The table below in this article presents The Skilled Investor’s Fund Authority Score and other information for the American Balanced Fund – Class A Shares.
The diversified investment fund strategy of the American Balanced Fund – Class A mutual fund shares
According to its prospectus filing on the U.S. Securities and Exchange Commission EDGAR system, the investment objectives of this actively managed mutual fund are to (1) conserve capital, (2) generate current income, and (3) obtain long-term growth of capital and income.
The investment strategy of the American Balanced Fund is to “approach the management of its investments as if they constituted the complete investment program of the prudent investor. The fund invests in a broad range of securities, including stocks and bonds (rated Baa or better by Moody’s Investors Service, Inc. or BBB or better by Standard & Poor’s Corporation or unrated but determined to be of equivalent quality). The fund also invests in securities issued and guaranteed by the U.S. government. Normally, the fund will maintain at least 50% of the value of its assets in common stocks and at least 25% of the value of its assets in debt securities, including money market securities.”
Your personal asset allocation decision comes before your selection of mutual funds and exchange traded funds.
When evaluating whether to invest in the American Balanced Fund, you might first want to consider that there are many other large funds with far lower costs and much higher Fund Authority Scores. In addition, there is another consideration that you might wish to take into account.
When you assemble your personal financial portfolio, one of the first steps is to evaluate your personal investment risk tolerance relative to other investors. This evaluation would drive your decision on your personal asset allocation, and it would determine the proportions of stocks, bonds, cash, and other asset classes that you would hold to match your risk tolerance. (See these two categories of our articles: Asset Allocation and Risk Tolerance and Financial Planning — 10 Personal Steps in the Right Direction)
Understanding your relative investment risk preference, you then can determine the relative mix of stocks versus bonds and cash that is better for you. To cut to the chase, it is The Skilled Investor’s opinion that once you have determined the proportions of each asset class that fit your preferences, then individual investors will benefit from assembling their portfolio’s using only very low cost, broad market index mutual funds and/or ETFs. (See the articles in these three categories: Returns and Risk Premiums, Diversify Assets, and Controlling Investment Costs.)
Are you the “Prudent Investor” that the American Balanced Fund seeks to serve?
If you were to invest in the American Balanced Fund, not only would your costs be much higher, but the fund already makes a presumption about your relative risk tolerance and your preferred asset allocation. As mentioned above, this fund manages its investments “as if they constituted the complete investment program of the prudent investor.” Given this mutual fund’s investment proportions at the time this report was prepared, this would mean that a prudent investor should hold 64% in large capitalization equities, 29% in investment grade bonds, and 7% in cash. Over 90% of this prudent investor’s securities would be in U.S. domiciled companies and institutions.
However, your own personal risk tolerance and asset allocation might differ significantly – one way or the other – from the American Balanced Fund’s prudent investor standard. Despite this deviation, you would still be investing prudently for yourself. Therefore, to invest in the American Balanced Fund, you need to consider whether their investment prudence matches yours.
Do you accept their asset allocation decision? If not, to compensate, you would need to invest in other mutual funds and ETFs to adjust for the difference between your asset allocation prudence and that of the American Balanced Fund.
You have many other choices to assemble your financial portfolio. You can mix and match other lower cost cash, bond, and stock mutual funds and ETFs. It is not necessary for any single mutual fund or ETF to attempt to do this for you and to charge you more for doing it.
Fund Authority Scores for mutual funds and exchange traded funds (ETFs) help you sort diversified investment funds quickly.
Fund Authority Scores rate mutual funds and exchange traded funds (ETFs) on the most important economic factors that influence individual investors’ net long term diversified investment fund performance. The Skilled Investor developed the Fund Authority Score system to provide individual investors with concise, objective, and realistic summaries of mutual funds and ETFs for comparisons within investment asset classes.
For a directory of the Fund Authority Score reports of other mutual funds and ETFs, go here. When you go to this Fund Authority Score directory, you can easily find a list of all fund reports at the bottom of each article for that particular investment asset class. For more information about how a Fund Authority Score is developed for each mutual fund or ETF, go here.
The Fund Authority Score for the American Balanced Fund – Class A mutual fund shares (ABALX)
Using an integer scale ranging from -10 to +10, Fund Authority Scores for equity investment funds measure five factors:
1) annualized management and investment sales expenses (40% weighting),
2) annual trading costs implied by investment fund portfolio turnover (30% weighting),
3) inferior and superior historical performance (20% weighting),
4) minimum fund maturity (5% weighting), and
5) minimum fund size for operating efficiency (5% weighting).
Fund Authority Scores zero in on the most effective strategy that you have to increase your long-term mutual fund and ETF investment returns, which is to cut investment costs to rock bottom. With such a smart, low cost investment strategy, you just have to be a better bargain shopper, when you buy your investments, and then hold on to them.
Over a 30-year retirement investment accumulation period, a $10,000 investment — reduced by a 5.75% initial sales load charge to pay a financial advisor — could grow to $40,734. This result assumes that your investment earns a 5% annual real dollar return after inflation and investment costs, and it ignores any capital gains taxes.
