Roth IRA Transfer

Posted by Mr. B

March 23, 2007

Today I transferred my Roth IRA from American Funds to Vanguard. Why, you ask? It’s simple. There is not much money in it, but the idea of paying a “load” sickened me.

What is a “loaded” mutual fund?

A “loaded” mutual fund is one in which you pay a percentage of your investment as a commission to a financial adviser each time you buy shares of that fund. American Funds currently charges a 5.75% load for Class A shares, which means that if you invest $1000, they take $57.50 for themselves, leaving you with $942.50 as an actual investment. Ouch! All of Vanguard’s funds, by contrast, are non-loading funds, which means that a $1000 investment remains a $1000 investment.

Is this necessarily a bad thing? The point is debatable since the adviser must earn a living somehow, and if he/she is worth it then by all means, spend the money for his/her advice. That is how I started, since a few months ago I knew absolutely nothing about mutual funds and chose American Funds on the advice of a friend. Am I upset about the friend’s advice? Absolutely not! He initiated my interest in mutual funds in the first place, which caused me to move my IRA from a bank CD earning a measly 4%.

American Funds is still a good company, but I’m no longer interested in paying their added fees now that I have the desire to more actively manage my portfolio.

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