American Funds Question- Investing in a 409B plan and have been given choices I do not understand.....?

Question

I am supposed to go online to the American Funds website and figure out what I want to invest in. They have the different options of investments broken into Class A,B, and C which have different guidlines on how each works. I do not understand what would be in my best interest for my finacial goals and I am not getting any help with it either. If someone has any experience with this please help, I just need a idea of what my options are with each Class so I can make a choice on which way to go with it. I want to be aggresive now to hopefully make up for starting so late in the game on invest for retirement then slow down to more secure stuff later. Does this sound like a resonable goal? I am due to retire in 12 years and will be self employed till I reach 65 about 10 years later -Thank you for your help

Answer 1

Class A share over the long term are the best deal even though they have a 5.75% sales charge. Since you are in a retirement plan you may not be paying the entire load. But do not worry too much about it. The B and C shares are just a different way of spreading the sales charge by loading it into the expense ratio. What you are really interested in is which funds to invest in. Even though you are only 12 years from retirement, being too aggresive might not be in your best advantage. If there is a recession in the U S and it certainly looks like there might be, an aggressive portfolio might wind up dropping in value over 50% in a couple of years.

The most aggressive funds, that is the funds that have the potential for the most return over the next 12 years are the following:

Capital World Growth and Income 10 yr return 13.4% annually

New World Fund 10 yr return 14.5% annually

New Perspective Fund 10 yr return 11.5% annually

Euro Pacific Growth Fund 10 yr return 11.2% annually

Now for less aggressive funds that might wind up being a better option for retirement

Income Fund of America 10 yr return 9.37%

Capital Income Builder 10 yr return 11.1% annually

It might be appropriate to consider up to 1/3 of your retirement savings in an aggressive fund but with only 12 years until retirement, that amount would be very risky. I personally like Income Fund of America. It has an excellent record in down markets.

American Funds has some extremely good funds and they all have very low expense ratios.

Answer 2

If you are due to retire in 12 years I would not get all that risky with all stock funds. Decide your asset allocation and go from there. I am also 12 years from retirement and my AA is 60/40. I would hope that since you are in a plan that your loads should be waived, otherwise American funds are expensive to get into with A class charging a load of at least 5%. The B and C class are even worse as you pay loads although smaller you pay for them longer.

Do you have any other providers to choose from??

Answer 3

"B" and "C" class funds are a total rip off.

Learn "Asset Allocation" and use that as a model.

The "American Funds" are the best "loaded" funds out there. All you have to do is allocate properly. Too bad you don't have a broker to help you with that..... You should not be paying a commission if you're not getting any service. You'd be better of with a good no-load fund family (given the lack of assistance). You're not getting anything for your money. That stinks.