Invest Wisely: American Funds Strategies For Long-Term Growth

American Funds, part of Capital Group, is one of the largest mutual fund companies in the world, with over $2.2 trillion in assets under management. The company has been in operation since the early 1930s and offers a wide range of investment options, including mutual funds, retirement plans, and education savings plans. American Funds are available for purchase through stockbrokers and some online discount brokers, or as part of 401(k) plans. The funds cover various types, including growth funds, growth-and-income funds, equity-income funds, balanced funds, and taxable bond funds. When considering how to invest in American Funds, it is important to weigh the pros and cons, assess your financial goals, and potentially seek advice from a financial professional.

How to buy American Funds

American Funds, a part of Capital Group, is one of the largest mutual fund companies in the world. It offers high-quality, low-cost mutual funds available through brokers, some online discount brokers, and 401(k) plans.

American Funds are typically purchased through stockbrokers or online discount brokers. They are loaded, meaning investors pay a sales charge, either upon purchase (front-loaded A shares) or upon sale of shares within a year of purchase (back-loaded C shares).

However, some funds can be purchased as load-waived (R shares), which is common in 401(k) plans. These funds are available on the Fidelity and Schwab online brokerage sites without a commission.

Types of Funds Available at American Funds

American Funds offers mutual funds that cover seven main types:

• Growth funds
• Growth-and-income funds
• Equity-income funds
• Balanced funds
• Taxable bond funds
• Tax-exempt bond funds
• Money market funds

American Funds' pros and cons

American Funds, a division of Capital Group, is one of the largest mutual fund managers in the world. It offers a variety of funds in several asset classes, including asset allocation funds and fixed-income funds. The funds are actively managed by portfolio managers who pay attention to value and keep turnover rates low.

Pros

• Professional fund management: American Funds offers more than 30 mutual funds, with some at the top of the market for their categories. The funds are actively managed by professional advisors who aim to provide consistent results, value, and diversification.
• Good customer service: The company provides phone support and investment advice from the broker you purchase the fund from.
• Wide range of options: American Funds offers a diverse selection of high-quality mutual funds with many fund share classes to suit different investor preferences.
• User-friendly website: The website is easy to navigate and provides investors with access to their accounts and research tools.
• Apps for retirement fund management: American Funds offers two mobile investment apps, RecordkeeperDirect and PlanPremiere, for managing your 401(k)s.

Cons

• Fees and loads: American Funds can only be purchased through a broker, and most of the funds are load funds with fees such as sales charges and annual distribution fees. While some funds are no-load with no fees, investors typically pay a sales charge when purchasing outside of a 401(k) plan.
• Higher expense ratios: American Funds has higher expense ratios compared to some no-load funds and passively managed funds.
• Limited purchase options: The funds are only available through brokers or 401(k) plans.
• No sector funds or index funds: American Funds does not offer sector funds or index funds.

American Funds' portfolio structure

American Funds, a part of Capital Group, is one of the largest mutual fund companies in the world. It offers a wide range of investment options, including growth funds, growth-and-income funds, equity-income funds, balanced funds, taxable bond funds, and tax-exempt bond funds.

When building an American Funds portfolio, it is essential to start with a solid portfolio structure. A commonly used structure is the "core and satellite" approach. This involves having a "core holding", typically a large-cap stock index mutual fund, as the largest portion of the portfolio. The "satellite holdings" are then added to complement the core holding. These satellites are smaller portions of the portfolio and consist of different types of funds, such as foreign stock, small-cap stock, bond funds, and sometimes sector funds.

The primary objective of this portfolio structure is to reduce risk through diversification. By spreading investments across various asset classes and categories, investors can lower the impact of any single investment on the overall portfolio performance.

• Core Holding: American Funds Growth Fund of America (AGTHX) - This fund invests in large-cap stocks with long-term growth potential. It is considered safer than most large-cap growth funds.
• Satellite Holdings:
• American Funds Smallcap World (SMCWX) - This fund invests in US and foreign small-cap stocks, providing exposure to smaller companies with high growth potential.
• American Funds Bond Fund of America (ABNDX) - This is a diversified bond fund that invests in a wide range of bonds, including government, corporate, and mortgage-backed securities.

In this example, the portfolio is moderately weighted towards stocks, with a 60% allocation, while the remaining 40% is in bonds. This type of portfolio is suitable for investors with a moderately high-risk tolerance and a time horizon of at least five years.

