Is Vanguard a Bad Idea for Investing less than 10k?

[wholeinone04]

I'm wondering about investing money(less than 10k) in after-tax accounts. I'm trying to compare three options and figure out which option has the lowest fees for what I want(Vanguard vs TD-Ameritrade vs Betterment).

Option 1
The simplest option I think is just to open an account with Vanguard and invest in a 2050 retirement fund. However, the 2050 fund has an ER of .19% and according to VG's website:

2 A $20 account service fee is charged annually. The fee is waived for Voyager, Voyager Select, and Flagship members.

Let's say I have 5k to invest, that $20 fee is equal to a .4% fee which I think makes Vanguard the most expensive for this small amount of money. Total ER would be .59%

Option 2
Open an account at TD-Ameritrade where I can invest in no fee ETF's. They offer Vanguard funds too so I could potentially save money on ER by investing with TD-Am until I hit 10k. This option is not as easy as number 1 or 3 since I can't invest in Vanguard retirement funds so I'd have to re-create it using their no fee ETF's but it would be the cheapest. Does TDA have lifecycle funds to invest in and if so are they free?

Option 3
I just found out about betterment but it seems very easy and their .35% fee seems pretty low if you are investing small amounts of money. Their total fees would only be .35 plus avg of whatever funds you're invested in.

[jsl11]

I believe that Vanguard will waive the $20 fee if you sign up for electronic statements.
Jeff

[FinancialDave]

I have never had any fees at Vanguard, and opened an account with only $20k. As said, I believe with electronic statements there are no fees.

Many Vanguard funds have only $3000 minimums, and you really don't need a total asset allocation until you get a bigger amount built up -- for now you could just put your money in one Total Stock Market Fund VTSMX or VTSAX ($10k). VTSMX will most likely give you a better return and much lower ER than the target date fund.

P.S. I'm not a fan of Betterment.

fd

[damjam]

Option 3
I just found out about betterment but it seems very easy and their .35% fee seems pretty low if you are investing small amounts of money. Their total fees would only be .35 plus avg of whatever funds you're invested in.

Just note that, I blieve, Betterment's fee of .35% is in addition to whatever expense ratio the fund charges. So this is probably you most expensive option.

[JamesSFO]

Per VG website the $20 fee is waived if you take electronic statements, https://personal.vanguard.com/us/whatweoffer/mutualfundinvesting/accounts

Account service fee
$20 per year for each Vanguard fund in which you have a balance under $10,000.

Fee does not apply to:
- Flagship, Voyager Select, and Voyager clients.
- Shareholders who have elected to receive statements and other important information electronically.

Emphasis is mine.

[lindisfarne]

I personally think Vanguard is the best place.

Be aware that if you put everything in VTSMX/VTSAX (total stock mkt), you could have lots of ups & downs. Long-term, it's a great decision & if you hang in there through the downs, it will pay off (based on historical returns). Ask: are you investing this money for the long-term, or is there a chance you will need it in a few years? Can you handle your $10K dropping to $8.5K (that's only a 15% drop; the drop was much bigger a few years ago, but note the market has recovered). You don't want to sell at a loss when the market drops & you get nervous.

The difference in expense ratio between Admiral and investors shares is not much, so you could do part in a riskier fund (VTSMX) + part somewhere else. If you do the target date retirement funds, be aware of the equities vs. bond components for each - buy based on what funds matches your risk tolerance, rather than when you plan to retire (2050 is 90% equities (domestic & int'l - what's your risk tolerance?).

Vanguard doesn't charge fees when you close an account; some companies do (& companies can add fees when they want).

[Epsilon Delta]

It's rare to make a single taxable investment that will be left alone for a long time. In most cases you will either be adding more investments over time or withdrawing the investment in a few years. Instead of looking at this investment in isolation you should take a view on what you will be investing in future and the impact that will have on your overall costs.

In many cases a person investing an initial $10k and making modest additional investments each year will be well served holding Vanguard mutual funds in an account at Vanguard. This is particularly likely to be true if you are investing in a taxable account where capital gains will tend to lock your initial investment in place, preventing later rearrangement.

[WHL]

Option 3
I just found out about betterment but it seems very easy and their .35% fee seems pretty low if you are investing small amounts of money. Their total fees would only be .35 plus avg of whatever funds you're invested in.

Just note that, I blieve, Betterment's fee of .35% is in addition to whatever expense ratio the fund charges. So this is probably you most expensive option.

That's exactly what he said in the post that you quoted

[damjam]

Option 3
I just found out about betterment but it seems very easy and their .35% fee seems pretty low if you are investing small amounts of money. Their total fees would only be .35 plus avg of whatever funds you're invested in.

Just note that, I blieve, Betterment's fee of .35% is in addition to whatever expense ratio the fund charges. So this is probably you most expensive option.

That's exactly what he said in the post that you quoted

[WHL]

Option 3
I just found out about betterment but it seems very easy and their .35% fee seems pretty low if you are investing small amounts of money. Their total fees would only be .35 plus avg of whatever funds you're invested in.

Just note that, I blieve, Betterment's fee of .35% is in addition to whatever expense ratio the fund charges. So this is probably you most expensive option.

That's exactly what he said in the post that you quoted

It's all good!

to the TS: I definitely started my Vanguard account with less than 10k!

[emdoc]

I started my Vanguard account with $1000. Definitely no annual fees other than the ERs given everything is electronic.

[bpman1192]

I would look into opening your account with Schwab. They have minimums of $100 on their index funds and expense ratios are
super low and extremely competitive.

[z3r0c00l]

Started with vanguard taxable with a 3,000 purchase of total stock market in March 2009. It worked out well.

[Clever_Username]

I'm surprised no one has said this yet: why are you putting a taxable investment into TR 2050?

If this is taxable towards retirement, you probably want to follow the Principles of tax-efficient fund placement. This may involve a little bit of work on your part, but we can help. See the post about asking portfolio questions.

If this isn't towards retirement, why are you using TR 2050?

[bUU]

I'm surprised no one has said this yet: why are you putting a taxable investment into TR 2050? If this is taxable towards retirement, you probably want to follow the Principles of tax-efficient fund placement. This may involve a little bit of work on your part, but we can help.

A related question that came up this weekend: If someone did a half-assed job getting these things in order (both in terms of fund placement, and in terms of abandoning managed funds), how long should they wait before they make the changes that should be made? My initial instinct is to just clear the various short-term redemption fee periods, but that doesn't factor in the effect of incurring short-term capital gains.

[bertilak]

To the OP:

You don't plan on being under $10K forever, do you? As long as you have enough to buy *something* reasonable (and you do), look to the future!

[CABob]

My first Vanguard account was a taxable account with $3K invested in the Total Stock Market index fund. That fund is now Admiral class and I got there the "old fashioned" way with $50K and 10 years.
The OP didn't indicate wheter he had other investments or questions about asset allocation or any personal information, but without specifics I feel comfortable suggesting that the investment be put all into the TSM or perhaps split between TSM and TISM at Vanguard.
It may not be the best plan, but, it's better than several others.