Minimum investment to buy mutual funds

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wyoming82240
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Minimum investment to buy mutual funds

Post by wyoming82240 » Sun Jan 12, 2020 1:17 am

Hello Bogleheads,

As a beginner in investing around 2015, I struggled a lot to invest as most mutual funds have minimum investment ranging from 2500 to 3000. As an amateur I was not familiar with ETFs at that time. What’s the idea or thought process behind the fund companies to have minimum initial investments to buy a mutual fund? These days gradually fund companies are decreasing or eliminating the minimums to invest. If there are any benefits to have such minimum initial investment, how are they able to decrease or eliminate them now? Just curious, why investment companies had created such barriers to invest for people with low income.

123
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Re: Minimum investment to buy mutual funds

Post by 123 » Sun Jan 12, 2020 1:37 am

Minimum investments in mutual funds were likely initially established to control administrative costs. Establishing accounts was initially a very manual paper process that involved staff effort whereas now it can be self-service via a browser. There were additional costs on an ongoing basis to handle additional deposits as well as mail periodic statements. Now statements can be sent via email. Funds that were sold with loads wanted to have a minimum that would ensure financial advisers would want to sell the fund.

Prior to large advances in brokerage automation many funds could only be purchased or sold directly with the fund. If an investor wanted to change funds it was necessary to sell one fund, receive the proceeds, deposit the proceeds, and then mail a check to the replacement fund for the amount desired. Now mutual funds can be easily held in brokerage accounts making their purchase, holding, and sale much easier.
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Ferdinand2014
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Re: Minimum investment to buy mutual funds

Post by Ferdinand2014 » Sun Jan 12, 2020 4:40 am

Every single Fidelity index fund has a zero minimum.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

UpperNwGuy
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Re: Minimum investment to buy mutual funds

Post by UpperNwGuy » Sun Jan 12, 2020 5:24 am

Duplicate
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Re: Minimum investment to buy mutual funds

Post by UpperNwGuy » Sun Jan 12, 2020 5:25 am

Ferdinand2014 wrote:
Sun Jan 12, 2020 4:40 am
Every single Fidelity index fund has a zero minimum.
Schwab funds as well. Vanguard is the big holdout.

Silence Dogood
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Re: Minimum investment to buy mutual funds

Post by Silence Dogood » Sun Jan 12, 2020 8:54 am

The Vanguard Target Retirement funds also have a $1,000 minimum investment.

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RickBoglehead
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Re: Minimum investment to buy mutual funds

Post by RickBoglehead » Sun Jan 12, 2020 8:59 am

UpperNwGuy wrote:
Sun Jan 12, 2020 5:25 am
Ferdinand2014 wrote:
Sun Jan 12, 2020 4:40 am
Every single Fidelity index fund has a zero minimum.
Schwab funds as well. Vanguard is the big holdout.
Vanguard is the only company that is owned by fund shareholders. Any increased cost is borne by the shareholders.
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Re: Minimum investment to buy mutual funds

Post by jeffyscott » Sun Jan 12, 2020 9:24 am

UpperNwGuy wrote:
Sun Jan 12, 2020 5:25 am
Ferdinand2014 wrote:
Sun Jan 12, 2020 4:40 am
Every single Fidelity index fund has a zero minimum.
Schwab funds as well. Vanguard is the big holdout.
Schwab also offers very low minimums on a lot of fund from other companies. Their screener comes up with 3786 funds with minimum of $100 or less and no load or transaction fee, when excluding Schwab funds.
Time is your friend; impulse is your enemy. - John C. Bogle

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Re: Minimum investment to buy mutual funds

Post by jeffyscott » Sun Jan 12, 2020 9:36 am

RickBoglehead wrote:
Sun Jan 12, 2020 8:59 am
Vanguard is the only company that is owned by fund shareholders. Any increased cost is borne by the shareholders.
I'm not sure what this means?

If an index fund investor goes to Fidelity or Schwab, they will pay lower ERs, have lower minimum initial investment requirements, and pay nothing for the account (even if they get paper statements in the mail). The only potential added cost would be the opportunity cost they would incur if they left a lot of money in the settlement account, which there is no reason to do since there is no minimum initial or additional investment amount for the index funds offered by Schwab or Fidelity.

