Vanguard VTSAX Admiral Funds

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Baseball964
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Vanguard VTSAX Admiral Funds

Post by Baseball964 » Tue Jan 10, 2017 11:46 pm

I'm pretty new to investing, so this might seem like an obvious question. I'm interested in investing in the vanguard VTSAX fund, and the listed minimum investment is $10,000. I have just over that amount but 10 grand is about the max of what I can invest. If I were to invest exactly the 10 grand and have it dip down a tiny amount below the 10,000 after a short bit, if be below the minimum investment. Would the be any fees at this point? Or is the 10 grand just a minimum requirement to get your foot in the door?

Thanks! Sorry if there is an obvious answer. I'm very new and don't want to lose money due to lack of knowledge.

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jhfenton
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Re: Vanguard VTSAX Admiral Funds

Post by jhfenton » Wed Jan 11, 2017 7:44 am

If your balance dips below $10,000 solely because of market fluctuations, you can keep the Admiral Shares. You will not be downgraded to Investor Shares. Just don't sell any shares to take you below $10,000 (or sell any while you're below $10,000).

rkhusky
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Re: Vanguard VTSAX Admiral Funds

Post by rkhusky » Wed Jan 11, 2017 8:13 am

jhfenton wrote:If your balance dips below $10,000 solely because of market fluctuations, you can keep the Admiral Shares. You will not be downgraded to Investor Shares. Just don't sell any shares to take you below $10,000 (or sell any while you're below $10,000).

Is this stated Vanguard policy or just something people have observed?
There is no penalty or tax consequences for being downgraded to VTSMX, you just have a bit of extra bookkeeping and have to pay the slightly higher expense ratio until you can add some more funds, which is inconsequential for $10K ($11/yr). Vanguard has an incentive to not switch people back and forth and so, if it looks like you intend to keep funding the account, they will likely not downgrade you. And they may only check balances once a quarter or so. I have had funds drop below the minimum and they weren't immediately downgraded.

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TomatoTomahto
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Re: Vanguard VTSAX Admiral Fund

Post by TomatoTomahto » Wed Jan 11, 2017 8:14 am

Welcome to the forum. Don't worry about asking seemingly obvious questions; I assure you that even old hands (myself included) have asked questions that afterwards were headsmackers :D

If you're uncomfortable buying the Admiral shares, Investor shares are also available. The expense ratio is higher, triple the ER, but that's largely because the Admiral ER is so incredibly low.

But, in any case, as mentioned above, Vanguard won't ding you if market movement lowers your account value. Even if you take some out, and your shares were to be converted to Investor shares, there's no "gotcha" that comes out of the bushes, other than the ER.

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jhfenton
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Re: Vanguard VTSAX Admiral Funds

Post by jhfenton » Wed Jan 11, 2017 8:37 am

rkhusky wrote:
jhfenton wrote:If your balance dips below $10,000 solely because of market fluctuations, you can keep the Admiral Shares. You will not be downgraded to Investor Shares. Just don't sell any shares to take you below $10,000 (or sell any while you're below $10,000).

Is this stated Vanguard policy or just something people have observed?
There is no penalty or tax consequences for being downgraded to VTSMX, you just have a bit of extra bookkeeping and have to pay the slightly higher expense ratio until you can add some more funds, which is inconsequential for $10K ($11/yr). Vanguard has an incentive to not switch people back and forth and so, if it looks like you intend to keep funding the account, they will likely not downgrade you. And they may only check balances once a quarter or so. I have had funds drop below the minimum and they weren't immediately downgraded.

To the best of my knowledge, it is just something people have observed. If you ask Vanguard, they will tell you that they periodically review eligibility for Admiral Shares and will send notices asking you to bring your balance back up to Admiral level before converting you to Investor Shares. The website says that they may automatically reclassify Admiral Shares to Investor Shares "[i]f your balance in the fund drops below the minimum requirement…." (The disclaimer does not distinguish between drops due to withdrawals or market fluctuations.) But I have not heard of them doing either when balances dipped below the Admiral threshold solely due to market fluctuations.

Regardless, I wouldn't worry about it. As folks have mentioned, being demoted to Investor Shares is not the end of the world.

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Re: Vanguard VTSAX Admiral Funds

Post by Nowizard » Wed Jan 11, 2017 12:10 pm

If you want to invest less than 10K in VTSAX, do it. The extra expense will be minimal at that level of investment. You can check returns from investor and admiral shares easily to estimate the comparison. If you remain with the fund, either appreciation or added assets will lead to admiral level eventually.

Tim

Baseball964
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Re: Vanguard VTSAX Admiral Funds

Post by Baseball964 » Thu Jan 12, 2017 7:35 pm

Thanks guys for all the quick info! I ended up selling for investor share and another fund because some friends says I should diversify, but nevertheless it's good info to know.

Whakamole
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Re: Vanguard VTSAX Admiral Funds

Post by Whakamole » Thu Jan 12, 2017 9:08 pm

Baseball964 wrote:Thanks guys for all the quick info! I ended up selling for investor share and another fund because some friends says I should diversify, but nevertheless it's good info to know.


