Giving Credit Where Credit is Due

Investors deserve more credit than most academics realize. 

When their performances are strong, they usually stick to their selected fund companies.  When their performances are weak, they generally bail.

 The top fund company, in terms of performance, is Vanguard.  And you can see that their loyalty ranking is also number one.

At the bottom of the heap, in terms of performance, you have Putnam.  Likewise, investors haven’t been loyal to the company—moving their money out of Putnam based on weak returns.

Investors don’t keep their money with a company when it’s not performing.  Obviously, the average investor is far more aware than we think.

Company Performance Ranking Company Name Company Loyalty Ranking
#1 Vanguard #1
#2 DFA n/a*
#3 TIAA-CREF n/a*
#4 T Rowe Price #4
#5 Janus #10
#6 American Funds #5 (Tied with Fidelity)
#7 Franklin Templeton #6
#8 Morgan Stanley #9
#9 Fidelity #5 (Tied with American Funds)
#10 Barclays Global n/a
#11 AIM Inv. #14
#12 Columbia Funds #13
#13 Goldman Sachs #11
#14 Dreyfus #12
#15 Mainstay Funds n/a
#16 John Hancock #7
#17 ING Investments #8
#18 Putnam #15

 Note—With loyalty rankings, I can make educated assumptions that DFA and TIAA-CREF are likely in the top 3, despite the fact that I don’t have loyalty ranking data for them.

Source:  Morningstar ratings for long term funds, as of 12/2007—Text Source:  Don’t Count On It  

 That said, there’s one factor that doesn’t get calculated into the company fund rankings above:

Sales Fees

You don’t have to buy mutual funds that charge sales fees.  They’re lucrative for the people who sell you the funds, but the added financial liability isn’t fair.  For example, if you invest $100,000 with most American Funds, you’ll end up paying $5,750 in fees, directly to your broker.  The 5.75% sales fee means that you’ll have to make 6.1% on your money the following year, just to break even.

That kind of financial gouging doesn’t get included in fund performance calculations. 

So if you invest with actively managed mutual funds, so “No” to sales loads.

Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School and Millionaire Expat: How To Build Wealth Living Overseas. My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I'm happy to comment on your questions.

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10 Responses

  1. Just an added note. When purchasing $100,000 worth of American Funds, the sales load would cost you $5,750. Unless most of us sell our homes and put $100K into the stock market, we're not going to make a $100,000 deposit in a single year! If you read that before I changed it, please blame it on fast typing and too much green tea.



    • Karla says:

      Dear Andrew,
      I have an account with TIAA-CREF when I was still with an educational institution. My account is sitting in a TIAA-CREF Lifecycle 2025 Fund Premier Class and some that are my own choosing when I was still an employee.

      I have read both your books and now I have found out that they also have these three share classes that I am thinking of switching my account to:

      TIAA-CREF Lifecycle Index 2040 Fund (Institutional, Premier, Retirement)

      I am not sure though if I should switch to either one and if I should, would I stick to the Premier class? I also have not checked/have not figured out whether there is a way to rebalance to a 60 stock/40 bonds when needed. On google finance, it shows each class and its asset allocation on the bottom right hand…at the moment, they are mostly roughly 88% stocks, 10% bonds, and then some weird little percentages here and there…

      All of the above have lower expense ratios compared to the one I am enrolled now.
      I am also unable to contribute anymore to the account.

      Any thoughts on this?

      • Karla,

        Fortunately, your money is with a great, low cost fund company. TIA Cref is a non-profit firm. I don’t know your age, risk tolerance or what other assets you have, so it would be impossible for me to suggest a fund or suitable allocation. As far as I know, the premier versions of these funds require at least a $1 million initial investment, but if your old district has helped you to buy units of units, that’s super.

        You could, of course, switch to the lower cost indexed version. But even if you don’t, take comfort from knowing that this money is managed well, at a very low cost.


