Bogleheads

[Kenster1]

I was speaking to a Vanguard specialist and she said that Vanguard recently modified the minimum subsequent contribution amounts for their funds.

She said that the website probably still shows $100 minimum since that has been the general minimum and still remains so for sending in checks.

So the minimum for subsequent investments after establishing the minimum to open an account had been $100 and $50 for auto-periodic investing. But she said it's now been changed so that for electronic contributions - the minimum subsequent contribution is now only $1.

As a test -- I just went to my Vanguard Roth IRA and electronically (ACH) made a $5 contribution to one of my Vanguard fund with no problem. In the past I'm pretty sure when you try to make an electronic contribution -- the webpage would indicate and enforce a $100 minimum but now no more.

I like it especially for Custodial/UGMA/UTMA accounts as it'll be easier to periodically contribute smaller amounts of money for the kid's accounts similar to any Bank Savings account. That's what originally sparked my conversation with Vanguard and she told me about this new $1 minimum.

Interestingly, $1 subsequent minimum is also what Schwab offers on their index, active and fundamental index funds.
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SURGEON GENERAL'S WARNING: Any overconfidence in your ability, willingness and need to take risk may be hazardous to your health.

[eurowizard]

I dislike this change. This is going to increase VG's costs and this increase the ER.

Vanguard is NOT a low level investor friendly company, nor should it be.

Schwab is shifting it's focus towards that goal and theres no way VG can be both a low ER company and a low-level investor firm. That's straddling and it always results in failure.

The result will be VG's properties won't quite be as good for a low-level investor as Schwab (due to not having checking account, brokerage, etc), and no longer having the same super low ER for high-level investors.

In fact, I think VG would be wise to entirely drop all customers with less than $100k in assets and this can probably reduce the ER on funds by 0.01 to 0.02% easily. If you really think about it, what value is VG providing to small time investors anyway? Does a person with $20k need to slice and dice across 10 funds?

It's the people with low assets that drive up costs. I only have $75k at VG and wouldn't mind getting kicked out and going to schwab until I have $100k, knowing then when I do return, my ERs are going to be lower then they are now.

[tonythered]

Couldn't this change raise fund expenses? If people are only contributing a few dollars here or there, isn't it more costly to manage all of those small transactions?

If not, why not DCA your contributions daily, for those who prefer the DCA method over lump-sum?

[indexfundfan]

Looks like Vanguard is taking after Schwab.
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[mikep]

Thanks! This explains why I was able to contribute $50 to my son's ESA a month ago. He got a gift for $50, so I thought I would try it anyway and it worked - to my surprise!

[Ice-9]

Let's see...

$5000 annual limit on a Roth
261 weekdays each year - 10 stock market holidays = 251 days

If I did that right, that works out to a $19.92 daily Roth contribution.

[Kenster1]

[Matty G]

I wish they wouldn't do that. The minimum was not that high anyway, and it will push up costs.

Fidelity has a 1 cent minimum. If people really want low minimums, let them go there or to Schwab.

The other day, I made an order for 1 cents worth of a Spartan fund at Fidelity, and it worked. For unknown reasons, there was 1 cent in a money market account, so I put it to work!
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Listen to Matty at your own risk. His posts are not investment advice, just the musings of some dude on an internet message board.

[Eric White]

If I round up to $20/day for my Roth contributions, will it automatically truncate my contributions at the end of the year when I reach $5k or will it keep contributing above the limit?

[natureexplorer]

Is the minimum for direct deposit automatic investments even lower?

[knowmad]

[mdrileynyc]

[nisiprius]

I am skeptical that it will "push up costs." I don't know what the actual cost of the electronic information processing itself is, pushing the electrons and cooling the server farm and so forth. But I doubt that it costs Vanguard any more to take note of the fact that Nisiprius would like to buy $1 worth of VTSMX than it does to call up his account and list all the transactions in it for the last twelve months.

So then, what does it cost to actually execute that order? Well, I'm sure they just aggregate all the orders that come in during one day. It shouldn't cost them any more to actually buy the stocks to support 123,456 individual purchases of $1 each than to buy the stocks that support a single order of $123,456 worth. The collect all the dollars, they buy all the stocks to make up 4575.83 shares, then they divvy them back to all the investors. Sweeping the dollars together into one pile and dealing the shares back out is all just data processing.

I doubt that this is any calculated marketing move. I'll bet that years ago someone looked at the costs and said "there's absolutely no reason at all for the $100 limit any more" and they made the programming changes when they got a Round Tuit. Most likely someone said "the costs are too near zero to calculate, and who knows, there might be some benefit to it."
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Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

[indexfundfan]

If the purchase is done by ACH, there is a cost to that (there is a per-transaction fee for ACH transfers, probably a few cents each).

So if possible please don't go around doing ACH purchases of $1 each. On a conservative estimate of 1 cent per ACH, if there are 123,456 ACH purchases of $1 each, it might cost Vanguard $1234.56 just to pay for the ACH fees.
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[gd]

Think of the printing costs of all those tiny transactions in the year-end statements. The horror! If I promise to make only big transactions, you think they'd give me my old format back?

[davidkw]

Since much of the investment process is done via the web, I doubt it will increase the expense ratio.
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David

From Jack Brennan's "Straight Talk on Investing", page 23 "Living below your means is the ultimate financial strategy"

[Zook13]

[NAVigator]

Perhaps Vanguard will compensate for these many low transactions by having these people agree to never, ever receive a statement.

