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Author: PTPFool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76397  
Subject: Best way to invest in a ROTH IRA Date: 9/20/2005 10:21 AM
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Hi there. I am a long term member here at the fool. I try to read and learn a lot, but this is my first post.

Here is my question / scenario.

My wife is a school teacher, and somehow, through her school, she was introduced to a financial advisor. I just turned 33 years old and she is 25.

This financial advisor has talked her in to opening a ROTH IRA (smart move and something we have meant to do for some time now), but he wants to take 5.75% from each deposit - his fee and his brokers fee (ING Direct)? Once he takes his cut, he is suggesting she use the rest of the proceeds to purchase AMERICAN FUNDS families of mutual funds. They do look to have good performance, and she wants something that she can directly deposit money into each month and not look at or touch. She likes funds because she does not want to spend time researching individual stocks.

She has watched me invest in different FOOL STOCKS (I subscribe to Hidden Gems and Stock Advisor) and she thinks I trade WAY too often. I have definitely cut back on "trading" since getting married to her (and it has served me well), but quite honestly, I find it fun sometimes to buy / sell. I am trading mostly within my IRA, so I understand there are no tax disadvantages - I just have to swallow the service fees... and swallow the fact that I sold Quality Systems WAY TOO SOON..

Anyways - She wants to invest her way, and she wants me to invest my way, and we are going to compare in 15 years. I stand 100% behind her and won't doubt she beats me. However, I can't get over this 5.75% fee. Of every $300 we deposit, she is only buying about $282 worth of the fund. Is this a typical fee? How can she set up a ROTH IRA with direct monthly deposits that is automatically invested in mutual funds of her choice without paying this financial advisor to do nothing more than a bit of paperwork and cheerleading?

Thanks so much for any advice.
FOOL ON!!
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Author: dusty2004 Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47631 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/20/2005 10:31 AM
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PTP:

While this may be common, it is not something that you have to put up with. I would say

1) Look at Vanguard or Fidelity for no load / low cost funds.

2) Thank the finanacial advisor for getting the wife to Roth IRA's.

3) Don't call the financial advisor anymore.

She can do all of this without the advisor.

Dusty

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Author: reallyalldone Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47632 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/20/2005 10:31 AM
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Is this a typical fee? How can she set up a ROTH IRA with direct monthly deposits that is automatically invested in mutual funds of her choice without paying this financial advisor to do nothing more than a bit of paperwork and cheerleading?

Maybe if you use a financial advisor. Personally I wouldn't pay it.

Pretty easily once she has the minimum for some funds. Some of the popular funds have a $1K minimum for IRAs but there can be annual fees until you reach a certain level. I'd look around - Vanguard, T Rowe Price are 2 places I can think to look at the moment. There used to be a site with mutual funds with low minimums but I haven't looked for it for a couple of years but I'll see if I can come up with it(if it still exists).

Another option is ETFs bought through a discount brokerage which may be a cheaper way to start.

rad


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Author: jbking Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47633 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/20/2005 10:51 AM
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Greetings PTP,

However, I can't get over this 5.75% fee. Of every $300 we deposit, she is only buying about $282 worth of the fund. Is this a typical fee?

For front-end load funds, yes unless you invest enough to get a break on this, e.g. if you were investing a million dollars they may waive the fee. Course you could look at the other side of this in that there are possibly share classes where you don't get dinged up front but rather have higher fees for as long as you hold the fund, e.g. so instead of losing 5.75% upfront you pay an extra .75-1.5% each year you hold the fund and possibly have a back-end load should you try to get out early.

How can she set up a ROTH IRA with direct monthly deposits that is automatically invested in mutual funds of her choice without paying this financial advisor to do nothing more than a bit of paperwork and cheerleading?

Fidelity, Vanguard, T. Rowe Price, Schwab and many other brokerages and fund companies have funds without an upfront fee. I would likely suggest looking at the Fidelity Freedom or Vanguard Target Retirement funds as the type of fund your wife could own and not have to worry about shifting from fund to fund.

Regards,
JB

FD: I do own shares in a couple of Vanguard funds in a Roth IRA.

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Author: rkmacdonald Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47634 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/20/2005 11:19 AM
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Author: PTPFool | Date: 9/20/05 10:21 AM | Number: 47630
My wife is a school teacher, and somehow, through her school, she was introduced to a financial advisor. I just turned 33 years old and she is 25.

This financial advisor has talked her in to opening a ROTH IRA (smart move and something we have meant to do for some time now), but he wants to take 5.75% from each deposit - his fee and his brokers fee (ING Direct)? Once he takes his cut, he is suggesting she use the rest of the proceeds to purchase AMERICAN FUNDS families of mutual funds. They do look to have good performance, and she wants something that she can directly deposit money into each month and not look at or touch. She likes funds because she does not want to spend time researching individual stocks.

She has watched me invest in different FOOL STOCKS (I subscribe to Hidden Gems and Stock Advisor) and she thinks I trade WAY too often. I have definitely cut back on "trading" since getting married to her (and it has served me well), but quite honestly, I find it fun sometimes to buy / sell. I am trading mostly within my IRA, so I understand there are no tax disadvantages - I just have to swallow the service fees... and swallow the fact that I sold Quality Systems WAY TOO SOON..

Anyways - She wants to invest her way, and she wants me to invest my way, and we are going to compare in 15 years. I stand 100% behind her and won't doubt she beats me. However, I can't get over this 5.75% fee. Of every $300 we deposit, she is only buying about $282 worth of the fund. Is this a typical fee? How can she set up a ROTH IRA with direct monthly deposits that is automatically invested in mutual funds of her choice without paying this financial advisor to do nothing more than a bit of paperwork and cheerleading?


