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403(b) Share Class Choices

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I have read with great interest all of the horrible fund choices within people's 403(b) plans, and I agree that employers could make wiser choices. I currently work for a non-profit health care organization,and our only fund choice is the American Funds. The American Funds are the 3rd biggest fund group out there and most of their funds have exceded their repective peer returns over the long haul. American Funds are known for their low fees, low volatility, and above average returns. I am, however, confused by the different recommendations I have received concerning our share class choices, which are Class A, Class B, or Class C. To compound my confusion with these choices, my "advisor" recommended Class A shares, as he said that with Class A shares I would have lower overall expenses as well as higher dividends. My advisor's assistant, however, recommended that I purchase Class B shares in the American Funds, so I am actually getting two different recommendations from the same firm. I agree that the Class A shares will have lower ongoing expenses, although with each purchase that I make through bi-weekly deductions, I will pay a sales charge of 5.75%. With the Class B shares that my advisor's assistant made, I will not pay a sales charge on each purchase that I make bi-weekly, but I will have higher annual expenses. Whenever I confronted my advisor on the different recommendations that he made and that his assitant made, he suddenly agreed that I should purchase my bi-weekly contributions via the B shares that his assistant made. In other words, he agreed with his assistant who had recommended B shares over his original recommendation of A shares. My "advisor" told me that since I was making bi-weekly contributions of approx. 4% or 5% of my salary, that I would be better off with B shares. He said that with periodic investments every 2 weeks, I would avoid the initial sales charge of 5.75% on each investment that I will make and have more of my investment working for me. He also told me that even with the higher B class expenses of the American Funds, I will be paying about the average charge on most actively managed mutual funds. My advisor also told me that he had done the "math" with respect to small periodic investments over time and that there is not more than "10 cents" worth of difference with respect to Class A and Class B with small investments over time. Most of the expense calculators on the internet such as sec.gov, only assume a one time investment, say 1K or 10k, and none will allow you calculate the difference of making small bi-weekly contributions such as $25 or $50 every 2 weeks. So who am I to believe? His original recommendation was Class A, but then he concurred with his assistant who recommended Class B to me. Does anyone out there have any calculations to substantiate either class for people contributing less than $50 every 2 weeks? Thank You for any info and/or responses to this question.

 

Bull Durham

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Purchase Class A shares of bond funds, then immediately transfer the money to whatever account you want.. this won't eliminate your load, but it can drop it by a few percentage points!

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Guest Sierra

Email your post to the guy/gal in charge if 403b investing for your employer. Assuming you get no reply after 72 hours, ask for a meeting. Use your post to show your employer that a no-load offering is OVERDUE!!!

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A, B and C shares have different 12b-1 fees. These are quarterly fees assessed by the management firm. Class A shares do offer higher dividends on the same fund than the B and C shares of the same fund. The decision on which share to buy should be made on how long you plan to keep the fund before selling. You can exchange the fund for a different fund within the same family, but it also has to be within the same class. If you plan on keeping the fund family for 7+ years, buy A shares. Most fund family applications have suggested time frames within the application for you to use as a guide.

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I have read with great interest all of the horrible fund choices within people's 403(b) plans, and I agree that employers could make wiser choices. I currently work for a non-profit health care organization,and our only fund choice is the American Funds. The American Funds are the 3rd biggest fund group out there and most of their funds have exceded their repective peer returns over the long haul. American Funds are known for their low fees, low volatility, and above average returns. I am, however, confused by the different recommendations I have received concerning our share class choices, which are Class A, Class B, or Class C. To compound my confusion with these choices, my "advisor" recommended Class A shares, as he said that with Class A shares I would have lower overall expenses as well as higher dividends. My advisor's assistant, however, recommended that I purchase Class B shares in the American Funds, so I am actually getting two different recommendations from the same firm. I agree that the Class A shares will have lower ongoing expenses, although with each purchase that I make through bi-weekly deductions, I will pay a sales charge of 5.75%. With the Class B shares that my advisor's assistant made, I will not pay a sales charge on each purchase that I make bi-weekly, but I will have higher annual expenses. Whenever I confronted my advisor on the different recommendations that he made and that his assitant made, he suddenly agreed that I should purchase my bi-weekly contributions via the B shares that his assistant made. In other words, he agreed with his assistant who had recommended B shares over his original recommendation of A shares. My "advisor" told me that since I was making bi-weekly contributions of approx. 4% or 5% of my salary, that I would be better off with B shares. He said that with periodic investments every 2 weeks, I would avoid the initial sales charge of 5.75% on each investment that I will make and have more of my investment working for me. He also told me that even with the higher B class expenses of the American Funds, I will be paying about the average charge on most actively managed mutual funds. My advisor also told me that he had done the "math" with respect to small periodic investments over time and that there is not more than "10 cents" worth of difference with respect to Class A and Class B with small investments over time. Most of the expense calculators on the internet such as sec.gov, only assume a one time investment, say 1K or 10k, and none will allow you calculate the difference of making small bi-weekly contributions such as $25 or $50 every 2 weeks. So who am I to believe? His original recommendation was Class A, but then he concurred with his assistant who recommended Class B to me. Does anyone out there have any calculations to substantiate either class for people contributing less than $50 every 2 weeks? Thank You for any info and/or responses to this question.

