Is American Funds a Good Investment?

FT Contributor  | 

American Funds is a family of mutual funds managed by Capital Group, a firm that’s been around since shortly before the Great Depression. American Funds is one of the largest mutual fund providers in the country, although it’s not as well known as its counterparts, such as Vanguard or Fidelity.

The reason many people may not recognize the name may be due to the firm’s traditional, publicity-shy values. American Funds does not advertise its services or sell its products to the general public. It chooses to rely on investment advisors to steer clients to the firm instead. Take a look at your company-sponsored 401(k) and it probably contains at least one American Funds mutual fund.

Although American Funds may have traditional values, it is making strides in technology  to address the changing needs of investors. The website keeps up with the times, providing investors access to their accounts to manage their investments and view research tools.

In addition, Capital Group has created a research team to examine the future of cryptocurrency and blockchain. Perhaps there will be a crypto fund down the road. And surprisingly, American Funds’s financial advisors are the most digitally engaged in comparison with the advisors at 21 major asset management firms, according to a recent J.D. Power study.

More than half (51%) of advisors say they communicate with American Funds digitally and regularly, via email or the company website. The next closest brokerage was Charles Schwab at only 31%.

Take a closer look at American Funds, which type of individual could benefit most from creating an investment portfolio with the brokerage, and how to open an account.

Who Is American Funds for?

American Funds is best for investors interested in a more traditional investment approach. You’ll need to open an account through a broker, but once you do, American Funds does a good job of providing quality mutual funds and personal service. To get the most from your investment, choose American Funds if:

  • You prefer to work with a broker;
  • You want to be able to call and speak to your mutual fund provider for advice;
  • You want to buy into a reputable mutual fund with above-average returns for long-term investments, such as individual retirement accounts (IRAs) and 401(k)s.

Mobile users, beginners, and short-term investors who are swayed by fintech and algorithms should look at Betterment, or Vanguard’s Digital Advisor, a hybrid between a robo-advisor and brokerage account product, instead.

American Funds Features

Some of the top features American Funds provides include:

  • Two mobile investment apps — RecordkeeperDirect and PlanPremiere for managing your 401(k)s;
  • A selection of lower-cost, no-load funds;
  • Phone support available by phone on weekdays from 8 a.m. to 7 p.m.;
  • Exchange-traded funds (ETFs);
  • Web-based trading platform.

Pros and Cons

All brokerages will have pros and cons according to the type of investments an individual is trying to make and the services they may need. Take a closer look at what sets American Funds apart and where it’s lacking.

Advantages of American Funds

American Funds shines most for its mutual funds, an excellent investment option for beginners, as well as for more advanced investors looking to diversify their portfolio. The company offers more than 30 funds, with some at the top of the market for their categories. Here are other advantages:

  • Professional fund management;
  • Good customer service;
  • Investment advice from the broker you purchased the fund from;
  • Easy to navigate, user-friendly website with plenty of easily digestible information for new investors;
  • Apps available to view and manage your retirement funds;
  • Fund share class options for different investor preferences;
  • Access to a variety of high-quality and category-topping mutual funds.

Is There Anything Bad About American Funds?

You’ll need to watch out for the fees associated with some of the company’s funds. As mentioned, American Funds can only be purchased through a broker. The broker makes money on the advice and services they provide clients by recommending loaded investments that pay them a referral fee. Some of the firm’s funds are no-load with no fees, but most are load funds with fees such as sales charges or annual distribution fees.

What Funds Does American Funds Offer?

American Funds offers a variety of funds that fall into several main categories. If you’re trying to determine what to invest in now, it depends on your goals and level of risk you’re comfortable taking. Take a closer look at each type:

Balanced Funds

Balanced funds invest in a variety of low- to medium-risk securities. Both funds available from American Funds expose you to global investments to diversify your portfolio. They are:

  • American Balanced Fund (ABALX): Non-U.S. assets account for 15% of the fund; requires a minimum initial investment of $250, charges a front-load fee of 5.75% and an expense ratio of 0.57%.
  • American Funds Global Balanced Fund (GBLAX): The more globally invested of the two balanced funds, with a minimum initial investment of $250, a front-load fee of 5.75%, and an expense ratio of 0.84%.

Equity-Income Funds

Equity-income funds provide both growth and income from a selection of securities including stocks, bonds, and other equities, some of which pay dividends. The funds are:

  • Capital Income Builder (CAIBX): Has a minimum initial investment of $250, has a front-load fee of 5.75%, and an expense ratio of 0.61%.
  • The Income Fund of America (AMECX): Comes with a minimum initial investment of $250, has a front-load fee of 5.75%, and an expense ratio of 0.58%.

Growth Funds

Growth funds are the most aggressive mutual fund investment, mainly focused on stocks for long-term growth. It’s the largest category for American Funds with seven available:

  • AMCAP Fund (AMCPX): Primarily U.S. small and large caps, a minimum initial investment of $250, has a front-load fee of 5.75%, and an expense ratio of 0.69%.
  • EuroPacific Growth Fund (AEPGX): Focuses on Asian and European companies of all sizes. A minimum initial investment of $250, a front-load fee of 5.75%, and an expense ratio of 0.84%.
  • New Perspective Fund (ANWPX): Buys multi-national companies with long-term growth potential. A minimum initial investment of $250 is required, a front-load fee of 5.75%, and an expense ratio of 0.76%.
  • New World Fund (NEWFX): An emerging markets fund for long-term exposure to the countries most likely to experience growth. Comes with a minimum initial investment of $250, a front-load fee of 5.75%, and an expense ratio of 1.03%.
  • The Growth Fund of America (AGTHX): A less-aggressive alternative compared to other large-cap growth funds. Has a minimum initial investment of $250, a front-load fee of 5.75%, and an expense ratio of 0.65%.
  • The New Economy Fund (ANEFX): A new tech fund for investors wanting to expand into technology. Comes with a minimum initial investment of $250, a front-load fee of 5.75%, and an expense ratio of 0.80%.
  • SMALLCAP World Fund (SMCWX): Invests in small to midsize global companies that have a market capitalization of no more than $6 billion. Comes with a minimum initial investment of $250, a front-load fee of 5.75%, and an expense ratio of 1.08%.