Meanwhile at Vanguard they would either have to use ETFs or meet $3000 minimums (and pay a fee, if they wanted paper statements). Vanguard does provide a tax advantage to the index mutual fund investor in a taxable account, however.
Time is your friend; impulse is your enemy. - John C. Bogle

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Re: Minimum investment to buy mutual funds

Post by RickBoglehead » Sun Jan 12, 2020 9:41 am

jeffyscott wrote:
Sun Jan 12, 2020 9:36 am
RickBoglehead wrote:
Sun Jan 12, 2020 8:59 am
Vanguard is the only company that is owned by fund shareholders. Any increased cost is borne by the shareholders.
I'm not sure what this means?
Let me be clear then.

At Fidelity, a private company run by a billionaire (Abby Johnson), a private company which generates HUGE profits, they can absorb costs (i.e. having funds with very low balances) in the hope/belief that those shareholders will ultimately add money and become profitable.

At Schwab, a company that had $3.5 billion in net income for the year ended December 2018, same thing.

Vanguard's shareholders would have to bear these costs. I'm very thankful that Vanguard has $3,000 minimums on most of its funds, and has $1,000 on a handful of funds, most of which are specifically designed for those that don't have a clue as to how to invest (Target and Star funds).

Hope that helps.
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Re: Minimum investment to buy mutual funds

Post by Triple digit golfer » Sun Jan 12, 2020 9:43 am

jeffyscott wrote:
Sun Jan 12, 2020 9:36 am
Vanguard does provide a tax advantage to the index mutual fund investor in a taxable account, however.
That is a big reason I love Vanguard so much. I like mutual funds and I like tax efficiency. At Vanguard I get both. The $3k minimum doesn't bother me.

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Re: Minimum investment to buy mutual funds

Post by Cheez-It Guy » Sun Jan 12, 2020 9:52 am

If you are going to be serious about investing, a $3000 minimum really shouldn't be all that restrictive, should it?! I know people come from all sorts of backgrounds and circumstances, and that many Americans have a negative net worth and nothing in the bank, but if all you can afford to invest is less than $3000, is it really going to make that much difference in the first place? Save it up in a high yield savings account or something until you meet the minimum. Then you are only, what, a few months to a year behind where you would have been starting with lower minimums? And how much would your less than $3000 earn over that period? Essentially nothing.

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Re: Minimum investment to buy mutual funds

Post by Silence Dogood » Sun Jan 12, 2020 9:53 am

OP,

A simplified example:

Vanguard Total Stock Market Index Admiral (VTSAX) has an expense ratio of 0.04%.

An investor named Alice has $3,000 invested in this fund. Vanguard makes $1.20 a year off of her investment (3000 x 0.0004).

An investor named Bob has $300,000 invested in this fund. Vanguard makes $120 a year off of his investment (300000 x 0.0004).

Assuming all else equal, it's likely that Alice is costing Vanguard more than $1.20 a year. It's possible that Bob is costing Vanguard less than $120 a year.

If Vanguard eliminated the fund minimum:

An investor name Charlie has $30 invested in this fund. Vanguard makes $0.01 a year off of his investment (30 x 0.0004).

Charlie is definitely costing Vanguard more than $0.01 a year.

That is the reason for fund minimums.

Of course, Vanguard does need to attract new investors - it was difficult for me to reach the $3,000 minimum when I first started. Fortunately, due to inflation alone, fund minimums will become more attainable over time - even if they aren't lowered/eliminated.

As I mentioned above, the Vanguard Target Retirement funds have a $1,000 minimum. Even when I was just starting out, I wouldn't have had much of a problem with a $1,000 minimum. That's (ignoring taxes) 100 hours of work at $10 per hour.

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Re: Minimum investment to buy mutual funds

Post by jeffyscott » Sun Jan 12, 2020 10:00 am

RickBoglehead wrote:
Sun Jan 12, 2020 9:41 am
jeffyscott wrote:
Sun Jan 12, 2020 9:36 am
RickBoglehead wrote:
Sun Jan 12, 2020 8:59 am
Vanguard is the only company that is owned by fund shareholders. Any increased cost is borne by the shareholders.
I'm not sure what this means?
Let me be clear then.

At Fidelity, a private company run by a billionaire (Abby Johnson), a private company which generates HUGE profits, they can absorb costs (i.e. having funds with very low balances) in the hope/belief that those shareholders will ultimately add money and become profitable.

