Monday, January 23, 2006

Mutual Fund Exchanges In Roth IRA

After I recovered from the weekend trauma, involving a horrible "friend" who left me stranded on Friday night at her boyfriend's place until six a.m. on Saturday, I decided that I'm going to tinker with the funds I have in the Roth IRA account at American Funds. I know...I know...I need to figure out a better way to release anger :)!!

Since, I already buy the Bond Fund of America (ABNDX) through work's 457b Plan , I decided to exchange the bond shares with their New World fund (NEWFX), an emerging market fund. Originally, the bond shares were bought with a load charge of 3.75%. The New World shares require a 5.75% load charge on shares bought, normally. However, since I'm exchanging ABNDX shares with NEWFX shares, no additional load charges were applied to the shares that were transferred. Great...I got a 5.75% load fund while only having paid 3.75%. I'm not sure if I can keep doing this (buying the bond fund first and then exchanging out the shares) whenever I want to invest in 5.75% load funds. No redemption fees apply since I'm still keeping the money in American Funds. Since capital gains will have to be considered, I won't be able to keep the automatic investment plan if I were to go with this method. Instead, maybe a once a year transfer will do and with an accumulated lump sum.

Or maybe I should just abandon American Funds and their load charges altogether and open up a roth ira at Fidelity, instead. I have a rollover ira with a $2,500 amount with Fidelity in a Freedom Fund. So far, I'm happy with the results over there.
If only exchanging out bad friends with good ones are this easy... (sigh).


  1. Why dont you look through your banks "no load" funds and then look into my blog:0)

  2. I have American Funds and think they're great, but I would not pay a load to buy the fund. There are other great options out there such as Fidelity, Trowe Price, and Vanguard.

    I only buy American Funds because I am not paying a load. I also have NEWFX and think it's a great fund. It's a fairly conservative fund and can also be used as a core fund.

  3. Anonymous8:54 PM

    I agree with Loi on American Funds. I hold CWGIX and AMCPX. I'm pleased with the performance, but like Loi, I don't have to pay a load and I wouldn't hold them if I had to pay a load.

    Look at VTIVX (Vanguard 2045 Retirement) for an index based fund that rebalances automatically as time goes on.

  4. Loi and Anon,

    How do you not pay a load with american funds...through your 401K and the like? My 457B plan only offers American Bond Fund :(. I wish more american funds would be offered through the plan.

  5. Anonymous1:34 PM

    I have a relative that works for the Capital Group (the parent of American Funds) and all the loads are waived since I am related to her. I am only subject to the expense ratio (which is relatively low for a mutual fund).

    Do a comparison between NEWFX and Vanguard's equivalent emerging markets index, VEIEX. VEIEX has outperformed NEWFX over the past year and is load free. If you have the ability to switch to Vanguard or even Fidelity/TRP, I would do so.

  6. I'm happy with Fidelity, but as the other said Vanguard and TRP are great options too if you're shopping