class B shares

I opened up a non retirement account with american funds and roth IRA both class B shares. I was told my the person who sold them to me there is no up front sales charge on them not is there a back end sales charge when I sell the shares as longer as I keep them 6 years or longer.

Now I want to make sure he told me the truth since I can still opt out of this since everything is post dated for november.

I looked online and it says class B shares have a contigent 5% sales charge but is waived after the 6th year. I am confused. Will I be paying any sales charges on this or not?

What he told you is accurate. As long as you leave them there, there will be no sales charge. If you take the money early, a deferred sales charge will be made on a sliding scale. For American Funds B it is:

Year 1 = 5%,
Year 2 = 4%,
Year 3 = 4%,
Year 4 = 3%,
Year 5 = 2%,
Year 6 = 1%.
Years 7–8 = 0%

For amounts less than $25k, B-shares are favorable in the American Funds family. They will turn to A shares after the 8th year.

Compare the expense ratios for both A and B shares to see what holding B shares for 8 years is going to cost you for saving the front end load.

The expense ratios are a little high to start with just above 1% but in the long run these funds have done well so I will make that money back. Plus by looking at past performance, the perofrmance of the funds included the fee's and all. I am sure once the market turns and hopefully sooner than later, these funds will take off.

Now when they convert to A shares if I leave them in there for the 8 years, will I have to pay any sales charge on them at all when the convert or when I withdraw? One account is a roth IRA and the other account is a non reirement mutual fund. Now the roth I wont be touching for another 30 years or so since I am only 28 but the non retirement one I may need the money in 5-10 years time. Just wondering how it will work if and when they convert over to A shares.

For small accounts (less than $10k), A vs. B on American Funds is a virtual wash cost-wise. Although B shares have a slightly higher annual expense ration for the first 8 years, the 5.75% front-end charge on American Funds under $25k offset the expense.

At the end of 8 years at presumed 8% returns, the redemption value for A and B shares is nearly identical.

If the psychological value of not paying an upfront sales charge is appreciated, then B shares are fine and probably a good choice for a new investor.

After 20 years, at 8% the diference is within $5 between both share classes. Once you break the $25,000 threshold on all combined accounts, you're better off using A-shares.

This info is from the NASD cost calculator: http://apps.finra.org/Investor_Information/EA/1/mfetf.aspx

Now when they convert to A shares if I leave them in there for the 8 years, will I have to pay any sales charge on them at all when the convert or when I withdraw?
No. All of the associated charges will be fulfilled and there will no be no new ones. Also, your annual expense ratio will reduce to about half of what a B share costs.

Thanks again. I think I am set in good investments, now I have to hope and pray that the market comes back and doesn't decline much further. Hopefully I can make money with these investments long term

O Contrare giacona. Ideally, you want the market to stay low, or go LOWER while buying, then shoot through the moon just before you need your money!

For small accounts (less than $10k), A vs. B on American Funds is a virtual wash cost-wise. Although B shares have a slightly higher annual expense ration for the first 8 years, the 5.75% front-end charge on American Funds under $25k offset the expense.

At the end of 8 years at presumed 8% returns, the redemption value for A and B shares is nearly identical.

If the psychological value of not paying an upfront sales charge is appreciated, then B shares are fine and probably a good choice for a new investor.

After 20 years, at 8% the diference is within $5 between both share classes. Once you break the $25,000 threshold on all combined accounts, you're better off using A-shares.

This info is from the NASD cost calculator: http://apps.finra.org/Investor_Information/EA/1/mfetf.aspx

That's good info. Thanks for the link to the calculator. I didn't investigate it too closely yet. Do you know if it accounts for the break points for lower loads as invested $ increase?

Do you know if it accounts for the break points for lower loads as invested $ increase?Yes it does. It's all calculated based on breakpoints, time horizon and assumed return. It has every fund family and share class available. It's a very nice and obviously impartial NASD (excuse me...FINRA) tool for investors.

On top of that, it will create "full report" tab on the funds you run which shows year to year comparisons, graphing, breakpoints, charges, contact info and ACTUAL returns. Perfect for side-by-side comparisons.