At Schwab, a company that had $3.5 billion in net income for the year ended December 2018, same thing.

Vanguard's shareholders would have to bear these costs. I'm very thankful that Vanguard has $3,000 minimums on most of its funds, and has $1,000 on a handful of funds, most of which are specifically designed for those that don't have a clue as to how to invest (Target and Star funds).

Hope that helps.
Yes, but what does it mean to an actual investor, who would put 100% of their money in index funds wherever they do invest? If it is an IRA, there is really no financial reason to choose Vanguard, the others charge less and have lower minimums and taxes are not an issue.

About 100 years ago, we started with T. Rowe Price which had no minimum, if you signed up to auto invest at least $50 per month. Today, I think they still have that option but there is the even easier option to go to Schwab or Fidelity or others with low/no minimums and no fees.
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Re: Minimum investment to buy mutual funds

Post by RickBoglehead » Sun Jan 12, 2020 10:05 am

jeffyscott wrote:
Sun Jan 12, 2020 10:00 am
RickBoglehead wrote:
Sun Jan 12, 2020 9:41 am
jeffyscott wrote:
Sun Jan 12, 2020 9:36 am
RickBoglehead wrote:
Sun Jan 12, 2020 8:59 am
Vanguard is the only company that is owned by fund shareholders. Any increased cost is borne by the shareholders.
I'm not sure what this means?
Let me be clear then.

At Fidelity, a private company run by a billionaire (Abby Johnson), a private company which generates HUGE profits, they can absorb costs (i.e. having funds with very low balances) in the hope/belief that those shareholders will ultimately add money and become profitable.

At Schwab, a company that had $3.5 billion in net income for the year ended December 2018, same thing.

Vanguard's shareholders would have to bear these costs. I'm very thankful that Vanguard has $3,000 minimums on most of its funds, and has $1,000 on a handful of funds, most of which are specifically designed for those that don't have a clue as to how to invest (Target and Star funds).

Hope that helps.
Yes, but what does it mean to an actual investor, who would put 100% of their money in index funds wherever they do invest? If it is an IRA, there is really no financial reason to choose Vanguard, the others charge less and have lower minimums and taxes are not an issue.

About 100 years ago, we started with T. Rowe Price which had no minimum, if you signed up to auto invest at least $50 per month. Today, I think they still have that option but there is the even easier option to go to Schwab or Fidelity or others with low/no minimums and no fees.
They should go to Fidelity or Schwab. Excellent idea. Keeps costs lower at Vanguard. Done. :sharebeer
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Re: Minimum investment to buy mutual funds

Post by Helo80 » Sun Jan 12, 2020 11:44 am

RickBoglehead wrote:
Sun Jan 12, 2020 10:05 am
They should go to Fidelity or Schwab. Excellent idea. Keeps costs lower at Vanguard. Done. :sharebeer


Costs for apples to apples products are lower at Fidelity/Schwab though. Not by a lot, but are still lower.

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Re: Minimum investment to buy mutual funds

Post by UpperNwGuy » Sun Jan 12, 2020 1:04 pm

RickBoglehead wrote:
Sun Jan 12, 2020 10:05 am
They should go to Fidelity or Schwab. Excellent idea. Keeps costs lower at Vanguard. Done. :sharebeer
Except.... costs are NOT lower at Vanguard.

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Re: Minimum investment to buy mutual funds

Post by RickBoglehead » Sun Jan 12, 2020 1:35 pm

Helo80 wrote:
Sun Jan 12, 2020 11:44 am
RickBoglehead wrote:
Sun Jan 12, 2020 10:05 am
They should go to Fidelity or Schwab. Excellent idea. Keeps costs lower at Vanguard. Done. :sharebeer
Costs for apples to apples products are lower at Fidelity/Schwab though. Not by a lot, but are still lower.
UpperNwGuy wrote:
Sun Jan 12, 2020 1:04 pm
RickBoglehead wrote:
Sun Jan 12, 2020 10:05 am
They should go to Fidelity or Schwab. Excellent idea. Keeps costs lower at Vanguard. Done. :sharebeer
Except.... costs are NOT lower at Vanguard.
My statement is 100% correct. Not allowing people to open accounts with small dollars, as well as other measures that Vanguard takes, keeps Vanguard's costs lower than they would be if they did allow these practices. I never said that Vanguard's fund costs, on any or all funds, were lower.
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Re: Minimum investment to buy mutual funds

Post by Triple digit golfer » Sun Jan 12, 2020 1:45 pm

I would also think, but have no simple way to validate, that Vanguard's collective weighted average expense ratio across all funds/ETFs is lower than Schwab or Fidelity. In other words, total fees divided by AUM is lower than its competitors.

