Who Would Benefit Most From Using American Funds?

Sep 27, 2022 By Triston Martin

Capital Group was established in 1931 and, as of the year 2021, managed assets worth more than $2.2 trillion. American Funds is a subsidiary of Capital Group. The Capital Group has 7,800 workers working in offices worldwide, including North America, Europe, Asia, and Australia. These offices are spread across the globe.

Their mutual funds may be purchased in various ways, including via traditional brokerage companies, internet bargain brokers, and 401(k) retirement savings schemes. Investors who are interested in purchasing high-quality mutual funds via brokers should find American Funds to be appealing. American Funds may also be a suitable match for investors who are seeking the following:

  • Opinions from several brokers
  • Above-average long-term returns
  • Funds with active management charge loads (or fees) for their advisory services.
  • Superior funds for long-term savings vehicles, such as 401(k) plans and individual retirement accounts (IRAs).

More than 30 different types of mutual funds may be found under the umbrella of American Funds. Compared to the other funds in this category, some come out on top as the best options. This might suggest that American Funds is the most suitable investment option for you, but it also could not. Before you buy their funds, you should carefully consider the perks and drawbacks of doing so.

Different Categories of Funds Offered by American Funds

Growth Stock Funds

The goal of growth funds is to expand capital over time by purchasing shares in businesses well positioned for significant expansion.

Growth-and-Income Funds

Funds targeting capital growth and current income often invest in dividend-paying stocks as their primary investment vehicle.

Equity-Income Funds

Equity income funds invest in various equities and bonds that pay dividends to generate income and achieve growth. American Funds offer two equity-income funds.

Balanced Funds

By investing in various products, most often equities and bonds, balanced funds aim to maintain their initial investment while achieving a long-term increase in capital and current income. There are two balanced funds available via American Funds.

Taxable Bond Funds

Bond funds subject to taxes strive to generate current income by investing in fixed-income assets. These funds are best suited for accounts that provide favorable tax treatment, such as 401(k)s and IRAs.

Tax-Exempt Bond Funds

The goal of tax-exempt bond funds is to generate interest that is free from federal and state taxes by investing in municipal bonds. It is recommended that investors keep tax-exempt bond funds in taxable accounts, particularly those investors who are in higher federal tax rates.

Money Market Funds

There is one money market fund available from American Funds. It is possible to withdraw your money at any time, with no associated costs, and the growth rates are consistent even if they are modest. These are all characteristics that all money market funds share. Even while money market funds almost never incur principal losses, they provide investors with a better opportunity to generate income than most banks' savings accounts. The cost ratio for this fund is 0.38%, and there is no load associated with it.

Instructions for Purchasing American Funds

Purchases of American Funds may be made via traditional stockbrokers and through some internet discount brokers. In most cases, American Funds are loaded, which indicates that investors are required to pay a sales fee either when the shares are purchased or when the shares are sold within 1 year of the initial purchase. There are many more share classes available. It is customary for 401(k) plans to provide the option to buy load-waived R shares, which refers to certain funds.

Since its founding in 1931, Capital Group, the parent company of American Funds, has been assisting a wide variety of clients, including individuals, retirees, sponsors, administrators, financial advisers, institutions, and more, in developing strategies for their long-term investment portfolios. As of 2021, Capital Group has over $2.2 trillion in AUM, making it one of the biggest mutual fund managers in the world.

Benefits

American Funds provides high-quality mutual funds that are also quite inexpensive. These funds may be purchased via traditional brokers, some internet bargain brokers, and 401(k) plans.

Drawbacks

Investors will normally be required to pay a sales fee for any investments acquired outside a 401(k) plan. Investors who want to manage their portfolios may look for no-load funds with reduced cost ratios, but unless they pay a separate fee, these investors will not get investing guidance.

Does American Funds Offer An Exchange-Traded Fund?

In contrast to American Funds, which does not provide clients with exchange-traded funds, Capital Group started distributing actively managed ETFs to investors at the beginning of 2022.

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