VTSAX is the very definition of diversification (except it's only US, not international); if I may ask, what was the other fund?

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Re: Vanguard VTSAX Admiral Funds

Post by j0nnyg1984 » Thu Jan 12, 2017 9:17 pm

Baseball964 wrote:Thanks guys for all the quick info! I ended up selling for investor share and another fund because some friends says I should diversify, but nevertheless it's good info to know.


Okay, now we're breaking into a completely different subject, but unless you bought international or bonds, you aren't more diversified now...

VTsAX holds almost every domestic stock - three thousand, six hundred and nineteen individual stocks.

So, what did you buy to diversify with?

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Re: Vanguard VTSAX Admiral Funds

Post by mcraepat9 » Thu Jan 12, 2017 9:19 pm

j0nnyg1984 wrote:
Baseball964 wrote:Thanks guys for all the quick info! I ended up selling for investor share and another fund because some friends says I should diversify, but nevertheless it's good info to know.


Okay, now we're breaking into a completely different subject, but unless you bought international or bonds, you aren't more diversified now...

VTsAX holds almost every domestic stock - three thousand, six hundred and nineteen individual stocks.

So, what did you buy to diversify with?


Agree 100% - unless it is total international, you have reduced diversity
Amateur investors are not cool-headed logicians.

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jhfenton
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Re: Vanguard VTSAX Admiral Funds

Post by jhfenton » Thu Jan 12, 2017 9:35 pm

It's a completely different discussion, but not all of us would agree that Total Stock represents maximum diversity.

I would consider Total Stock + Small (Value) more diverse than just the former. As folks are fond of pointing out, Total Stock is almost indistinguishable from the straight Large Cap Index Fund or 500 Index Fund.

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Re: Vanguard VTSAX Admiral Funds

Post by grabiner » Thu Jan 12, 2017 11:14 pm

rkhusky wrote:There is no penalty or tax consequences for being downgraded to VTSMX, you just have a bit of extra bookkeeping and have to pay the slightly higher expense ratio until you can add some more funds, which is inconsequential for $10K ($11/yr). Vanguard has an incentive to not switch people back and forth and so, if it looks like you intend to keep funding the account, they will likely not downgrade you. And they may only check balances once a quarter or so. I have had funds drop below the minimum and they weren't immediately downgraded.


And they don't downgrade immediately even if you sell. I sold Admiral shares of a fund in 2008, and with the market decline, I was down to 1/3 of the Admiral minimum. After two months, I got a note from Vanguard that I had two months to get back to the minimum, or else I would be downgraded. I accepted the downgrade, as going back to the Admiral minimum would have thrown my allocation way off.
David Grabiner

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Re: Vanguard VTSAX Admiral Funds

Post by abuss368 » Thu Jan 12, 2017 11:15 pm

jhfenton wrote:If your balance dips below $10,000 solely because of market fluctuations, you can keep the Admiral Shares. You will not be downgraded to Investor Shares. Just don't sell any shares to take you below $10,000 (or sell any while you're below $10,000).


I thought Vanguard would move an investor back to Investor Shares.
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Re: Vanguard VTSAX Admiral Funds

Post by abuss368 » Thu Jan 12, 2017 11:16 pm

grabiner wrote:
And they don't downgrade immediately even if you sell. I sold Admiral shares of a fund in 2008, and with the market decline, I was down to 1/3 of the Admiral minimum. After two months, I got a note from Vanguard that I had two months to get back to the minimum, or else I would be downgraded. I accepted the downgrade, as going back to the Admiral minimum would have thrown my allocation way off.


Thank you for that explanation.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

Eric76
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Re: Vanguard VTSAX Admiral Funds

Post by Eric76 » Thu Jan 12, 2017 11:22 pm

Why not buy VTI instead, thereby avoiding the issue with minimums?

rkhusky
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Re: Vanguard VTSAX Admiral Funds

Post by rkhusky » Fri Jan 13, 2017 9:03 am

jhfenton wrote:It's a completely different discussion, but not all of us would agree that Total Stock represents maximum diversity.

I would consider Total Stock + Small (Value) more diverse than just the former. As folks are fond of pointing out, Total Stock is almost indistinguishable from the straight Large Cap Index Fund or 500 Index Fund.

Yes, that is another bucket of worms that depends on how you define diversity.

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BL
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Re: Vanguard VTSAX Admiral Funds

Post by BL » Fri Jan 13, 2017 9:46 am

Perhaps you and your friends would like to read this excellent 16-page pdf on investing and other finance issues:
https://www.etf.com/docs/IfYouCan.pdf

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Re: Vanguard VTSAX Admiral Funds

Post by oleviking » Fri Jan 13, 2017 10:08 am

Can you purchase the Admiral funds from your Fidelity account? Or do you have to have a Vanguard account to get access to the Admiral funds?