 

Bull Durham

 

 

... And this is the kind of "education" that we get from "advisers."

 

Sand04, this is the type of situation that we see so often when there are commissioned salesmen in the middle of 403b plans. This is why so many of us here urge people to avoid salesmen like the plague.

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APTeacher,

 

Not all salesmen/###### are bad. Remember the world revolves around sales! As in life, there's the good and the bad. Same can be said about teachers...Of all the teachers I've had..maybe 2 or 3 stood out. I rememeber having to teach a chemistry teacher what to do...Enough about teachers...

Yes..I know apples to apple comparison, there's no comparison...

 

You have to understand that not all teachers/investors have the time/resources to research and stick to a plan. Some need hand holding..Some don't.

There are investment choices not available to regular investors. It's only available through the broker.

 

Let's not knock off all salesmen..Some are out there doing what's good for the investor....

 

 

 

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APTeacher,

 

Not all salesmen/###### are bad. Remember the world revolves around sales! As in life, there's the good and the bad. Same can be said about teachers...Of all the teachers I've had..maybe 2 or 3 stood out. I rememeber having to teach a chemistry teacher what to do...Enough about teachers...

Yes..I know apples to apple comparison, there's no comparison...

 

You have to understand that not all teachers/investors have the time/resources to research and stick to a plan. Some need hand holding..Some don't.

There are investment choices not available to regular investors. It's only available through the broker.

 

Let's not knock off all salesmen..Some are out there doing what's good for the investor....

 

Oh, yes, there are indeed some investment choices not available to regular investors and that only a salesman can provide... let's see, that would include investments with front end loads, back end loads, M&E charges, riders, 12b-1 fees ... Oh, yes, these are just some of the things available only through salesmen.

 

The time issue? Oh, please. Learning about investing does not require that much time. As we often say here, it's not rocket science. Most folks would do just fine in a target retirement fund. How long does it take to learn about that?

 

The resources issue? Are you kidding? That may have been an issue in the past, but the Internet has changed all of that.

 

Those who need hand holding? These folks can grow up, act like adul_s, and not expect school districts to cater to their laziness, ignorance, or both.

 

I suspect that you are using the laziness/ignorance/lack of interest argument to justify the jobs of salesmen. This won't cut it. The job of a salesman is to sell, not educate. If teachers depend upon salesmen for their investment education, they are in sad, sad shape. Witness the original poster of this thread.

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ABCDEF shares........... Just to confuse us and not for our benefit. are there GHIJK shares yet?

 

 

If you must choice it should be A shares. This really is not debatable. And no load beats any of those assett

classes.

 

 

I am sorry but been there and done that. American funds have done well and beaten the drag loads have on your performance but there is no guarantee they will continue to do so , so why pay a load .

 

 

Tony

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APTeacher,

 

Not all salesmen/###### are bad. Remember the world revolves around sales! As in life, there's the good and the bad. Same can be said about teachers...Of all the teachers I've had..maybe 2 or 3 stood out. I rememeber having to teach a chemistry teacher what to do...Enough about teachers...

Yes..I know apples to apple comparison, there's no comparison...

 

You have to understand that not all teachers/investors have the time/resources to research and stick to a plan. Some need hand holding..Some don't.

There are investment choices not available to regular investors. It's only available through the broker.

 

Let's not knock off all salesmen..Some are out there doing what's good for the investor....

 

Oh, yes, there are indeed some investment choices not available to regular investors and that only a salesman can provide... let's see, that would include investments with front end loads, back end loads, M&E charges, riders, 12b-1 fees ... Oh, yes, these are just some of the things available only through salesmen.

 

The time issue? Oh, please. Learning about investing does not require that much time. As we often say here, it's not rocket science. Most folks would do just fine in a target retirement fund. How long does it take to learn about that?

 

The resources issue? Are you kidding? That may have been an issue in the past, but the Internet has changed all of that.

 

Those who need hand holding? These folks can grow up, act like adul_s, and not expect school districts to cater to their laziness, ignorance, or both.