It is important to note that the above example is just one possible combination, and investors should carefully consider their financial goals, risk tolerance, and investment horizon when constructing their own American Funds portfolio.

American Funds' fees and charges

When considering investing in American Funds, it is important to understand the fees and charges associated with the various funds on offer. American Funds charges both front-end and back-end loads, and these fees are generally higher than those of its competitor, Vanguard. The fees charged by American Funds can be broken down into several categories, including sales charges, annual expenses, and expense ratios.

Sales Charges

American Funds typically charges a sales fee, also known as a load fee, which is either paid upfront when purchasing the fund (front-end load) or when selling shares within one year of purchase (back-end load). The sales charge for equity funds ranges from 0% to 5.75%, depending on the amount invested. For example, an investment of less than $25,000 in a class share equity fund would typically incur a 5.75% charge. This charge decreases incrementally as the investment amount increases, and there are no charges for investments over $1 million. Bond funds follow a similar schedule, with a maximum charge of 3.75%. Portfolio series and retirement funds also range from 5.75% to 0%, depending on the invested amount. It is worth noting that some American Fund share class funds do not have any sales charges or annual expenses.

Annual Expenses

American Funds also charges annual expenses, which are often charged to fund holders on a yearly basis. These expenses can include costs such as shareholder transaction costs, investment advisory fees, and marketing and distribution expenses.

Expense Ratios

In addition to sales charges and annual expenses, American Funds also has expense ratios, which are typically higher than those of Vanguard's no-load funds. The expense ratios vary across the different funds offered by American Funds. For example, the EuroPacific Growth Fund (AEPGX) has an expense ratio of 0.82%, while the Growth Fund of America (AGTHX) has a lower expense ratio of 0.64%.

It is important to carefully review the fees and charges associated with any investment before making a decision. These fees can impact the overall return on your investment and should be considered when weighing the pros and cons of investing in American Funds.

American Funds' performance

American Funds, a part of Capital Group, is one of the largest mutual fund companies in the world. It offers a wide range of high-quality, actively managed mutual funds with low expense ratios and diverse investment objectives, volatility levels, and asset types.

Growth Funds

These funds focus on long-term capital growth by investing in stocks of companies with strong growth prospects, including those in Europe, Asia, and developing economies. Examples include the EuroPacific Growth Fund, The New Economy Fund, and the New Perspective Fund. These funds typically have expense ratios ranging from 0.64% to 1.06% and require a minimum investment of $250.

Growth-and-Income Funds

These funds aim for both capital growth and current income by investing in stocks that pay dividends. Examples include the Capital World Growth and Income Fund, the International Growth and Income Fund, and the American Mutual Fund. They have expense ratios ranging from 0.59% to 0.91% and the same minimum investment requirement.

Equity-Income Funds

These funds seek income and growth through a mix of dividend-paying stocks and bonds. The Capital Income Builder and The Income Fund of America are the two equity-income funds offered by American Funds. They have expense ratios of 0.61% and 0.57%, respectively, and a $250 minimum investment.

Balanced Funds

Balanced funds aim to conserve principal while providing long-term capital growth and current income through a mix of stocks and bonds. American Funds offers two balanced funds: the American Funds Global Balanced Fund and the American Balanced Fund. They have expense ratios of 0.84% and 0.58%, respectively, and the same $250 minimum investment.

Taxable Bond Funds

These funds seek current income through investments in fixed-income securities and are suitable for tax-benefited accounts like IRAs and 401(k)s). Examples include the American High-Income Trust, the American Funds Corporate Bond Fund, and the American Funds Inflation Linked Bond Fund. Their expense ratios range from 0.65% to 1.08%, and they also require a minimum investment of $250.

Tax-Exempt Bond Funds

Tax-Exempt Bond Funds aim to provide tax-free income by investing in municipal bonds. They are best suited for taxable accounts, especially for investors in high federal tax brackets. American Funds offers several options, such as the American High-Income Municipal Bond and the American Funds Short-Term Tax-Exempt Bond Fund. These funds have expense ratios ranging from 0.58% to 0.67% and minimum investments of $250 or $1,000.

Money Market Fund

American Funds offers the American Funds U.S. Government Money Market Fund, which provides liquidity, stable growth rates, and low risk. This fund has no load and an expense ratio of 0.38%.

It is important to note that investing in American Funds involves risks, and past performance does not guarantee future results. Investors should carefully consider their investment objectives, risks, charges, and expenses before investing.

Frequently asked questions