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Re: Vanguard VTSAX Admiral Funds

Post by mcraepat9 » Fri Jan 13, 2017 10:25 am

oleviking wrote:Can you purchase the Admiral funds from your Fidelity account? Or do you have to have a Vanguard account to get access to the Admiral funds?


If you have a Fidelity account, it likely makes sense to use their low-cost index funds rather than buying Admiral shares of Vanguard funds.
Amateur investors are not cool-headed logicians.

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Re: Vanguard VTSAX Admiral Funds

Post by jhfenton » Fri Jan 13, 2017 10:34 am

mcraepat9 wrote:
oleviking wrote:Can you purchase the Admiral funds from your Fidelity account? Or do you have to have a Vanguard account to get access to the Admiral funds?


If you have a Fidelity account, it likely makes sense to use their low-cost index funds rather than buying Admiral shares of Vanguard funds.

Agreed. If I had a Fidelity account, I would look first at Fidelity's index funds and the commission-free iShares ETFs.

oleviking
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Re: Vanguard VTSAX Admiral Funds

Post by oleviking » Fri Jan 13, 2017 12:11 pm

Any recommendations for low cost Fidelity Index Funds?

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Re: Vanguard VTSAX Admiral Funds

Post by mcraepat9 » Fri Jan 13, 2017 12:18 pm

oleviking wrote:Any recommendations for low cost Fidelity Index Funds?


Fidelity Total Market Index Fund Investor Class (FSTMX) or Premium Class (FSTVX)
Fidelity Total International Index Fund Investor Class (FTIGX) or Premium Class (FTIPX)
Fidelity U. S. Bond Index Fund Investor Class (FBIDX) or Premium Class (FSITX)
Amateur investors are not cool-headed logicians.

oleviking
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Re: Vanguard VTSAX Admiral Funds

Post by oleviking » Fri Jan 13, 2017 12:39 pm

Thanks,

Baseball964
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Re: Vanguard VTSAX Admiral Funds

Post by Baseball964 » Fri Jan 13, 2017 2:52 pm

Whakamole wrote:
Baseball964 wrote:Thanks guys for all the quick info! I ended up selling for investor share and another fund because some friends says I should diversify, but nevertheless it's good info to know.


VTSAX is the very definition of diversification (except it's only US, not international); if I may ask, what was the other fund?


Sorry, maybe diversification isn't the right word. I split 50/50 with NAESX (Small-Cap Index Fund). Not sure if that was the right move, but people were telling me something along the lines of not keeping all my eggs in one basket.

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Re: Vanguard VTSAX Admiral Funds

Post by Nate79 » Fri Jan 13, 2017 3:04 pm

Baseball964 wrote:
Whakamole wrote:
Baseball964 wrote:Thanks guys for all the quick info! I ended up selling for investor share and another fund because some friends says I should diversify, but nevertheless it's good info to know.


VTSAX is the very definition of diversification (except it's only US, not international); if I may ask, what was the other fund?


Sorry, maybe diversification isn't the right word. I split 50/50 with NAESX (Small-Cap Index Fund). Not sure if that was the right move, but people were telling me something along the lines of not keeping all my eggs in one basket.


That is more of a tilt than diversification (or as you put it eggs in one basket). In other words if you own Total stock market (which is Large cap, Mid cap, and Small cap mix) and Small cap index you are just buying more of the small cap stocks (overweighting them). That is fine if that is what you decide to do but you are not really changing your eggs/basket.

Whakamole
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Re: Vanguard VTSAX Admiral Funds

Post by Whakamole » Fri Jan 13, 2017 3:32 pm

Baseball964 wrote:
Whakamole wrote:
Baseball964 wrote:Thanks guys for all the quick info! I ended up selling for investor share and another fund because some friends says I should diversify, but nevertheless it's good info to know.


VTSAX is the very definition of diversification (except it's only US, not international); if I may ask, what was the other fund?


Sorry, maybe diversification isn't the right word. I split 50/50 with NAESX (Small-Cap Index Fund). Not sure if that was the right move, but people were telling me something along the lines of not keeping all my eggs in one basket.


I think "not keeping all your eggs in one basket" may make sense if you were investing in an actively managed fund - you have certain types of risk, like manager risk ("what if my manager decides to go all-in on Valeant?" and yes, this happened), sector risk ("if I bet on technology/oil/financials, what happens if the sector as a whole has problems?"), and so on. I don't think it makes quite as much sense when you are holding a fund that owns the US stock market, market cap weighted (with exceptions like penny stocks, preferred stocks, etc.). This paper has a pretty good run-down of types of risks you can face in mutual funds; most don't apply when you are holding something like VTSAX.

But as Nate79 said, you're doubling ownership of the same stocks. Everything in NSAEX is already part of VTSAX. Now you've just tilted your portfolio, and the performance of small-caps will impact your portfolio more (which can be good or bad, depending on how they perform!)

If you are concerned about being overly invested in the US stock market, then the best thing to do would be to look at broad-based international funds (like VTIAX) and bond funds (like VBTLX.)

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