 

I suspect that you are using the laziness/ignorance/lack of interest argument to justify the jobs of salesmen. This won't cut it. The job of a salesman is to sell, not educate. If teachers depend upon salesmen for their investment education, they are in sad, sad shape. Witness the original poster of this thread.

 

 

 

 

ABCDEF shares........... Just to confuse us and not for our benefit. are there GHIJK shares yet?

 

 

If you must choice it should be A shares. This really is not debatable. And no load beats any of those assett

classes.

 

 

I am sorry but been there and done that. American funds have done well and beaten the drag loads have on your performance but there is no guarantee they will continue to do so , so why pay a load .

 

 

Tony

 

 

 

 

 

 

APTeacher,

 

Not all salesmen/###### are bad. Remember the world revolves around sales! As in life, there's the good and the bad. Same can be said about teachers...Of all the teachers I've had..maybe 2 or 3 stood out. I rememeber having to teach a chemistry teacher what to do...Enough about teachers...

Yes..I know apples to apple comparison, there's no comparison...

 

You have to understand that not all teachers/investors have the time/resources to research and stick to a plan. Some need hand holding..Some don't.

There are investment choices not available to regular investors. It's only available through the broker.

 

Let's not knock off all salesmen..Some are out there doing what's good for the investor....

 

Oh, yes, there are indeed some investment choices not available to regular investors and that only a salesman can provide... let's see, that would include investments with front end loads, back end loads, M&E charges, riders, 12b-1 fees ... Oh, yes, these are just some of the things available only through salesmen.

 

The time issue? Oh, please. Learning about investing does not require that much time. As we often say here, it's not rocket science. Most folks would do just fine in a target retirement fund. How long does it take to learn about that?

 

The resources issue? Are you kidding? That may have been an issue in the past, but the Internet has changed all of that.

 

Those who need hand holding? These folks can grow up, act like adul_s, and not expect school districts to cater to their laziness, ignorance, or both.

 

I suspect that you are using the laziness/ignorance/lack of interest argument to justify the jobs of salesmen. This won't cut it. The job of a salesman is to sell, not educate. If teachers depend upon salesmen for their investment education, they are in sad, sad shape. Witness the original poster of this thread.

 

 

 

 

ABCDEF shares........... Just to confuse us and not for our benefit. are there GHIJK shares yet?

 

 

If you must choice it should be A shares. This really is not debatable. And no load beats any of those assett

classes.

 

 

I am sorry but been there and done that. American funds have done well and beaten the drag loads have on your performance but there is no guarantee they will continue to do so , so why pay a load .

 

 

Tony

 

 

 

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I appreciate all of the replies to my original questions concerning share classes within the American Funds with respect to A, B, or C. These are also my only choices as we do not have access to the cheaper F shares or R shares. With my only choices being A, B, or C and since I am only making small investments every 2 weeks, ( less than $50 every pay period), I either have to pay an up front sales charge (5.75%) on each purchase I make, or pay higher expenses through the B shares that my advisor made to me. If I could choose F shares or R shares, I would, but at this point in time I can only choose between the 3 classes mentioned. My only problem is that if I ask 10 people for their recommendations, I will probably receive up to 5-10 opinions about the share classes. I am currently investing in the Balanced Fund, Capital Income Builder Fund, and the Growth Fund of America. All of these funds charge an upfront sales charge of 5.75% on initial investments, while the B shares do not charge an upfront load, but charges an annual expense that is 0.75% higher than A shares. After 8 years the B shares convert to A shares which have lower expenses, and according to my "advisor", there is not more than 10 cents worth of difference over a period of 8 years with small periodic investments that I am currently making. He did tell me that with a single large investment that I would be much better off with A shares, but he also told me that there was not a huge difference in A or B shares with respect to small investments over time. I have heard that for periods of over 7 or 8 years that A shares were the best choice, but since B shares automatically convert to A shares after 8 years, I am still confused over the differences. I have also read in the prospectuses of American funds that advisors receive up to 5% of the original investments of A shares, while they only receive up to 4% of the original investments of B shares, so now I am confused as to why they would recommend B over A, when they could be receiving 5% instead of 4% on my bi-weekly investments.

 

Bull

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Bull

 

You see you remain confused and your advisor can't explain it to you. Thats the point. If an advisor was truly useful to you wouldn't you be clear about all the differences in shares? If there isn't ten cents difference between the share classes then why do they exist ?

 

 

Tony

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If your advisor really wanted to be useful he/she should tell you that effective 1/1/09 there's a real good chance that American Funds will not accept your 403b contributions.

 

I never thought about asking my assistant about share classes recommendations...I'll ask her and get back to you.

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