I think the fee you are talking about is the 'load', and 5.75% is a typical percentage.

From the American Funds website at: http://www.americanfunds.com/funds/classes/index.htm

Quote
***********
The American Funds are distributed through financial advisers because we believe that all investors benefit from ongoing professional advice. We recognize, though, that investors have different preferences for paying for that advice. No matter which share class you choose, American Funds' annual expenses are among the lowest for comparable funds, as measured by Lipper Inc.

When you work with your financial adviser to determine which share class to own, please consider: how long you expect to own the shares, your investment objective, how much you plan to invest and the expenses associated with each share class.

Several share class options
We offer two types of share classes, one for our regular mutual funds and another for CollegeAmerica®, our 529 college savings plan:

Class A and 529-A shares are sold with an up-front sales charge, which declines as the investment amount increases. For many shareholders — especially those with significant account balances — these shares are the most cost-effective way to own American Funds.

Class B and 529-B shares have no up-front sales charge but have higher annual expenses than Class A shares. However, if you sell (redeem) shares before you have owned them for six years you will pay a sales charge (maximum 5%) on the shares that you sell. This charge is called a contingent deferred sales charge, or CDSC. Class B and 529-B shares convert to Class A and 529-A shares, respectively, after eight years. This conversion will lower your ongoing annual expenses.

Class C and 529-C shares do not have an up-front sales charge. However, if you sell (redeem) these shares before you hold them for 12 months, you will pay a 1% sales charge on the shares that you sell. This is called a contingent deferred sales charge, or CDSC. In addition, investors pay higher expenses than on Class A and 529-A shares. Class C shares convert to Class F shares after 10 years. Class 529-C shares do not convert.

Class F and 529-F shares are available only through participating financial advisers. Class F and 529-F share purchasers pay an annual asset-based fee charged by their adviser, as well as slightly higher annual expenses than Class A shares.
*********
unquote

My guess is that your wife is buying 'A' shares (see my highlighting above).

When some people pay a financial advisor (via a load or otherwise) for advice, they feel much more confident and are much more inclined to save enough for retirement. I would recommend that you just let her go on with her approach for a while and encourage her to learn as much as possible about investing. It is quite possible that she will eventually realize that she can do just as well as the advisor and begin doing it herself.

But, again, the most important thing is saving for retirement. Even though she is paying a 5.75% front load, she can still put a full $4000 per year into her Roth (2005 rate). It will cost more now than investing in a no-load mutual fund, but the end amount of money in the Roth will be the same regardless of the amount it costs to get it there. The time that the load will hurt most is if you can't afford to max out the Roth contributions, because you will not be able to get as much money in.

Russ

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Author: DeltaOne81 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47638 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/20/2005 11:37 AM
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It will cost more now than investing in a no-load mutual fund, but the end amount of money in the Roth will be the same regardless of the amount it costs to get it there.

Um, I'm not sure this is true. You can only put $4K into the fund. The load is taken out by the mutual fund so by that point your contribution has already hit your yearly limit. So you're down $230 off the bat and will remain down 5.75% for the rest of your investing lifetime (although each dividend reinvestment probably also takes 5.75%, so all your dividend earnings will also lose 5.75%.

Even if the above *was* true, which I still doubt (depending on exactly who it taking the fee, I guess), then you're still paying $4244 in order to get that $4K into the account, again losing out on $244 right off the bat.

I, and the vast majority of Fools, are completely in the camp that there is no way you should pay this. Thank him for his time and take your investing to one of the mentioned mutual fund companies/brokerages who will not charge you a load. You are completely correct to be uncomfortable with this.

If you know him personally and/or like his advice, perhaps you could ask if he would be willing to do an annual for-fee, not for-commission, review with you and your wife. That way his advice is certainly intended in your best interest and not to line his own pockets (and that of the fund company).

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Author: rkmacdonald Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47639 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/20/2005 11:43 AM
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DeltaOne81 wrote:
I, and the vast majority of Fools, are completely in the camp that there is no way you should pay this. Thank him for his time and take your investing to one of the mentioned mutual fund companies/brokerages who will not charge you a load.

Don't get me wrong. I totally agree with you.

My point is that some people left on their own with no help, simply refuse to save for retirement. It is better to pay a load and save, than not pay a load and not save.

And, you may be right about the load fee. The more I think about it, it may be deducted from the contribution after inside the Roth, so it ends up reducing the amount.

Russ

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Author: DeltaOne81 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47641 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/20/2005 11:48 AM
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My point is that some people left on their own with no help, simply refuse to save for retirement. It is better to pay a load and save, than not pay a load and not save.

Absolutely true, it's better to pay a load then to do nothing at all. As long as you're not betting the farm on penny stocks or investments you don't know what the heck they mean :) (options of futures of foreign ADRs of junk bonds or some such ;) ).

But since he's here, hopefully doing nothing at all is no longer one of the thoughts and he's absolutely correct to avoid the load (as you agree).

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Author: yakers Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47642 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/20/2005 12:49 PM
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" It is better to pay a load and save, than not pay a load and not save.


Russ "

One nice thing about MF is there is a lot of good information here and occasionally wisdom too. Good point Russ.

I am (now) a pretty fierce Vanguard diehard but in the 1980s I was clueless about things financial and had a financial advisor who put me into an IRA with Oppenheimer. Today I would have gone with an index fund or target fund. But the $6K I put into Oppenheimer 20+ years ago has become $75K now. If I had not saved the funds I would not have anything in this account.


