The quote u replied to was actually a quote from mac, my post begins at the "I agree", I forgot to put endquote when I deleted part of his message. However, Im the one who first mentioned historical data. I find it relevant when picking a stock. As a gm may compare FA stats to determine how much a player is worth to his team, does that mean that player will get 20 ppg, 5rbs again the next season? Not necessarily. But if they've done it consistantly for many years, chances are they'll get close, perhaps a little better or a little worse.
that was my post. i was asking hoplite for the info. when i always read that 95% of mutual funds don't beat the market, the premium you pay to be in that lucky 5% just isn't worth it to me. i don't claim i'm an expert in the market but when people invest in growth and income funds, do they not do it for the long term as in 25 plus years. on average, Index funds return approximately 11%. The Vanguard fund has an expense ratio of 0.18 % with no load or b12 fees. Assuming that American Funds Fundamental Inv charges the 5.75% upfront sales charge plus the 1.25% (numbers from your initial post), that would mean the mutual fund has to return 5.82% more just for you to break even with the market, no?
First, I want to say I think its great you are a long-term investor (So am I). Index funds do beat out 85% of mutual funds, the companies I listed are in that 15% that index funds don't beat. And they have the track record to prove it. Historically, the market has averaged 8%, and if you want to look at the front load sales charge as having to make 6% to break even, then yes you are right. But if you are a long-term investor, as you said you were, then you would see that an a-share is actually cheaper for the long term. If you don't feel comfortable with thinking you will only break even the first year, then by all means get a C-Share (no load), but you will be paying higher annual exp's,which will soon actually be more expensive). Personally, I haven't found any index funds that have earned 11% on avg, there has been years they have got that and well beyond that, but I've found there avg is well below that, actually in the last 10 yrs its been negative. Now the financial guru's, yes they make money using Index funds and ETF's, but they aren't buying and holding vanguard funds. They are using sophisticated software and have a great knowledge of the market to buy and sell almost daily to constantly re allocate and balance their funds. If you have the time and knowledge to do taht, then yes you can make a TON of money, but hey I'm just an avg investor. The funds I talked about do have a higher fee, but thats bc they are managed, the index funds aren't, you get the good with the bad. You aren't getting lucky to be in that 15% column, if you just look at the history of the firm. Will they have bad years? Yes. Everyone will. Also, regarding an A-share, if your fund is doing poorly you can exchange within a family for a different fund and avoid another sales charge. That charge is only going to occur once on your money. And I would only get an a share if you are truly a long term investor. And yea, if you do get into a bad mutual fund, you could have been better off in an index fund, but thats why I look and use past performance, because I want a quality mutual fund. Where are you finding index funds have avg'ed 11%?
sorry for the confusion, when i kept saying index funds i should have specified i was talking about the S&P 500, specifically Vanguard 500 Index Fund which has returned 10.58% in the last 30 years. i know there are several other index funds out there and didn't mean to lump them all together. if you're getting much better returns with another equity fund on a consistent basis than i can't argue it's not a better investment.
That was the fund that I showed having a -0.27% return the last 10 yrs, havent had the time to look at the last 20 years or more just yet, will try to find time this weekend maybe. Mac, where are you getting 11%? For that exact fund, the last 32 yrs, yahoo shows it earning 5.72% for the annual avg return. But mac, I do believe an index fund can be appropriate for certain portfolios. Seems to be right for you and if somone is highly cautious of fees, then they would be too.
https://personal.vanguard.com/us/FundsHoldings?FundId=0040&FundIntExt=INT#hist=tab:1 unless i'm missing something or not reading it correctly.
I already have a 401K through my employer that has matching funds, but I plan on opening up the Roth IRA as a savings account, if you will. The flexibility of withdrawing contributions with no penality, as rare as it may be exercised, is very attractive.
I think your reasoning it as a 'savings account' isn't the best way to look at it. It's not FDIC insured, you can lose all of it theoretically, and it's not the kind of place to put money for short term. If you want to do that you should look into the US Treasury. http://www.treasurydirect.gov/ The Roth is an awesome vehicle the government created for your retirement and the only person you cheat if you use it like a 'savings account' is your retirement. Anyways, just be sure you are making the right withdrawals or there is a penalty, really the only situations are putting a down payment on a house or college tuition. Remember, it's tax-sheltered for life (for Roth, not traditional), so all the interest earned is yours to keep. The money you pull out can never be put back in to continue to compound. That 10k might cost you many times over later had it continued to grow. And a penalty on top of it if it's not for the appropriate situation. These things are set in place to deter you from cheating your retirement. http://www.fool.com/money/allaboutiras/allaboutiras07.htm *** In the end, try to max out your Roth IRA, it's a good thing and should be a focal point of your retirement investing. You should put up to the amount your company matches for your 401k, then max out the Roth, then go back and max out the 401k up to $16,500 this year. If you want to save up for a house or short term (5 years) don't think of the Roth IRA as the place to do it. Leave that for your savings account or other secure methods.
Great points, rocketsqtc. One of the reasons I started this thread was to get these sorts of responses.
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Lasik, are you wanting to manage your ROTH yourself or do you want an Advisor to help/guide you? I agree with Rocket, don't squander away the opportunity to put back that kind of money by spending the money you contribute just bc you can get to it any time you want. Instead, take advantage of it bc it is limited.