Jerry
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"I was born with nothing, and I have most of it left."

[mickeyd]

Since these ACH transactions cost a MF family little to process I can see why they would accept, however I think that VG is making a mistake to open the nickle/dime door to this. It has to have a negative impact on the ER of the funds, no matter how small.
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regards,
mickeyd

In Dire Need of: Faster horses, younger women, older whiskey, more money. (Not necessarily in that order)

[sommerfeld]

[kd2008]

This thread is nauseating in its lack of understanding over how transactions are handled or how much they cost. Schwab, Fidelity etc were leaders in managing back office efficiently and introducing low ER and low minimum amount for transactions. Vanguard is catching up with low minimum amount of transactions, so its a good thing. Its frequent withdrawals that cost lot more than frequent deposits. Vanguard still restricts frequent withdrawals. 0.01% or some such number has very little effect than say last week's 5% drop. I hope you guys get some perspective.

[KyleAAA]

I don't think small contributions will increase costs in the slightest. Everything is electronic these days. Assuming they know they will get at least $x amount in contributions every day, allowing an extra few dollars won't hurt anything when it comes to transaction costs. In fact, it will probably help quite a bit. The paper-trail is electronic so volume is a non-issue. An extra server is a few thousand dollars.

[Kenster1]

What people also have to realize is that many of the long-time Vanguard investors have used Vanguard pre-paid envelopes to send checks. Vanguard paid for the envelopes & postage! Then think about all of the staff needed to process massive amounts of checks coming in.

So you have to think outside of the box --- electronic fund contributions saves money! I can't believe that for all these years investors praised Vanguard because they offered the convenience of pre-paid envelopes but have moved to much much more electronic funding which saves substantial amounts of money.

Secondly, we all know that when an index fund has say $600M in assets -- its ER will probably be higher than when it reaches $5B in assets due to greater economies of scale. So that also plays an important role in determining ER fees. So what good is it to keep higher contribution minimums if it doesn't generate as much total dollar-amount volume than if you lowered the restrictions.

What would you do if your favorite local grocer implemented a $100 minimum purchase? Suppose that big and busy grocery store used to generate an avg daily sale of $15,000. Suppose the new $100 minimum purchase rule resulted in much less customer traffic and only $6,000 in avg daily sales. Great -- now you end up paying more for that fresh french bread in the bakery dept because of lower sales and lower economies of scale. From a business perspective - is it really good to implement a $100 minimum purchase at a grocery store to bring in bigger transactions but at the cost of losing 50% or more of your total sales volume?

I'm sure Vanguard has looked at this hard from a business perspective and like I said before --- think about the big cost savings as we shifted from a Pre-Paid Envelope Checking Writing group to a largely electronic contribution group which is much much cheaper. The competition is doing it and maybe a lot of Vanguard customers have overwhelmingly also asked for the lower minimums as well.
_________________
SURGEON GENERAL'S WARNING: Any overconfidence in your ability, willingness and need to take risk may be hazardous to your health.

[zhiwiller]

[FredPeterson]

[KyleAAA]

[Fbone]

Do you think Vanguard will lower the $3000 limit for many of their funds?

Is there much cost savings keeping it at $3000?

[jsl11]

[Steelersfan]

Let's do some math using the Index 500 fund as an example. If by some miracle of marketing they got 10,000 additional investment transactions of less than $100 per day for this one fund, and presuming an ACH transaction costs them $.02 (it's almost certainly less), then the total incremental cost is 10,000 X 365 X $.02 = $73,000. For a fund with annual Administrative and Managerial Expense of $93 million, that will never be noticed and would be offset by any additional investors they attract.

Much to-do about nothing, IMHO

[joe8d]

I've said many times that VG should lower the entry minimum into the TR funds to 1K for IRA accounts.This would allow many young people to get started with VG and most would probably stay with them as they continue to build assets throughout their investment life.From a marketing standpoint,this should be a no brainer.
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All the Best,
Joe

[FredPeterson]

[Jack]

[Kenster1]

[Jack]

[bnw2001]

[englishgirl]

Well, I think decreasing the minimum contribution is great. I have always split my IRA contributions into 24 equal payments (1 per paycheck), and I thus ended up contributing $4992 per year. So now I can make one contribution of an extra $8 and get the full amount in. Sweeet.

I agree on the $1k minimum for TR accounts. I think that would be a great way for younger investors to get started.

Edit: It let me add for both 2009 and 2010 at once, so I put $8 in my Roth for each year. Woot! See, there's $16 that Vanguard wouldn't have gotten otherwise.
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Sarah

[UrbanMedic]

[Kenster1]

[jsl11]

[Dale_G]

And postcards were only a penny. I got "delivered" for $35 - and it took nearly a year to pay it off. The doc's took credit in those days.
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first we crawl, then we walk, then we run, later we use any available transportation

[bill99]

Small customers have a habit of becoming big customers, over time. And if they were treated with consideration when they were small, maybe they'll stick around when they're big.

This might turn out to be a pretty good business decision on Vanguard's part.

Bill

[SP-diceman]

I dont think it will matter.

If someone has a $1000 to invest will they really
do it $1 at a time?

I think the biggest use will be in the ability to
use "odd" values.

If someone needs to re-balance with a value of
$1237. They can just do it. Rather than thinking $1200 vs $1300.


Thanks
SP-diceman

[indexfundfan]

[leod]

[sscritic]