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Re: Minimum investment to buy mutual funds

Post by Cheez-It Guy » Sun Jan 12, 2020 1:57 pm

While I don't wish to experience it personally, it will be interesting to see how well the johnny-come-lately cost-competitive practices of Fidelity and Schwab endure a protracted draw-down versus Vanguard whose policies are long-established and essentially part of their culture. How long will share-holders or private owners tolerate holding an underperforming asset whose revenue streams have been staunched? People who will jump around for pennies of expense ratio and transfer bonuses are going to play that game, but I tend to have more confidence that Vanguard will be a more steady ride and not revoke their core business practices when the going inevitably gets tough.

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Re: Minimum investment to buy mutual funds

Post by UpperNwGuy » Sun Jan 12, 2020 2:06 pm

Triple digit golfer wrote:
Sun Jan 12, 2020 1:45 pm
I would also think, but have no simple way to validate, that Vanguard's collective weighted average expense ratio across all funds/ETFs is lower than Schwab or Fidelity. In other words, total fees divided by AUM is lower than its competitors.
Perhaps true, but why should an investor care about that? An investor cares about the costs in the funds that she or he owns, not the costs of all the many funds in a brokerage house.

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Re: Minimum investment to buy mutual funds

Post by Triple digit golfer » Sun Jan 12, 2020 2:10 pm

UpperNwGuy wrote:
Sun Jan 12, 2020 2:06 pm
Triple digit golfer wrote:
Sun Jan 12, 2020 1:45 pm
I would also think, but have no simple way to validate, that Vanguard's collective weighted average expense ratio across all funds/ETFs is lower than Schwab or Fidelity. In other words, total fees divided by AUM is lower than its competitors.
Perhaps true, but why should an investor care about that? An investor cares about the costs in the funds that she or he owns, not the costs of all the many funds in a brokerage house.
Totally agree.

I also think one should consider, as Cheez-It Guy said, how expense ratios change in the next downturn.

At the end of the day, Vanguard, Fidelity, and Schwab are all fantastic and will do the job just fine for any index investor. The fees are very low and comparable.

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Re: Minimum investment to buy mutual funds

Post by F150HD » Sun Jan 12, 2020 2:10 pm

Silence Dogood wrote:
Sun Jan 12, 2020 8:54 am
The Vanguard Target Retirement funds also have a $1,000 minimum investment.
yea, that was in my post?

OP talked about ~3k minimum....this is far below that.

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Re: Minimum investment to buy mutual funds

Post by Helo80 » Sun Jan 12, 2020 8:47 pm

RickBoglehead wrote:
Sun Jan 12, 2020 1:35 pm
My statement is 100% correct. Not allowing people to open accounts with small dollars, as well as other measures that Vanguard takes, keeps Vanguard's costs lower than they would be if they did allow these practices. I never said that Vanguard's fund costs, on any or all funds, were lower.


So, you are saying is that Vanguard is for the elites and not the unwashed masses...

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Re: Minimum investment to buy mutual funds

Post by RickBoglehead » Sun Jan 12, 2020 9:18 pm

Helo80 wrote:
Sun Jan 12, 2020 8:47 pm
RickBoglehead wrote:
Sun Jan 12, 2020 1:35 pm
My statement is 100% correct. Not allowing people to open accounts with small dollars, as well as other measures that Vanguard takes, keeps Vanguard's costs lower than they would be if they did allow these practices. I never said that Vanguard's fund costs, on any or all funds, were lower.


So, you are saying is that Vanguard is for the elites and not the unwashed masses...
Right. You're not twisting my words at all...
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Re: Minimum investment to buy mutual funds

Post by Helo80 » Sun Jan 12, 2020 9:30 pm

RickBoglehead wrote:
Sun Jan 12, 2020 9:18 pm
Right. You're not twisting my words at all...

Let me ask you this, and then depending on your answer, you may prove your point...

