact having to start all over with a 0 balance in A shares, so I will have less money working for me, but I think it's for the best.

Now I have six different funds and my broker is telling me I should only auto invest into 1 or 2. Even though I have six if I rotate my auto investment that is micrco managing and he does not beleive that is a good idea. I thought the purpose of having several different funds is for diversification, even tho I have a few funds in the same category such as growth and growth and income. Below is a list of what I have

Investment Company Of America
Income Fund of America
The Growth Fund of America
Capital World Growth and Income
New World Fund
Fundemtnal Investtors
Post Sat Jan 12, 2013 6:15 pm
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oldguy
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In truth, if a broker did that to me I would get a new broker - I would be thru talking with him/her.
You would probably be ahead (within just a year or two) to call a no-load company, open an account, and have them sell your 6 posiitons and pull them into a single account.
Post Sat Jan 12, 2013 8:46 pm
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Publius
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Pay special attention to the central theme of both coaster and oldbuy's responses -- what you do in regards to this advisor is probably more important to your long term financial position than whether this 20k is in A or C class shares. You are paying this individual (and yes, you are paying them one way or another) to provide you advice that you don't think to be sound. By that I mean that you looked at the situation and decided to change positions from the one that you paid him to steer you towards, so what are you paying for? I am not saying that you shouldn't have an advisor, but you should have one that has your best interest at heart.
Post Sun Jan 13, 2013 2:50 am
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coaster
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giacona -- I think the consensus is clear, though I don't think you're hearing it.

All the funds you listed are funds that put money in your advisor's pocket, money that comes out of your investment.

~Tim~
Post Sun Jan 13, 2013 7:01 am
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PasadenaFinancialPlanner
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If you read the financial industry trade press, you will find that American funds are the most popular funds among financial advisors. However, this popularity is not because they are better for clients. They just pay well for advisers. Load payments to advisors reduce your invested assets at the outset with front-end fees. Unnecessarily high fees along the way will pay your advisor to keep telling you that you made a good decision. Back-end loads may look smaller percentage-wise, but they get assessed against what you hope will be substantially appreciated assets.

When you look at objective long-term statistics, index funds are superior on a risk-adjusted net returns basis after investment costs and taxes are taken into consideration. The quickest way to understand this is to go to Standard and Poors and read the SPIVA reports. Passive beats active increasingly over time -- in the US and around the world. The SPIVA reports clearly demonstrate this.

When you buy mutual fund shares through commissioned advisers, the securities industry is gracious enough to offer you a supposed choice in this matter. You can choose between A, B, and C mutual fund share classes, where you pay higher front-end and/or back-end fees and higher expense ratios along the way (called 12b-1 fees) compared to index funds sold directly to the public. In this faux decision process (the "ABC Share Class Shuffle"), you really just choose one form of sales fee over another. As long as you buy and pay a fee, the sponsoring firm and the sales rep do not really care which choice you make.

Only buy mutual funds from fund companies that do business directly with the public. Cut out the middleman, avoid purchase fees, and keep more for yourself.
Post Wed Jan 23, 2013 12:11 am
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