One thing I have noticed from the Money Magazine mention is that I am getting A LOT more email from people asking for my opinion on various topics. If the subject matter is blog-worthy, I’ll consider writing about it. Not so much because I’m an “expert” but more because a lot of AFM readers are very smart and are typically very helpful. In other words, if I don’t have the answer to a problem, chances are pretty good that a reader will have an answer.
Here is an email I received from a relatively new reader:
I’ve been following your blog for a few weeks now and really enjoy the no-nonsense advice you dole out to your readers. I have a question about some ongoing investments I’ve been making.
A friend of mine used to work for Primerica Financial Services and got me into VanKampen 5.75% front-end funds several years ago for both traditional and Roth IRAs. I made an initial investment of several thousand $ and have mostly neglected the accounts over the years, sporadically putting in a few hundred bucks here and there. Last year I vowed to myself to max out my Roth IRA and put in the full 4 grand. That was before I started becoming more financially savvy and looking into no-load funds, etc. Since then I’ve opened up a Vanguard account, put in a grand to get started with the Star fund in my Roth IRA and am contributing $150 monthly (about all I can afford at this point in time).
OK, my question is this – would you recommend that I rollover the VanKampen funds now or wait until early next year when (and if) I get dividends on the $ I put in and hopefully at least recoup the money I put in? At this point, I am down on some funds and up on others that have performed well as of late – but I would still be taking a bit of a hit. For example I bought $300 worth of 1 fund back in December, but as of today I have $291 because of its underperformance and 5.75% front-load. Also, they would be charging me $75 for the fund withdrawal. I’m not sure if it matters, but I have about $29K in those funds all told.
Any advice would be greatly appreciated. (btw, you can skip the disclaimers. I know the difference b/w the word of God and your word; I’m just looking for advice from an unbiased, educated source)
– Ralph in Chicago.
In a follow-up email with Ralph I found out that he was invested in the following funds:
VanKampen Strategic Growth (ACEGX): $12K
VanKampen Equity Inc. (ACEIX): $4K
VanKampen Growth & Inc. (ACGIX): $4K
VanKampen Strategic Growth (ACEGX): $1.6K
VanKampen Equity Inc (ACEIX): $2K
VanKampen Aggressive Growth (VAGAX): $0.7K
VanKampen Small Cap Growth (VASCX): $0.7K
VanKampen MidCap Growth (VGRAX): $1.5K
If It Were My Money…
I wouldn’t worry about leaving VanKampen because you have already paid the loads. In other words, you won’t gain anything by staying with VanKampen and might actually gain something due to the fact that Vanguard’s fees are a fraction of VanKampen’s. I would move it to Vanguard and allocate it like this:
Vanguard Total Market Index Fund (VTSMX): $17K
Vanguard Total International Stock Index Fund (VGTSX): $3K
Vanguard Total International Stock Index Fund (VGTSX): $6.5K
Overall Allocation Between the Two IRAs:
Vanguard Total Market Index Fund (VTSMX): $17K or 64%
Vanguard Total International Stock Index Fund (VGTSX): $9.5K or 36%
The allocations are strange due to the $3,000 minimum for Vanguard funds. Your options open up as your account grows but this initial two-fund portfolio is sufficient. There’s no need to make it more complicated than it has to be. As an alternative, you could use Vanguard’s exchange-traded funds but they would require you to pay commissions for each purchase and each sale. Since you are going to be adding funds on a monthly basis, ETFs probably aren’t the best way to go.
I would contact Vanguard and ask them to help you begin the transfer process. It will most likely take several weeks as companies are notorious for dragging their feet on these kinds of things. I would avoid touching the money as you could be faced with tax consequences.
Those are my thoughts. Best of luck, Ralph.