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Author: cliff666 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47643 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/20/2005 1:30 PM
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This financial advisor has talked her in to opening a ROTH IRA (smart move and something we have meant to do for some time now), but he wants to take 5.75% from each deposit - his fee and his brokers fee (ING Direct)? Once he takes his cut, he is suggesting she use the rest of the proceeds to purchase AMERICAN FUNDS families of mutual funds. They do look to have good performance, and she wants something that she can directly deposit money into each month and not look at or touch. She likes funds because she does not want to spend time researching individual stocks.

You don't say how much is involved. I suppose a Roth is limited to $4000. So, yes American gets a 5.75% front-end load.

I started my investing with American, and they still represent the largest part of my portfolio. The good news is that the load goes down as you accumulate more. At $50,000 it goes to 4.5%, iirc. By $1 million it is zero. American markets exclusively through brokers, and (sadly) these guys want to be paid. I find I value my broker's advice, but not as my only source of advice.

I don't know any way to get free management. Either she learns what to do and manages the portfolio herself, or you will have to pay someone. When I started, I was happy to have the advice. I have since become more Foolish, and my recent acquisitions have been Vanguard Index Funds. I will mention that I am retiring soon, and I may roll my 401K into <gasp!> American Funds, because I like their style, and they have some funds I like. They automatically include a significant international exposure in such funds as New Perspective, Small Cap World, or Capital World Growth and Income, and I like not having to think about it. (Yes, I'm lazy.) I also know my advisor personally, and he knows who I am when I call. If I need money, I call him and the money is wired to my bank the next business day. It's not all bad.

So, I wouldn't throw them out because of the load. Other funds also charge a load if they are sold through brokers. There are plenty of no-load funds out in the world, and their performance is comparable to the loaded funds, so why load? Basically, just for the convenience and assurance that somebody cares.
Hope this helps

cliff

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Author: cliff666 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47644 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/20/2005 1:55 PM
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I, and the vast majority of Fools, are completely in the camp that there is no way you should pay this. Thank him for his time and take your investing to one of the mentioned mutual fund companies/brokerages who will not charge you a load.

Another aspect of mutual funds. They all charge a fee of some kind. Some get a front-end load. Some get a fee at time of sale. All get management fees every year. American Funds' management fees are among the lowest of all actively managed funds. Over a period of years this can amount to more than the front-end load. American is usually less than 1% a year. Many funds are more than 1%, some are quite high. Funny thing about people. They all want to be paid when they provide a service or product, and the user pays for that service. Other costs are related to trading. American Funds portfolios tend to be relatively low turnover, which holds costs down.

The front end load is still high.

cliff

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Author: DeltaOne81 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47646 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/20/2005 2:54 PM
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Over a period of years this can amount to more than the front-end load. American is usually less than 1% a year.

True enough, I would not avoid a load just to pay higher yearly fees. That doesn't make sense. But with Vanguard, and to some extent Fidelity, and a few others, having no load funds with very low fees as well, and funds which cover the whole range of options, I really see no reason to ever pay a load. Vanguard is no load on all styles of funds, and the expense ratio is generally below 0.20%.

So when you combine no load, lesser expense ratios, and the fact that the average managed fund generally underperforms its index anyway, yeah, I'm gonna have to stick with my first call :). If you'd rather pick a managed fund, you can still pick a no load one with fees 0.80% or lower.

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Author: mph0804 Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47650 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/20/2005 5:03 PM
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I own both and have also ran the numbers on both assuming a 5.75% front load for the american funds and a 0.31% annual fee for the vangaurd. Assuming you get the same annual return on each (I'll use 10%) the break even point is about twenty years. If your wife holds the american fund for more than twenty years (which she may since she's young like myself) she'd be better off with the front loaded american funds, if not go with vangaurd. The biggest issue with front loads to me is their tendancy to make you stay in a lousy fund you should sell since you've already paid the load, and its hard to say if a fund will be lousy in the future.

When she gets 20 years from when she thinks she'll need the money then she should start investing in no load, low fee fund. I will say again I own both american and vangaurd funds and like them both so I am about as unbiased as it gets.

Here's the breakdown on $10,000 invested in each ($9,425 after the 5.75% load)

initally: american $9425, vangaurd $10,000...ouch
5 year: american $15,179.06, vangaurd $15,879.44...bigger ouch
10: american $24,446.02, vangaurd $25,215.66...still hurts
20: american $63,406.69, vangaurd $63,582.96...almost better
30: american $164,460.62, vangaurd $160,328.63...daddy likes!

P.S. sorry if I mispelled the V fund, I was in a hurry. And for a quick and dirty way to do the break even analysis divide 5.75% by 0.31% to get about 19 which is really close to the 20 year break even number.


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Author: MurrayS Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47651 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/20/2005 5:12 PM
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It's very easy to set up a Vanguard IRA with monthly investments into a S&P Index or a Total Market Index or even a Retirement Target fund.

Frankly, the advice the fund "advisor" will provide is overrated IMHO.

-murray

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Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47654 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/20/2005 5:33 PM
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As all to common on this board, people have a kneejerk reaction to loaded funds. They have their purpose -- and from what you say about your wife, they are perfect for here.

If your wife goes with Vanguard, she will have to do all the research and the fund selection on her own. No one will call her to do quarterly or annual reviews. She has no one she can sit down with to discuss any of her concerns over her funds. No one can give her advice (Vanguard is not authorized to make recommendations). And lastly, no one will be there to advise her when to change her allocation.

This is where an advisor comes in -- and this case, she found a really good one. The advisor will make a tiny bit of money from her Roth IRA; less than 5% of each of each purchase (and that goes down at $25K). American funds are considered some of the best in the industry and have 20 year return numbers to prove it -- which are much better than Vanguard numbers.

