2018 American Funds brokerage firm review. Fees & commissions, advantages & disadvantages, minimum requirements & promotion offers for opening a new online account with the discount stock broker.


American Funds Overview

American Funds offers mutual funds, as well as college- and retirement-focused products, for investors of all experience levels. American Funds is a division of Capital Group, which is the seventh-largest asset manager in the nation. Capital Group has been in existence since 1931, so they are well-established and nationally known. American Funds is the largest actively-managed fund group in the U.S.

For the purposes of this review, the American Funds selection of mutual funds will be mainly discussed. Mutual funds work to promote the interests of a group of people with similar goals for their investment, such as growth or long-term interest. Potential securities that may be invested in are:

Stocks Bonds Cash equivalents/money market securities


American Funds Pros

The main benefits of an American Funds mutual fund are that it’s professionally managed (portfolio managers actively manage to keep turnover rates low), it offers the opportunity to invest in diverse portfolio, and it’s convenient to buy and sell shares.

American Funds will likely be preferred by those who believe active fund management is key to higher returns over the long term. American Funds is second to none for actively managed fund success, and they have a proven track record. For investors that take comfort in the knowledge that someone is carefully monitoring the market and fund investments, American Funds will be an easy choice.

On a practical level, the accessibility of American Funds is a major benefit to investing. The website is user-friendly, intuitive, and well-designed. Selling, purchasing, and exchanging shares are features available to users 24/7 online or by phone, and bank accounts are consistently credited/debited within 3 days of transactions. Automatic transfers from bank accounts are easy to set up. Customer service is responsive, friendly, and easy to access (i.e., no waiting on hold for half an hour).


American Funds Cons

American Funds charges a front-end load for Class A shares. The maximum load is 2.5% for short-term bond funds and 5.75% for equity funds and declines as investments increase. In other words, a percent of each investment is charged upon purchase of a mutual fund. Class C shares charge a flat fee, and Class F (1-3) shares charge no load but are advisor-sold only (so investors will pay annual asset-based fees to a financial professional).

Additionally, expense ratios for funds can be higher than similar products with other companies. Below is a more detailed breakdown, but generally expense ratios average about 0.6%. For those looking to directly invest the highest percentage of their money without a large cut for fees, American Funds may not be the first choice.

For some investors, being an actively managed fund may be a negative factor. Those who encourage a “set it and forget it” approach to investing may feel they get more bang for their buck by putting their money in an index fund with a different investment group that focuses on lower expense ratios.


American Funds Requirements

Fund minimums are $1000 each for money market and state-specific tax-exempt bond funds. All other funds have a $250 minimum starting balance.

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Products

American Funds offers eight types of mutual funds, tailored to suit different customer needs.

Growth funds (American Funds offers seven): volatile, suited for investor with high risk tolerance. Lifetime fund growth averages 8.65% - 12.56%. Expense ratios (gross) run from 0.43% to 0.81%.

Growth-and-income funds (American Funds offers seven): good prospects for earnings growth, include bond investments to cushion riskier investments. Lifetime fund growth averages 5.29% - 12.84%. Expense ratios (gross) run from 0.41% to 1.04%.

Equity-income funds (American Funds offers two): composed mostly of investments in stocks and bonds that pay dividends, produce lower returns and emphasize income. Lifetime fund growth averages 9.52% - 11.26%. Expense ratios (gross) run from 0.39% to 0.41%.

Balanced funds (American Funds offers two): used for long-term capital and income growth, primarily invested in stocks, bonds, and cash equivalents. Lifetime fund growth averages 7.02% - 10.98%. Expense ratios (gross) run from 0.39% to 0.64%.

Bond funds (including tax-exempt bond funds, American Funds offers 17): used to provide regular income from interest on bonds, lower returns than growth funds but bond income can help smooth market fluctuations. Lifetime fund growth averages 0.43% - 8.58%. Expense ratios (gross) run from 0.36% to 0.79%.

Cash-equivalent funds (American Funds offers a money market fund): aim to preserve initial investment, composed of short-term securities such as U.S. Treasury bills and CDs. Low risk and low return. Average lifetime growth is 0.5%. Expense ratios (gross) average 0.45%.

Target date funds (American Funds offers 11): balance of growth and stability that automatically adjusts based on selected retirement dates. Lifetime fund growth averages 4.98% - 11.56%. Expense ratios (gross) run from 0.44% to 0.55%.

Portfolio series funds (including Retirement Income Portfolio funds, American Funds offers 11): a mix of mutual funds that helps investors pursue a wide range of goals, offers broad diversification in a single fund. Lifetime fund growth averages 1.11% - 14.78%. Expense ratios (gross) run from 0.43% to 0.57%.

American Funds also offers college savings (529) plans, traditional and Roth IRAs, and employer-sponsored plans (401(k)s, 403(b)s, simple IRAs, etc).


American Funds Account Review Summary

Ultimately, American Funds offers convenience, ease of use, and excellent customer service for a full range of investment products. For beginning investors, the website’s simplicity and educational information make it easy to understand different types of investments and decide which funds are the best fit.

American Fund may be especially appealing if an investor is on an employer-sponsored plan, in which case the load fees are waived. For a taxable account, a 5.75% front-end load may deter potential investors and they may be better suited to a mutual fund or Roth IRA with Vanguard or Fidelity.

It may end up being a matter of personal preference to decide if American Funds is right for a potential investor. For those who prefer index funds and are not interested in paying higher fees for active management, American Funds may look unappealing. However, for those interested in investing in actively managed funds, it may be a great fit.


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American Funds reviewed by TopRatedFirms.com Rating: 3