3 Bogleheads, 30 years of age each, decide to do the one-fund approach to investing. They elect no Vanguard PAS or solicit other advisory services from the firm.

BH 1 - puts $30,000 in VTSAX -- at 4 bps, his annual cost would be $12.00
BH 2 - puts $300,000 in VTSAX -- at 4 bps, his annual cost would be $120.00
BH 3 - puts $3,000,000 in VTSAX -- at 4 bps, his annual cost would be $1,200.00

This is something I honestly do not know --- do the behind the scenes fund management costs scale linearly? Is BH3 really using 100x more expenses than BH 1? Again, neither use anything beyond the website, app, and the one time single investment.

https://investor.vanguard.com/mutual-fu ... olio/vtsax

VTSAX has $250 billion in assets. Therefore, on ER alone, that's roughly $100 million dollars. Say, all of us BHs and investors have a phenomenal year and we see a 100% ROI. Now, Vanguard has $500 billion in VTSAX and $200 million in ER. Did Vanguard really just incur a $100 million increase in costs associated with running VTSAX?

I hope that you can kind of see where I'm going here.... Depending on your answer, I may learn a lot of what it takes to run a fund.

Even Vanguard is in the game now of commission free stock trading. They were a long hold out. Even USAA beat them to commission free trading, and USAA's IMCO has been amazingly lackluster for their offerings (though, the letter I receive states that it's some temporary promotion from the day I received it until like April 2020 or something like that). I think one-day, Vanguard will be lowering MF minimums. They'll be slow, but in a few years, I think my comment above will no longer have accurate BPs.

EDIT: One more thing, keep in mind that Vanguard dropped the Investor Class shares that were like 9 or 15 bps. I honestly do not remember so don't roast me. But, you definitely would remember when it was Admiral and Investor classes and then one-day.... no more investor class and account minimums dropped for Admiral class..... If Vanguard *really* just runs funds at cost... I'm not sure where all the extra revenue needed to run the investor shares suddenly was not needed. Hmmm....

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Re: Minimum investment to buy mutual funds

Post by jeffyscott » Sun Jan 12, 2020 10:38 pm

Helo80 wrote:
Sun Jan 12, 2020 9:30 pm
EDIT: One more thing, keep in mind that Vanguard dropped the Investor Class shares that were like 9 or 15 bps. I honestly do not remember so don't roast me. But, you definitely would remember when it was Admiral and Investor classes and then one-day.... no more investor class and account minimums dropped for Admiral class..... If Vanguard *really* just runs funds at cost... I'm not sure where all the extra revenue needed to run the investor shares suddenly was not needed. Hmmm....
It appears that the assets in investor share class increased, despite that.

The December 2018 annual report says: Please note that in November, Vanguard lowered the investment minimum for the fund’s Admiral Shares from $10,000 to $3,000.

This Dec. 2018 report shows about $121 billion in investor share class. The June 2019 semi-annual report shows about $139 billion in investor share class. The fund did go up by over 18.7% vs. that increase of 14.6%, so some small percent of assets moved out of investor shares, but only a net of about 4%. Perhaps the majority of investor shares were not eligible to become admiral because they are held in target retirement and lifestrategy funds?

I don't think they converted everyone, instantly, prior to Dec. 31, 2018 (and I did also find a report from 2016 that had a similar ratio of Admiral to Investor shares).
Time is your friend; impulse is your enemy. - John C. Bogle

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Re: Minimum investment to buy mutual funds

Post by Ferdinand2014 » Mon Jan 13, 2020 6:47 pm

Cheez-It Guy wrote:
Sun Jan 12, 2020 1:57 pm
While I don't wish to experience it personally, it will be interesting to see how well the johnny-come-lately cost-competitive practices of Fidelity and Schwab endure a protracted draw-down versus Vanguard whose policies are long-established and essentially part of their culture. How long will share-holders or private owners tolerate holding an underperforming asset whose revenue streams have been staunched? People who will jump around for pennies of expense ratio and transfer bonuses are going to play that game, but I tend to have more confidence that Vanguard will be a more steady ride and not revoke their core business practices when the going inevitably gets tough.
I have been with Fidelity for 22 years. This includes the 2000 and 2008 downturns and I have experienced only continuous improvements with lower fees, more index options, zero minimums, better customer service, more cash management options, improved website interface, improved security features and have been extremely happy.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