More importantly, it is not so much about the fund he recommended, it is about the service he provides. Look at it this way, many people pay a CPA for their expert tax advice. $200 for helping with tax preparation, filing, and planning is a good price (it is what I pay). Having a license advisor give you input on proper investments for the same price (5% of $4k) seems reasonable as well. She can also seek his advise with any other investment question she may have.

The advisor is doing a lot more than paperwork and cheerleading. He now has a feduciary responsibility for that money and he should be fired if the funds perform in a manner inconsistent with her goals. He can be criminally and civily liable if he gives bad advice; with unlimited liability. If you pick funds that do lousy, you have only yourself to blame. The advisor knows that if he does not give a good recommendation, she will take her money (and that $200 a year) to some place else.

Your doctor certainly does a lot more than write a perscription. An advisor does as well.

That fee is very typical. Most equity A shares are 5.25 - 5.75% with a break point starting at 25K (in the case of 5.75) and one starting at 50K (in the case of 5.25). Bond A shares can be from 2.5 to 4.5 starting out.

Your wife should only buy A shares in a loaded fund as they are the cheapest in the long run. If she was investing for five years or less, then C shares might be appropriate.

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Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47655 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/20/2005 5:35 PM
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Only one no-fee fund beats the AMCAP American Fund over the last 20 years and that is the Fidelty ContraFund (by 1%). I will see what I can find on comparable Vanguard funds, if they have been around that long.

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Author: MurrayS Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47656 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/20/2005 5:53 PM
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If your wife goes with Vanguard, she will have to do all the research and the fund selection on her own. No one will call her to do quarterly or annual reviews. She has no one she can sit down with to discuss any of her concerns over her funds. No one can give her advice (Vanguard is not authorized to make recommendations). And lastly, no one will be there to advise her when to change her allocation.

I'd bet (in fact, I am betting with my own money) that she would do better sticking her money in an S&P or Total Market Index fund vs. paying someone to change her "allocation" when she likely won't touch the money for 35 years.

You're right, the fee amounts to a little more than $200 per year, but a little spreadsheet work shows that compounding grows that number to nearly $40,000 over 35 years at 8% return. Another way to look at it, the loaded funds will have to average a quarter point return more than a no load fund to yield the same future value.

With time, her interest in investing will grow with her account balance. The sooner she develops the confidence to do it herself, the better off she will be.

-murray


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Author: jbking Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47657 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/20/2005 5:58 PM
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Greetings Hawkwin,

Only one no-fee fund beats the AMCAP American Fund over the last 20 years and that is the Fidelty ContraFund (by 1%). I will see what I can find on comparable Vanguard funds, if they have been around that long.

Now for the good side question, are the managers the same over those 20 years and will they be the same for the next 20 years that she would be holding the fund? This could be a rather important question when looking at funds: Is the current manager responsible for it and how long will that manager be there? I do realize that American funds use a team management system so that this isn't an easy question but I do think it is worth asking.

Regards,
JB

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Author: MurrayS Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47658 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/20/2005 5:58 PM
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Only one no-fee fund beats the AMCAP American Fund over the last 20 years and that is the Fidelty ContraFund (by 1%). I will see what I can find on comparable Vanguard funds, if they have been around that long.


Send me a note in 5 years to see if that fund is beating the market indexes. It's extremely easy to select a fund that's had a high return in the past vs. picking a fund for future investment.

Sort of like picking the winner of the Final Four after or before they play the games.

-murray

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Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47659 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/20/2005 6:10 PM
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www.vanguard.com has their own fund screener that works fairly well. It only goes back 10 years though. I had them list all funds from both fund families that have done 10% or better on average for at least 10 years.

I took out specialty and sector funds and the following are the results:

Vanguard Capital Opp (Mid Growth: MG) 14.69% - closed
Vanguard Strategic Equity (MB) 13.86%
Vanguard Primecap (LB) 12.92% - closed
American Funds Capital World (World Stock: WS) 12.79%
American Growth Fund of America (LG) 12.02%
Vanguard Windsor II (LV) 11.83%
Vanguard Global Equity (WS) 11.43%
American AMCAP (LG) 11.03%
American Fundamental (LV) 10.97%
Vanguard Equity Income (LV) 10.80%
Vanguard Explorer (SG) 10.78%
American Washington Mutual (LV) 10.68%
American ICA (LV) 10.68%
American New Perspective (WS) 10.59%
Vanguard Small Cap Index (SB) 10.48%

Return is net of fees.

Considering that American Funds have ONLY 29 funds in total, they have 7 of them that have 10% or better returns over the last 10 years. Vanguard has 12 out of 101. I think your wife will be OK.

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Author: Watty56 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47660 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/20/2005 6:11 PM
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At just 8% that $230 would be worth about $2,300 in 30 years. Add another $2,300 next year and the year after that and the year after that and so on and the amount really adds up.

A better use of the $230 might be to take a class at the local community collage on financial planning(not stock picking) so that she would feel confident enough next year to pick her own funds. Over the next year she could "park" her money in something like the Vanguard Stock Market index fund then move it next year is she wants to.

For what it is worth I have decided that other than by shear luck, it is unlikely that I will pick one of the rare funds that will do better than an index fund over the long term so I am mainly sticking with index funds because of the low costs which is one of the few things that I can completely control.

Greg


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Author: cliff666 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47661 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/20/2005 6:18 PM
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Only one no-fee fund beats the AMCAP American Fund over the last 20 years and that is the Fidelty ContraFund (by 1%). I will see what I can find on comparable Vanguard funds, if they have been around that long.