Growth-and-Income Funds

These funds seek growth as well as income from dividend-paying securities.

  • American Funds Developing World Growth and Income (DWGAX): Primary focus on emerging markets with an initial investment of $250, a front-load fee of 5.75%, and an expense ratio of 1.30%.
  • American Mutual Fund (AMRMX): Avoids investing in companies that get most of their revenue from alcohol or tobacco products. Has an initial investment of $250, a front-load fee of 5.75%, and an expense ratio of 0.61%.
  • Capital World Growth and Income Fund (CWGIX): Has an initial investment of $250, a front-load fee of 5.75%, and an expense ratio of 0.78%.
  • Fundamental Investors (ANCFX): Comes with an initial investment of $250, a front-load fee of 5.75%, and an expense ratio of 0.62%.
  • International Growth and Income Fund (IGAAX): An initial investment of $250 required, a front-load fee of 5.75%, and an expense ratio of 0.93%.
  • The Investment Company of America (AIVSX): The oldest fund from the brokerage. Has an initial investment of $250, a front-load fee of 5.75%, and an expense ratio of 0.59%.
  • Washington Mutual Investors Fund (AWSHX): Has an initial investment of $250, a front-load fee of 5.75%, and an expense ratio of 0.59%.

Money Market Funds

There’s only one money market fund available — the no-load American Funds U.S. Money Market Fund (AFAXX) with an expense ratio of 0.39%.

Taxable Bond Funds

Ideal for IRAs and 401(k)s, there are 11 taxable bond funds to choose from, based on the commodity they invest in:

  • American Funds Corporate Bond Fund (BFCAX): A minimum initial investment of $250, a front-load fee of 3.75%, and an expense ratio of 0.90%.
  • American Funds Emerging Markets Bond Fund (EBNAX): A minimum initial investment of $250, a front-load fee of 3.75%, and an expense ratio of 1.03%.
  • American High Income Trust (AHITX): Consists of high-yield bonds. It has a minimum initial investment of $250, a front-load fee of 3.75%, and an expense ratio of 0.73%.
  • American Funds Inflation Linked Bond Fund (BFIAX): Includes investments in Treasury inflation-protected securities (TIPS). A minimum initial investment of $250, a front-load fee of 3.75%, and an expense ratio of 0.73%.
  • American Funds Mortgage Fund (MFAAX): A minimum initial investment of $250, a front-load fee of 3.75%, and an expense ratio of 0.71%.
  • American Funds Strategic Bond Fund (ANBAX): A minimum initial investment of $250, a front-load fee of 3.75%, and an expense ratio of 0.94%.
  • The Bond Fund of America (ABNDX): The most diversified bond fund. Has a minimum initial investment requirement of $250, a front-load fee of 3.75%, and an expense ratio of 0.61%.
  • Capital World Bond Fund (CWBFX): Comes with a minimum initial investment of $250, a front-load fee of 3.75%, and an expense ratio of 0.95%.
  • Intermediate Bond Fund of America (AIBAX): Contains bonds that mature in three to five years. A minimum initial investment of $250, a front-load fee of 3.75%, and an expense ratio of 0.64%.
  • Short-Term Bond Fund of America (ASBAX): Invests in bonds that mature in three years or less. Has a minimum initial investment of $250, a front-load fee of 3.75%, and an expense ratio of 0.71%.
  • U.S. Government Securities Fund (AMUSX): Has a minimum initial investment of $250, a front-load fee of 3.75%, and an expense ratio of 0.67%.

Tax-Exempt Bond Funds

The following funds target tax-free interest on municipal bonds:

  • American Funds Short-Term Tax-Exempt Bond Fund (ASTEX): Has a minimum initial investment requirement of $250, a front-load fee of 2.50%, and an expense ratio of 0.59%.
  • American Funds Tax-Exempt Fund of New York (NYAAX): Has a minimum initial investment requirement of $1,000, a front-load fee of 3.75%, and an expense ratio of 0.67%.
  • American High-Income Municipal Bond Fund (AMHIX): Has a minimum initial investment requirement of $250, a front-load fee of 3.75%, and an expense ratio of 0.70%.
  • Limited Term Tax-Exempt Bond Fund of America (LTEBX): Comes with a minimum initial investment requirement of $250, a front-load fee of 2.50%, and an expense ratio of 0.62%.
  • The Tax-Exempt Bond Fund of America (AFTEX): Has a minimum initial investment requirement of $250, a front-load fee of 3.75%, and an expense ratio of 0.54%.
  • The Tax-Exempt Fund of California (TAFTX): Has a minimum initial investment requirement of $1,000, a front-load fee of 3.75%, and an expense ratio of 0.61%.

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