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Re: Minimum investment to buy mutual funds

Post by Silence Dogood » Mon Jan 13, 2020 7:07 pm

Helo80 wrote:
Sun Jan 12, 2020 9:30 pm
EDIT: One more thing, keep in mind that Vanguard dropped the Investor Class shares that were like 9 or 15 bps. I honestly do not remember so don't roast me. But, you definitely would remember when it was Admiral and Investor classes and then one-day.... no more investor class and account minimums dropped for Admiral class..... If Vanguard *really* just runs funds at cost... I'm not sure where all the extra revenue needed to run the investor shares suddenly was not needed. Hmmm....
I think you answered your own question:
Helo80 wrote:
Sun Jan 12, 2020 9:30 pm
VTSAX has $250 billion in assets. Therefore, on ER alone, that's roughly $100 million dollars. Say, all of us BHs and investors have a phenomenal year and we see a 100% ROI. Now, Vanguard has $500 billion in VTSAX and $200 million in ER. Did Vanguard really just incur a $100 million increase in costs associated with running VTSAX?

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Re: Minimum investment to buy mutual funds

Post by Helo80 » Mon Jan 13, 2020 7:17 pm

Silence Dogood wrote:
Mon Jan 13, 2020 7:07 pm
Helo80 wrote:
Sun Jan 12, 2020 9:30 pm
EDIT: One more thing, keep in mind that Vanguard dropped the Investor Class shares that were like 9 or 15 bps. I honestly do not remember so don't roast me. But, you definitely would remember when it was Admiral and Investor classes and then one-day.... no more investor class and account minimums dropped for Admiral class..... If Vanguard *really* just runs funds at cost... I'm not sure where all the extra revenue needed to run the investor shares suddenly was not needed. Hmmm....
I think you answered your own question:
Helo80 wrote:
Sun Jan 12, 2020 9:30 pm
VTSAX has $250 billion in assets. Therefore, on ER alone, that's roughly $100 million dollars. Say, all of us BHs and investors have a phenomenal year and we see a 100% ROI. Now, Vanguard has $500 billion in VTSAX and $200 million in ER. Did Vanguard really just incur a $100 million increase in costs associated with running VTSAX?

How do costs go up linearly for buy and hold investors? I do not think I answered my question at all.

I think that BHs here have convinced themselves that Vanguard only runs funds at cost as it's mutually owned by the shareholders. While Vanguard should receive much credit for ushering in the era of low-cost index investing.... they were not Robin Hood that offered commission-free stock trading, and then Schwab, and all the others that jumped on-board with free stock trading. Even USAA, whom we have said many times on this forum as being frankly terrible to keep investments at.... they offered commission free trading prior to Vanguard jumping on board.

It's a competitive landscape out there. Vanguard deserves so much credit, but not being allowed to have academic discussions on where the money is going... RickBoglehead was quick to reply when it came to praising Vanguard and keeping fees or whatever it was low by requiring minimum investments... but where is he now?

For teens and millenials starting out investing, I frankly cannot recommend Vanguard to them unless they meet account minimums. If I'm not mistaken, Schwab and Fidelity allow you to start investing in the Total Stock Market Index fund at $1 USD. Now, you can argue that Schwab/Fidelity are robbing Peter to pay Paul thru leveraging their managed funds to offset index fund investing...

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Re: Minimum investment to buy mutual funds

Post by Silence Dogood » Mon Jan 13, 2020 7:49 pm

Helo80 wrote:
Mon Jan 13, 2020 7:17 pm
Silence Dogood wrote:
Mon Jan 13, 2020 7:07 pm
Helo80 wrote:
Sun Jan 12, 2020 9:30 pm
EDIT: One more thing, keep in mind that Vanguard dropped the Investor Class shares that were like 9 or 15 bps. I honestly do not remember so don't roast me. But, you definitely would remember when it was Admiral and Investor classes and then one-day.... no more investor class and account minimums dropped for Admiral class..... If Vanguard *really* just runs funds at cost... I'm not sure where all the extra revenue needed to run the investor shares suddenly was not needed. Hmmm....
I think you answered your own question:
Helo80 wrote:
Sun Jan 12, 2020 9:30 pm
VTSAX has $250 billion in assets. Therefore, on ER alone, that's roughly $100 million dollars. Say, all of us BHs and investors have a phenomenal year and we see a 100% ROI. Now, Vanguard has $500 billion in VTSAX and $200 million in ER. Did Vanguard really just incur a $100 million increase in costs associated with running VTSAX?
I do not think I answered my question at all.
You essentially did.