Here are charts for Contrafund

http://quotes.fool.com/custom/fool/html-chart.asp?osymb=&osymbols=fcntx&symbols=fcntx&currticker=FCNTX&time=all&uf=0&compidx=aaaaa%7E0&ma=0&symb=fcntx&freq=1dy&lf=1&comp=&type=128&sid=19035

and AMCAP

http://quotes.fool.com/custom/fool/html-chart.asp?osymb=fcntx&osymbols=amec.x%2Canef.x%2Canwp.x%2Ccaib.x%2Ccwgi.x%2Cfcntx%2Cflps.x%2Csmcw.x%2Cvexm.x%2Cvgsi.x&symbols=amcpx&GetBtn=Get+Chart&currticker=FCNTX&time=all&uf=0&compidx=aaaaa%7E0&ma=0&symb=fcntx&freq=1dy&lf=1&comp=&type=128&sid=19035

for all available data. (The Fool doesn't have 20 year plots).

I think American's Washington Fund is more like Contrafund

http://quotes.fool.com/custom/fool/html-chart.asp?osymb=fcntx&osymbols=awshx&symbols=anwpx&GetBtn=Get+Chart&currticker=AWSHX&time=all&uf=0&compidx=aaaaa%7E0&ma=0&symb=awshx&freq=1dy&lf=1&comp=&type=128&sid=5336

Fact is they are all up about 6X in the last 20 years. About 9½% a year.

It is also true that Contrafund is one of the outstanding in the Fidelity stable. (But oh, that sickening lurch downward from 2000 to 2003).


I'd bet (in fact, I am betting with my own money) that she would do better sticking her money in an S&P or Total Market Index fund vs. paying someone to change her "allocation" when she likely won't touch the money for 35 years.

and here is Vanguard's S&P500

http://quotes.fool.com/custom/fool/html-chart.asp?osymb=&osymbols=vfinx&symbols=vfinx&currticker=VFINX&time=all&uf=0&compidx=aaaaa%7E0&ma=0&symb=vfinx&freq=1dy&lf=1&comp=&type=128&sid=5254

also up about 6X. But notice it is still 15% below its peak in 2000. None of the others are.

cliff



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Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47662 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/20/2005 6:18 PM
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<<Now for the good side question, are the managers the same over those 20 years and will they be the same for the next 20 years that she would be holding the fund? This could be a rather important question when looking at funds: Is the current manager responsible for it and how long will that manager be there? I do realize that American funds use a team management system so that this isn't an easy question but I do think it is worth asking.

Regards,
JB >>

In American Funds case, the average tenior (not likely spelled correctly) is over 20 years. They have some of the lowest manager turnover in the industry. They use a multimanager approach that is very different compared to the rest of the industry. Each manager is responsible for about 8-10% of the total holdings so if/when one leaves, it does not affect the overall direction of the fund -- which is likely why their performance has been so consistent -- and why 50% of all money invested in growth funds in the last few years has been sent to the American Funds family.

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Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47663 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/20/2005 6:21 PM
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<<Send me a note in 5 years to see if that fund is beating the market indexes. It's extremely easy to select a fund that's had a high return in the past vs. picking a fund for future investment.

Sort of like picking the winner of the Final Four after or before they play the games.>>

20 years is a lot more than 5 last I checked. There are no index funds (that I am aware of) that go back 20 years so I cannot compare them. I do know that out of all funds 20yrs or older, the AMCAP is ranked in the top 5 (I think #3 or 4), with the Contrafund being #2 (IIRC).

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Author: DeltaOne81 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47664 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/20/2005 6:29 PM
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Woah woah woah... some BAAADD misinformation here, I think.

Those calculations comparing Vanguard to the American funds... are they assuming no expenses beyond the load? That's not true at all. Loaded funds have annual expense ratios as well. In fact, they tend to be higher than non-loaded funds in addition to the load. Not true always, but from my experience it is.

At the very least, it would make it take much longer to break even with the load.

Let's assuming a 0.30% Vanguard expense. Let's give the American fund a very favorable and probably completely inaccurate 0.10%. As a quick back of the envelope calculation, the 0.20% difference will take 28.75 years to make back up.

But, we didn't take into account that you'll also lose 5.75% of your dividends every year if you reinvest them, so that return of a load fund will also be less, all things being equal. Plus, I highly doubt the American funds have a lower expense ratio than the Vanguard ones, at least by very very little. Pick two specific funds and we can compare.

Second, as far as advice, I can't speak for Vanguard, but Fidelity reps will certainly take the time to run some simulations for you and suggest your allocation. PLUS, there's a ton of tools online. PLUS PLUS there are these Motely Fool boards with tons of great advice. PLUS PLUS PLUS the Vanguard Target Retirement of Fidelity Freedom funds do the allocation for you and change it automatically as time goes by.

PLUS PLUS PLUS PLUS, I already suggested a solution for that. If this financial advisor is a friend or someone who's advice you really want, work out a for-fee, not for-commission, deal with him. Sit down with him once a year or an annual review for $100, $200 a year for an hour or two or him time. Don't let him and the fund company take 6% of every dollar you invest or reinvest for years and years.



Really, the only way I'd consider a load fund is if the expense ratios were virtually nothing with them, so that you'd make the money back up in a decade or so of consistent investment. And putting your money in the wrong investment just to get someone's advice seems completely backwards to me. There's a ton of great advice out there anyway, a lot of easy do-it-yourself and automatic-allocation options, and the option for a for-free consultation which doesn't take your money away.

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Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47665 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/20/2005 6:36 PM
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<<With time, her interest in investing will grow with her account balance. The sooner she develops the confidence to do it herself, the better off she will be.>>

There is no evidence that suggests a client's interest in making their own decisions will grow over time. In fact, there is an opposite correlation between amount of assets and advise desired; as a number of studies have shown -- and as the markets indicate.

