American Funds Review - Everything You Need to Know Before Investing

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American Funds is one of the largest mutual funds companies in the world. Their funds are offered through brokers and can be found in many 401(k) plans in the U.S. In this American Funds review, we'll highlight the pros and cons of investing and how to open an account with this leading mutual funds company.

Who is American Funds Best For?

Founded in 1931, American Funds is a division of Capital Group and is the third largest mutual fund company in the world with over $1.7 trillion in assets under management.

Capital Group operates all around the globe with 7,500 employees in offices multiple locations, including North America, Europe, Asia, and Australia. Investors primarily buy American Funds mutual funds through brokerage firms, some online discount brokers or 401(k) plans.

American Funds should appeal to investors wanting to purchase high quality mutual funds from brokers. This mutual fund company may be a good fit for investors who are want:

  • Advice from brokers
  • Potential for above-average long-term returns from mutual funds
  • Actively-managed mutual funds that charge loads in exchange for advice
  • High quality mutual funds for long-term savings vehicles, such as 401(k) plans or IRAs

It's important to note that American Funds typically have sales charges or other expenses, such as 12b-1 fees, associated with their mutual funds. This is why they are most commonly sold through brokers--investors by loaded funds in exchange for advice.

Pros & Cons of Investing With American Funds

American Funds offers more than 30 mutual funds in several diverse categories, some of which are among the best funds in their respective categories. However, American Funds is not the best fit for every investor. Carefully consider the pros and cons of investing with American Funds before purchasing their funds.

Here are the pros of investing with American Funds:

  • Professional money management
  • Investment advice (if funds are purchased through a broker)
  • Diverse selection of high-quality mutual funds
  • Variety of fund share classes to meet various investor preferences
  • Below-average expense ratios, compared to similar actively-managed funds

Here are the cons of investing with American Funds:

  • No selection of sector funds, index funds or exchange-traded funds (ETFs)
  • Expense ratios higher than some no-load funds
  • Funds only available through brokers or 401(k) plans

Types of Funds Available at American Funds

American Funds offer mutual funds that cover seven primary categories of mutual funds. These categories include growth stock funds, growth and income, equity income, balanced, taxable bond, tax-exempt bond, and money market.

Here are the fund categories available at American Funds:

  • Growth
  • Growth-and-Income
  • Equity-Income
  • Balanced
  • Taxable Bond
  • Tax-Exempt Bond
  • Money Market

How to Buy American Funds

American Funds are available to purchase through stock brokers and some online discount brokers. Typically, American Funds are loaded, which means investors pay a sales charge, either upon purchase (front-loaded A shares) or upon sale of shares (back-loaded B shares).

Other share classes are available. Some funds can be purchased as load-waived, which is common in 401(k) plans.

Bottom Line

American Funds offer high-quality, low-cost mutual funds available through brokers, some online discount brokers, and occasionally in 401(k) plans. When purchased outside of a 401(k) plan, investors will typically pay a sales charge, which can be justified if the investor is receiving investment advice from a broker. Do-it-yourself investors can find no-load funds with lower expense ratios; however, they do not receive investment advice unless they pay a separate fee.

Disclaimer: The information on this site is provided for discussion purposes only, and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.