Your question was (paraphrasing), "How could Vanguard afford to get rid of the higher-cost investor-class shares?"

The simple answer is: AUM increased.

Vanguard can lower the expense ratios of their funds either by reducing the costs of running their business (unlikely to result in significant cost savings) or by increasing AUM (due to fund inflows and/or investment gains).

Silence Dogood
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Re: Minimum investment to buy mutual funds

Post by Silence Dogood » Mon Jan 13, 2020 8:21 pm

RickBoglehead wrote:
Sun Jan 12, 2020 1:35 pm
Helo80 wrote:
Sun Jan 12, 2020 11:44 am
RickBoglehead wrote:
Sun Jan 12, 2020 10:05 am
They should go to Fidelity or Schwab. Excellent idea. Keeps costs lower at Vanguard. Done. :sharebeer
Costs for apples to apples products are lower at Fidelity/Schwab though. Not by a lot, but are still lower.
UpperNwGuy wrote:
Sun Jan 12, 2020 1:04 pm
RickBoglehead wrote:
Sun Jan 12, 2020 10:05 am
They should go to Fidelity or Schwab. Excellent idea. Keeps costs lower at Vanguard. Done. :sharebeer
Except.... costs are NOT lower at Vanguard.
My statement is 100% correct. Not allowing people to open accounts with small dollars, as well as other measures that Vanguard takes, keeps Vanguard's costs lower than they would be if they did allow these practices. I never said that Vanguard's fund costs, on any or all funds, were lower.
Not necessarily.

If higher fund minimums leads to a decrease in AUM in the long-term, then that will result in an increase in expense ratios in the long-term.

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Cheez-It Guy
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Re: Minimum investment to buy mutual funds

Post by Cheez-It Guy » Mon Jan 13, 2020 8:22 pm

Ferdinand2014 wrote:
Mon Jan 13, 2020 6:47 pm
Cheez-It Guy wrote:
Sun Jan 12, 2020 1:57 pm
While I don't wish to experience it personally, it will be interesting to see how well the johnny-come-lately cost-competitive practices of Fidelity and Schwab endure a protracted draw-down versus Vanguard whose policies are long-established and essentially part of their culture. How long will share-holders or private owners tolerate holding an underperforming asset whose revenue streams have been staunched? People who will jump around for pennies of expense ratio and transfer bonuses are going to play that game, but I tend to have more confidence that Vanguard will be a more steady ride and not revoke their core business practices when the going inevitably gets tough.
I have been with Fidelity for 22 years. This includes the 2000 and 2008 downturns and I have experienced only continuous improvements with lower fees, more index options, zero minimums, better customer service, more cash management options, improved website interface, improved security features and have been extremely happy.
Good. What were expenses at Fidelity in 2000 and 2008 compared to today?

Helo80
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Re: Minimum investment to buy mutual funds

Post by Helo80 » Mon Jan 13, 2020 8:24 pm

Silence Dogood wrote:
Mon Jan 13, 2020 7:49 pm

You essentially did.

Your question was (paraphrasing), "How could Vanguard afford to get rid of the higher-cost investor-class shares?"

The simple answer is: AUM increased.

Vanguard can lower the expense ratios of their funds either by reducing the costs of running their business (unlikely to result in significant cost savings) or by increasing AUM (due to fund inflows and/or investment gains).


So --- costs to run funds is spread across their entire lineup and them sort of divided up from there?

E.g. maybe some AMFs cover the costs of Admiral Index Funds?

At this point then, Vanguard is sort of like Fidelity --- they're using higher cost, active funds to subsidize the index funds.

Silence Dogood
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Re: Minimum investment to buy mutual funds

Post by Silence Dogood » Mon Jan 13, 2020 8:55 pm

Helo80 wrote:
Mon Jan 13, 2020 8:24 pm
Silence Dogood wrote:
Mon Jan 13, 2020 7:49 pm

You essentially did.

Your question was (paraphrasing), "How could Vanguard afford to get rid of the higher-cost investor-class shares?"