In contrast, if you instead buy no load mutual funds directly, you can cut out the initial sales load charge entirely. You can put ALL of your investment capital to work for you from the outset. And, if you pay annual investment fees that are just one percentage point lower, you could end up with $16,701 more! Your $10,000 initial investment would be worth 41% MORE after 30 years, when compared to the $40,734 retirement portfolio that you get with higher cost funds with sales loads! To learn more, read: “Excessive investment costs are a huge problem for individual investors.”
Fund Authority Summary for the American Funds - American Balanced Fund - Class A Shares (ABALX)
|Fund Authority Summary||American Balanced Fund - Class A Shares||Fund Authority Score|
|FUND AUTHORITY SCORE (scale of -10 to +10)||1|
|FUND AUTHORITY SCORING COMPONENTS|
|A) Management expenses & sales loads (-4 to +4)|
|-- Annual expense ratio with 12b-1 fees||0.58%|
|-- Front-end sales load with 5 year amortization||1.15%|
|----- Total annual direct costs||1.73%||-2|
|B) Fund portfolio transactions costs (-3 to +3)|
|-- Annual turnover as a trading cost proxy||34.0%||2|
|C) Penalize very inferior historical performance and credit average and superior historical performance (-2 to +2)|
|-- Total of the 3 year Morningstar + Lipper ratings||4||0|
|D) Is this fund sufficiently mature? (0 or +1)||1|
|E) Very small fund efficiency penalty (-1 or 0)||0|
|INVESTMENT FUND OVERVIEW|
|-- Type of investment fund||mutual fund|
|-- Active versus passive management||actively managed fund|
|-- Total net assets||$61.0 Billion (all share classes)|
|-- Type of investment portfolio securities||up to 75% stocks supplemented with bonds|
|-- Geographic focus||United States|
|-- Market capitalization of portfolio securities||large|
|-- Strategy skew (value/growth/neither)||neither - focus on income generation|
|-- Target performance benchmark index||Standard & Poor's 500 Composite Index, Lehman Brothers Aggregate Bond Index, and Lipper Balanced Funds Index|
|-- Year of inception||1975|
|-- Trading symbol||ABALX|
|-- Share class evaluated||Class A shares|
|-- Front end load charge (percentage)||5.75%|
|-- Minimum initial deposit for individual investor||$250 (taxable account)|
|TOP 10 INVESTMENT SECURITIES HOLDINGS||Microsoft Corporation (MSFT)|
|International Business Machines Corp (IBM)|
|General Electric Company (GE)|
|Nokia Corporation ADR (NOK)|
|Berkshire Hathaway Inc. A (BRK.A)|
|Chevron Corporation (CVX)|
|Coca-Cola Company (KO)|
|Cisco Systems Inc. (CSCO)|
|Wal-Mart Stores Inc. (WMT)|
|----- Top 10 Investment Portfolio Holdings (%)||16.12%|
|Fund family website||www.americanfunds.com|
|Customer service telephone number||800-421-0180|
|SEC EDGAR filings and/or fund website accessed||19 December 2007|
– Most mutual funds and ETFs change their fees and trading strategies relatively little over time. Because investment expenses, trading/turnover costs, fund maturity, and operating efficiency account for 80% of the Fund Authority Score rating system, Fund Authority Scores tend to remain relatively stable over time for such consistent investment funds.
– The date in the table above indicates when fund information was accessed from SEC EDGAR filings and/or the fund company website. Normally, data used to develop Fund Authority Scores rely upon reporting periods ending the previous calendar quarter or half year.
– It is sad to have to say this, however, with ethical standards on the web being a bit low … unless otherwise stated, there are no business arrangements of any kind between The Skilled Investor and any financial product, service, or company that may be discussed in our publication’s articles. To avoid conflicts of interest, The Skilled Investor does NOT accept any compensation – in cash or in kind – that would affect our editorial content.
– Fund Authority Scores are developed on a fund by fund basis. Just because a mutual fund or ETF has a high Fund Authority Score does not mean that other funds from that fund family do, as well. On your own, always be careful to check current management expenses, sales loads, portfolio turnover, fund maturity, fund size, fund performance, and other current factors before investing in any diversified investment fund.
– If you do not need and/or are unwilling to pay the direct and indirect costs of an investment counselor, stock broker, or other financial advisory intermediary, you should note that many mutual funds can be purchased directly from diversified investment fund families by accessing their websites or by calling their customer service telephone numbers. Similarly many ETFs can be purchased with lower transactions fees through discount brokers. (See these articles: Payment of Investment Advisors, Financial Planners, and Investment Counselors)
– Your decision on whether to purchase or to sell any investment security is yours and yours alone. This TSI Site is a financial publication and is solely for informational and educational purposes related to your personal, private, and non-commercial use. Our articles report on publicly available documents and research studies. We have not verified any of the information reported in the information provided, and there could be errors with this information. It is solely your responsibility to verify any and all information before investing or purchasing any financial product or service. In no way does this site constitute a solicitation or offer to sell securities or investment advisory services. This site does not provide investment advice.