        • Karla says:

          Hi Andrew,
          Thank you for the reply. I am 25 years from retirement assuming a retirement age of 65. My issue is that since I no longer am able to contribute to my tax-defered TIAA CREF account, I thought of rolling over to an IRA that an investment company can manage for me so I can contribute to it regularly. Is this a sound strategy?

          Or is it better to think that leaving my account alone until I am eligible for withdrawing without penalty makes a lot more sense, I should just start a new account with one of the recommendations in your books, where I can contribute?


          PS: I contacted assetbuilder…but being in Cambodia seems like it will be a problem for expats too….

          • Hi Karla,

            Did you try opening an account with Vanguard, online, using just a U.S. address? A brother’s, sister’s etc? Give that a try and let me know. Just put U.S. addresses on the form.


  2. In any good free market, the cream rises to the top. Just gotta help more people enjoy that cream by showing them how good it can be. There are those that will never jump to index investing, and that's fine too, so long as people are aware of their options and can make an informed choice.

  3. Jeri Hurd says:

    I see you rank TIAA-Cref pretty highly, too. I just read your book, am completely inspired. I have an account with TIAA-Cref through a previous school plan. I can't add to that, but I can start another one. I'm not sure if I should do that, or start an account with Vanguard. Any thoughts? (though I don't think my current schools in Beijing, which will contribute 6%, would count Vanguard as a retirement plan).

  4. Ramona says:

    Hi Andrew,
    My husband and I just met with TD Waterhouse to offer us financial planning advice. My husband has approx $250K in TD e series funds and I have approx $110K in TD series funds. The financial advisor wants us to switch power to TD Waterhouse and move/invest 20% each in TD Global Low Volatility I and 20% into Fideltity Income Allocation Series B(CAN). We both live and work in Canada. I did not agree on the spot and told the investor I like to review before making those important decisions. When I asked about sales fees, trailing fees, I was told there were no other fees. I just finished reading each funds info and indeed it is written there are several other fees including the MERs of 1.79 and 2.56. I do not feel comfortable with switching any of our funds. Additionally the financial advisor told me the index funds were very risky investments. My husband has another $50k to invest (inheritance) and I was thinking of Vanguard. The advisor was a really nice person but I do not feel giving control over my money to TD Waterhouse or purchasing these other mutual funds is in our best interest. We are about 5 years out to retirement. House Paid, no loans, no credit card debt and 2 small pensions of total $32K. Appreciate any advice yo may offer me.

    • Ramona,

      Let me share a story with you. Many years ago, I became a friend of an advisor who worked at CIBC. The regional manager was going over my friend’s accounts. Each person (client) under my friend’s umbrella had a dollar figure and ranking next to his name. This was something my friend swore I should never discuss. He showed me the list. The top ranked lady had about $2 million in a savings account. The bank loved her, apparently, because it could use that money to pay out credit card loans, mortgages, etc, yet pay her a pittance in interest. The lady was happy. And the bank was thrilled.

      The bottom ranked client was me. The bank made virtually no money off me. The regional manager said, “you have to ditch this guy.” That didn’t mean I had to close my account. He just didn’t want me under the advisor’s client umbrella. That was fine by me; I gave him more advice than anything that I received from him.

      Another story that I mentioned in my book, Millionaire Teacher. My mom has TD e-Series funds. About 50% of her money is allocated to the Canadian bond index. My dad also earns a pension. The bank called to say that my mom’s money was too risky: they wanted to put the money into some active funds.

      Remember the bank’s directive, Ramona. When you do, their motives become clear and easy to deal with. They need to maximize profits.


  5. Ramona says:

    Thank you Andrew. Great advice. Obviously, I need to go back and reread some sections of your book as reminders. I will pay attention to my own gut and to what I have learned from you from The Millionaire Teacher and keep moving forward with my plan. It will get me where we are going. Thanks always for your thoughtful response.
    All the best,

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