The simple answer is: AUM increased.

Vanguard can lower the expense ratios of their funds either by reducing the costs of running their business (unlikely to result in significant cost savings) or by increasing AUM (due to fund inflows and/or investment gains).


So --- costs to run funds is spread across their entire lineup and them sort of divided up from there?

E.g. maybe some AMFs cover the costs of Admiral Index Funds?

At this point then, Vanguard is sort of like Fidelity --- they're using higher cost, active funds to subsidize the index funds.
:confused

Can you explain to me how you concluded this so that I may better explain?

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jeffyscott
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Location: Wisconsin

Re: Minimum investment to buy mutual funds

Post by jeffyscott » Mon Jan 13, 2020 10:26 pm

Silence Dogood wrote:
Mon Jan 13, 2020 7:07 pm
Helo80 wrote:
Sun Jan 12, 2020 9:30 pm
EDIT: One more thing, keep in mind that Vanguard dropped the Investor Class shares that were like 9 or 15 bps. I honestly do not remember so don't roast me. But, you definitely would remember when it was Admiral and Investor classes and then one-day.... no more investor class and account minimums dropped for Admiral class..... If Vanguard *really* just runs funds at cost... I'm not sure where all the extra revenue needed to run the investor shares suddenly was not needed. Hmmm....
I think you answered your own question:
But I thought I had answered the question: only small percent of assets was apparently moved from investor shares, a net of about 4% as of last June.
Time is your friend; impulse is your enemy. - John C. Bogle

Ferdinand2014
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Re: Minimum investment to buy mutual funds

Post by Ferdinand2014 » Mon Jan 13, 2020 10:32 pm

Cheez-It Guy wrote:
Mon Jan 13, 2020 8:22 pm
Ferdinand2014 wrote:
Mon Jan 13, 2020 6:47 pm
Cheez-It Guy wrote:
Sun Jan 12, 2020 1:57 pm
While I don't wish to experience it personally, it will be interesting to see how well the johnny-come-lately cost-competitive practices of Fidelity and Schwab endure a protracted draw-down versus Vanguard whose policies are long-established and essentially part of their culture. How long will share-holders or private owners tolerate holding an underperforming asset whose revenue streams have been staunched? People who will jump around for pennies of expense ratio and transfer bonuses are going to play that game, but I tend to have more confidence that Vanguard will be a more steady ride and not revoke their core business practices when the going inevitably gets tough.
I have been with Fidelity for 22 years. This includes the 2000 and 2008 downturns and I have experienced only continuous improvements with lower fees, more index options, zero minimums, better customer service, more cash management options, improved website interface, improved security features and have been extremely happy.
Good. What were expenses at Fidelity in 2000 and 2008 compared to today?
The premium class total U.S. stock index was 0.10 - 0.12 during that time I believe. The investor class I think was 0.14. Since they have dissolved different classes and combined into no minimum with institutional class pricing, the core U.S. index funds are now 0.015 and international fund is 0.035. I only have one fund anyway - FXAIX (Fidelity 500 index fund) er 0.015 and one fixed income - treasury bills on auto roll - zero cost.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

Helo80
Posts: 1169
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Re: Minimum investment to buy mutual funds

Post by Helo80 » Tue Jan 14, 2020 7:25 pm

Silence Dogood wrote:
Mon Jan 13, 2020 8:55 pm
Helo80 wrote:
Mon Jan 13, 2020 8:24 pm
Silence Dogood wrote:
Mon Jan 13, 2020 7:49 pm

You essentially did.

Your question was (paraphrasing), "How could Vanguard afford to get rid of the higher-cost investor-class shares?"

The simple answer is: AUM increased.

Vanguard can lower the expense ratios of their funds either by reducing the costs of running their business (unlikely to result in significant cost savings) or by increasing AUM (due to fund inflows and/or investment gains).


So --- costs to run funds is spread across their entire lineup and them sort of divided up from there?

E.g. maybe some AMFs cover the costs of Admiral Index Funds?

At this point then, Vanguard is sort of like Fidelity --- they're using higher cost, active funds to subsidize the index funds.
:confused

Can you explain to me how you concluded this so that I may better explain?
I misread your bold on AUM and thought it was actively managed funds.... I understand what you're saying and where the confusion originated.

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