Those with more to lose are more than willing to pay for expert assistance. Such is very evident with accounts valued at 1 million or more (something like 95% of all such accounts are actively managed)

Also, that would not grow to $40,000 in expenses as her fees would shrink as her account grows. She only pays a fee when she buys. Assuming zero growth in her account, the fee would drop in the seventh year and again in the 13th year. Assuming 8% growth, the fee would drop in the in the fifth year and again in the 10th year. After the 10th year, he is only making about $160 per 4k purchase. He only gets paid a commission if he makes a sale. He might get paid a portion of the operating expenses in the form of a 12b1 fee (about .25% or $125 of a 50K account) but whether he makes that or the company does, the return is already net of fees.

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Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47666 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/20/2005 6:44 PM
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<<also up about 6X. But notice it is still 15% below its peak in 2000. None of the others are.

cliff>>

Excellent charts. I guess I need to use more of this site than just for posting and reading news ;P

What I found interesting was how the Amercan Funds where stomping the Fidelity until the last decade. I wonder what cause Fidelity Contra to improve so much.

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Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47667 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/20/2005 6:51 PM
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<<Those calculations comparing Vanguard to the American funds... are they assuming no expenses beyond the load? That's not true at all. Loaded funds have annual expense ratios as well. In fact, they tend to be higher than non-loaded funds in addition to the load. Not true always, but from my experience it is.>>

The Vanguard site states the results were net of ALL fees.

If you add in sales charges (basically NAV quotes), American Funds have done a bit better. The fee reduced the return by .60% on the 10 year return of the AMCAP, for example. Without the sales charge, the AMCAP would be at 11.6% for 10 yr return. Growth Fund of America would be at 12.69% vs 12.02 (per www.americanfunds.com)

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Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47668 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/20/2005 6:54 PM
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<<But, we didn't take into account that you'll also lose 5.75% of your dividends every year if you reinvest them, so that return of a load fund will also be less, all things being equal. Plus, I highly doubt the American funds have a lower expense ratio than the Vanguard ones, at least by very very little. Pick two specific funds and we can compare.>>

I missed this the first time through.

You never have to pay to reinvest dividends and capital gains.

Honestly folks, you should know this stuff (or at least research it -- since individual research and responsibility is the cornerstone of no-load funds) if you are going to form a negative opinion about something.

American Funds typical expense ratio is about .6%. You can find out specifics on their site.

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Author: SirTas Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47669 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/20/2005 6:57 PM
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Woah woah woah... some BAAADD misinformation here, I think.

Those calculations comparing Vanguard to the American funds... are they assuming no expenses beyond the load? That's not true at all. Loaded funds have annual expense ratios as well. In fact, they tend to be higher than non-loaded funds in addition to the load. Not true always, but from my experience it is.


Right.

Extremely erroneous.

I don't see why the wife couldn't invest in one of those retirement target date funds. They have do the stock/bond balancing adjusting as the specified retirement date draws nearer. She doesn't have to choose the underlying funds herself at all.

I'd get rid of that advisor guy in a heartbeat.

--SirTas


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Author: MurrayS Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47672 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/20/2005 8:52 PM
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20 years is a lot more than 5 last I checked. There are no index funds (that I am aware of) that go back 20 years so I cannot compare them. I do know that out of all funds 20yrs or older, the AMCAP is ranked in the top 5 (I think #3 or 4), with the Contrafund being #2 (IIRC).

My point is that I'm willing to bet that your fund won't beat the index over the next 5 years (or whatever term you choose) since the majority of funds don't. Some funds have to beat the average just like someone usually wins the lottery, but that doesn't mean it's a good bet for the next X years.

FWIW, I suggest you click the "Compare To" button on the chart you linked for AMPCX and select "S&P 500". It trails the S&P badly over "All Data" and 1 decade. It does look better over shorter time frames, but even a blind squirrel finds a nut now and then :) In fact, all the funds you linked trail the S&P over "All Data".

Bottom line, I'm not here to promote or cut down a particular fund, just pointing out that loaded funds with higher fees put you at a disadvantage with no better odds of beating indexes. I suggest you ask your advisor what funds he recommended 5 or 10 years ago and compare those to the indexes, not what funds he's recommending now.

-murray

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Author: theHedgehog Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47673 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/20/2005 9:00 PM
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There are no index funds (that I am aware of) that go back 20 years so I cannot compare them.

What about underlying indexes? Whether or not there has actually been a fund to represent any specific underlying index for the past X years is irrelevant. Everybody knows what the Dow Jones Industrials index is. I'm pretty sure its performance has been tracked for a few years. ;) It's unimportant that DIA is a relative newcomer.

Hedge

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Author: cliff666 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47675 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/20/2005 9:31 PM
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FWIW, I suggest you click the "Compare To" button on the chart you linked for AMPCX and select "S&P 500". It trails the S&P badly over "All Data" and 1 decade. It does look better over shorter time frames, but even a blind squirrel finds a nut now and then :) In fact, all the funds you linked trail the S&P over "All Data".

It trails badly? Not according to this

http://flagship4.vanguard.com/VGApp/hnw/FundsCompareResult?entryPoint=null&step=fundCompare&FundIntExt1=INT&FundIntExt2=EXT&fundFamilyId1=6083&fundFamilyId2=6338&FundId1=0040&FundId2=2387

S&P500 AMCAP
Index Fund
YTD 1.87% 3.20%
1 year 12.43 14.27
3 year 11.88 13.14
5 year -1.82 1.98
10 year 9.78 11.69
Since 12.75 12.63
Inception

Am I missing something?


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Author: cliff666 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47676 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/20/2005 9:34 PM
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Since       12.75        12.63
Inception

Should be
Since       12.15        12.63
Inception

cliff

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Author: MurrayS Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47677 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/20/2005 11:18 PM
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Am I missing something?

You tell me:

According to http://quotes.fool.com/custom/fool/html-chart.asp?osymb=fcntx&osymbols=amcpx&symbols=amcpx&currticker=AMCPX&time=all&uf=0&compidx=sp500%7E3377&ma=0&symb=amcpx&freq=1dy&lf=1&comp=&type=128&sid=18737 it appears that AMCPX trails the S&P by about 700%.

According to http://quotes.fool.com/custom/fool/html-chart.asp?osymb=amcpx&osymbols=amcpx&symbols=amcpx&currticker=AMCPX&time=10yr&uf=0&compidx=sp500%7E3377&ma=0&symb=amcpx&freq=1dy&lf=1&comp=&type=128&sid=18737
AMCPX trails by about 75%.

-murray

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Author: cliff666 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47679 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/21/2005 12:10 AM
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Fascinating that Vanguard's information shows their Flagship Index fund trailing AMCAP in every period, while The Fool shows AMCAP being trounced. I wonder if The Fool didn't include distributions? Certainly The Fool's presentation has no resemblance to American Funds' prospectus.

http://www.americanfunds.com/funds/details.htm?referrer=shhp_fundinfo_fund&fundNumber=2

cliff

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Author: MurrayS Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47681 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/21/2005 9:25 AM
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Fascinating that Vanguard's information shows their Flagship Index fund trailing AMCAP in every period, while The Fool shows AMCAP being trounced. I wonder if The Fool didn't include distributions? Certainly The Fool's presentation has no resemblance to American Funds' prospectus.

To me, it's irrelevant whether AMCPX has outperformed the market over the past X years; the question is will it outperform the market over the NEXT X years. Having a high load and triple the fees of the Vanguard fund is like an anchor dragging down your future returns.

Try this, use whatever method you used to pick AMPCX, Contrafund, whatever and apply that same method to data from 5 or 10 years ago. You could go to the library and look at fund ratings from 10 years ago. Select a couple funds and see what their performance has been since then. Basically, backtest your strategy to see if has worked in the past.

-murray


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Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47682 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/21/2005 10:56 AM
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Something is wrong with the Fool's graphs. I can't tell exactly what. Since 1974, the S&P has average a rate of return of about 13.74 (12/74 through 12/04). 100K would have grown to over 3mil in that time frame - which is +3000% growth while Fool's chart shows a little over 1000%. (This assumes no operating fees for the Index).

The AMCAP, for example, net of all fees has a return of 12.28% since 1967. Assuming the same rate of return since 74, That would give a very similiar rate of return (over 3000%). Obviously, at 30 years, it would be a difference of about 300K -- but that number would be a touch less with the small expenses on an Index.

<<Try this, use whatever method you used to pick AMPCX, Contrafund, whatever and apply that same method to data from 5 or 10 years ago. You could go to the library and look at fund ratings from 10 years ago. Select a couple funds and see what their performance has been since then. Basically, backtest your strategy to see if has worked in the past.>>

That is sort of the point. American Funds, as well and the Fidelity Contrafund, have outperformed their peers in 1yr, 3yr, 5yr, 10yr, and 20yr. It would have been appropriate, and wise, to recommend them at any time previously.

You make the same assumption of Index funds that I make about the Contrafund/American funds. You look at past performance and expenses as well as assumptions about the future to select the fund. If the S&P Index had only a 5% return over the last 30 years, there is no way you would put money in them today expecting +12% in the future.

The ONLY reason the S&P has shot up (I did my research) in the last decade was because it had MORE THAN 32% in tech stocks by early 2000 (see WSJ 9/21/05 D1). That is also why it crashed so hard in 2001 and 2002 and is still negative while many growth funds, including the American Funds, are positive. Check out the article. It is a good read on the pros and cons of index funds. Overall, it gives them a positive review but it does caution you with regard to volatility.

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Author: cliff666 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47683 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/21/2005 11:26 AM
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You make the same assumption of Index funds that I make about the Contrafund/American funds. You look at past performance and expenses as well as assumptions about the future to select the fund. If the S&P Index had only a 5% return over the last 30 years, there is no way you would put money in them today expecting +12% in the future.

The ONLY reason the S&P has shot up (I did my research) in the last decade was because it had MORE THAN 32% in tech stocks by early 2000 (see WSJ 9/21/05 D1). That is also why it crashed so hard in 2001 and 2002 and is still negative while many growth funds, including the American Funds, are positive.


I am an old coot. (I usually use another word, but out of deference to the delicate sensibilities of this board, I say "coot".) I remember the 60's and 70's when the S&P500 was flat to down. I remember a Wall Street Journal article for which the headline was "Blue Chips or Blue Gyps?" In the article, they said "Pity ye widows and orphans who put all their savings into the S&P 500 and the DJ Industrials." Conglomerates were is style (It was a new word at the time.) At any rate, buying the S&P 500 has never been on my agenda, partly as a result of that era, but also as a result of what I see as a still over-priced index. I have a bunch of the Vanguard Extended Market Index Fund (See my profile), which is the Vanguard Total Stock Market Index, LESS the S&P 500, so yes, I really avoid the S&P. That being said, I have too many different funds. The saying is that if you have enough stuff, you are a closet indexer in any case. I figure I have some large cap exposure in my Contrafund and Income Fund of America and Capital World Growth and Income so that I need mid-cap exposure and small cap.

Fads come and go. Vanguard has been successful in promoting the S&P 500, and as a result, the price is high. But, basically, you pays your money and you takes your choice. I feel the market is overpriced right now. The S&P is way overpriced. Real Estate is overpriced. Bonds are overpriced. What's an old coot to do?

cliff

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Author: MurrayS Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47685 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/21/2005 1:54 PM
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That is sort of the point. American Funds, as well and the Fidelity Contrafund, have outperformed their peers in 1yr, 3yr, 5yr, 10yr, and 20yr. It would have been appropriate, and wise, to recommend them at any time previously.

I agree, but were the advisors recommending those funds 5 or 10 years ago? As I've said, it's real easy for an advisor to find & recommend a fund that HAS beat the market for various time periods...show me some evidence that market beating funds were recommended before they had above average returns.

Fads come and go. Vanguard has been successful in promoting the S&P 500, and as a result, the price is high. But, basically, you pays your money and you takes your choice. I feel the market is overpriced right now. The S&P is way overpriced. Real Estate is overpriced. Bonds are overpriced. What's an old coot to do?

In the interest of full disclosure, we do own numerous different funds including an American fund in my wife's 401k.

-murray


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Author: alstroemeria Big gold star, 5000 posts Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47686 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/21/2005 3:16 PM
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Vanguard has been successful in promoting the S&P 500, and as a result, the price is high.

I believe this is wrong--no matter how much it['s promoted, the S&P500 index reflects the prices of its constituant stocks.

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Author: ziggy29 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47687 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/21/2005 3:17 PM
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>> I believe this is wrong--no matter how much it['s promoted, the S&P500 index reflects the prices of its constituant stocks. <<

Not only that, but the S&P 500 has considerably lagged most other equity sectors for the last five years.

#29

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Author: cliff666 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47688 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/21/2005 3:25 PM
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>> I believe this is wrong--no matter how much it's promoted, the S&P500 index reflects the prices of its constituant stocks. <<

Not only that, but the S&P 500 has considerably lagged most other equity sectors for the last five years.

I say if Vanguard and its clones sell a bunch of their S&P Indexers, they will be buying lots of the constituent stocks. Maybe I am slow today. Lots of buyers = higer price.

One reason the S&P lags is that the companies are so big they have a harder time finding new growth niches. Smaller companies can be more nimble. They have the advantage of being established, respected, well-known companies, but they are ponderous.

cliff

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Author: Mark12547 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47694 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/23/2005 2:09 AM
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But, again, the most important thing is saving for retirement. Even though she is paying a 5.75% front load, she can still put a full $4000 per year into her Roth (2005 rate). It will cost more now than investing in a no-load mutual fund, but the end amount of money in the Roth will be the same regardless of the amount it costs to get it there.

This doesn't make any sense to me.

If someone contributes $4,000 to a Roth IRA in a no-load, low expense fund, one has $4,000 invested.

If someone contributes $4,000 to a Roth IRA in a 5.75% front-load fund, that is a $4,000 contribution but only $3,770 invested (the other $230 was removed as commissions after contributions were made).


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Author: Mark12547 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47695 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/23/2005 2:28 AM
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I own both and have also ran the numbers on both assuming a 5.75% front load for the american funds and a 0.31% annual fee for the vangaurd. Assuming you get the same annual return on each (I'll use 10%) the break even point is about twenty years.

You have to compare full expenses of investing. It is unfair to skip American funds' annual expense ratio but include Vanguard's.



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Author: rkmacdonald Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47697 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/23/2005 10:23 PM
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Author: | Date: 9/23/05 2:09 AM | Number: 47694
I wrote:
>>But, again, the most important thing is saving for retirement. Even though she is paying a 5.75% front load, she can still put a full $4000 per year into her Roth (2005 rate). It will cost more now than investing in a no-load mutual fund, but the end amount of money in the Roth will be the same regardless of the amount it costs to get it there.<<

Mark12547
This doesn't make any sense to me.

I realized I was wrong right after I wrote it. I was thinking you could pay the load outside the IRA like you can the annual fee.

Russ

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Author: mph0804 Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47721 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 9/26/2005 12:05 PM
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It was my understanding that american funds had no annual expense, the only expense to my knowlege is the 5.75% up front. I've always thought the 0.71% expense ratio was what the front load costs over a their analysis period. The 0.31% expense ratio of vanguard's fund is lower but I thought that was because it was for a short time frame. After looking it up (should have before I bought I guess) you're right. Good point!

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Author: DemonDoug Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 47793 of 76397
Subject: Re: Best way to invest in a ROTH IRA Date: 10/1/2005 6:17 PM
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Vanguard has it's own services for advice and financial planning.

http://flagship4.vanguard.com/VGApp/hnw/content/AccountServ/ATSOverviewContent.jsp?gh_sec=n

Fidelity also has financial services.

http://personal.fidelity.com/planning/retirement/saving/content/strategies.shtml

Fidelity has branch offices though whereas Vanguard doesn't. I mention this because women seem to feel more comfortable investing with an advisor face-to-face. In any case if you are investing for any period of time, you should take at least the initial time to study just a little bit and know where your money is going. Blindly forking over money for a 5.75% fee is unnecessary if you take just 60 freakin seconds to read the 401k link on fool.com's front page. In case you are super lazy, here it is http://www.fool.com/money/401k/401k.htm?source=LN

I'm not sure what the returns on all those other funds are, but here is the simple vanguard 500 fund performance

Since Inception Inception Date
500 Index Fund Inv 12.15% (CAGR) 08/31/1976


Happy hunting

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