When Is VG Worth It? What Minimum Level Of Money?

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When Is VG Worth It? What Minimum Level Of Money?

Post by eurowizard » Tue Jan 19, 2010 10:51 pm

I'm aware that VG accounts can be opened with small amounts of money of even $1k for the STAR fund.

However with Schwab really pushing to the smaller investor, it seems like it may be a better place until some has a few hundred thousand dollars.

Sure Schwab can change its policies again in a few years and start raising fees, but by then, a small investor may be a medium-large investor and make VG accounts more appealing.

These are some reasons I am thinking of switching my $80k Roth IRA to Schwab until it hits about $150k in hopefully about 5 to 7 years. I wont have new contributions for 2 years due to school.

Schwab has 0.10% ER SP500 fund which is the core holding I use, and ETFs at $9 commission I can hold Small Cap ETF and International ETF pretty cheap. The $9 commission fee is made up for by the reduced ER

Also I am using Schwabs 2% CC so I have to keep a schwab account open anyway. I'm trying to reduce the number of accounts I have and this is now seeming like a very good choice.

Once I get about $150k and can get admiral SP500 or TSM and get a waiver on the $30 brokerage fee then VG seems like a reasonable choice to switch back into.

The big advantage to switching is not having to deal with another account for 7 to 10 years. By then maybe schwab drops the 2% CC deal and I close the account entirely. I'm aware there's a $50 schwab transfer out fee on brokerage accounts.

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Post by southerndoc » Wed Jan 20, 2010 12:10 am

If you need stock trades or ETF's, then it's best to stay with Schwab. To my knowledge, I don't think Roths at Vanguard are brokerage accounts (I may be wrong). I can only invest in mutual funds in my SEP IRA at Vanguard.

Schwab has some mutual fund categories that are cheaper than Vanguard (i.e., SP500 index), but there are many more than are more expensive (i.e., many of their international funds are in the 1.2% ER range).

It all depends on what you invest in.

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Post by stevenst » Wed Jan 20, 2010 12:34 am

It sounds like Schwab is doing a fine job for you. I don't see a good reason to change, and you do have good reasons to stay.


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Post by Prokofiev » Wed Jan 20, 2010 1:44 am

southerndoc wrote: I don't think Roths at Vanguard are brokerage accounts (I may be wrong) .
Yes, you can have a VBS brokerage account for a TIRA, Roth IRA or taxable. I have all three.

As to the 2% cash-back CC, I use airline/hotel affinity cards which can result in much more than 2% if you are a frequent traveler. Just depends on the specifics of your situation/lifestyle.

Same with brokerages. If you are Flagship level, I think VG is excellent. If not, Wells sounds like a good deal. But Fidelity and Schwab have good programs. Depends on your investing style, number of yearly trades, size of the account, Adm class funds, etc. I might worry about low ER funds at Fidelity or Schwab as being temporary, with much higher expenses in the future. In a taxable account you could be locked into a position due to large cap gains. But if it is in a Roth then you can just liquidate and change if necessary.
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Post by letsgobobby » Wed Jan 20, 2010 2:35 am

Ten years ago when I had a net worth of about $10k, I left Vanguard. I was annoyed with some of their fund language in which they charged me $10 per fund for having a low balance rather than $10 per IRA account as I had thought they would. Note they subsequently changed their language from "account" to "fund" as I'm sure I was not the only one to complain.

I did the same thing to ETrade 10 years ago, too, when they charged me a $15 quarterly maintenance fee on a $500 stock holding. I'm only back with them because BrownCo got bought out 5 years ago. I kept trying to explain to both ET and VG that small investors eventually become bigger investors, yada yada yada. ET eventually dumped their maintenance fees so I guess enough people complained there, too.

Fast forward 10 years and I have money at Vanguard, Fidelity, Schwab, TDA, and ETrade. Maybe I would have left all my money at Vanguard without those stupid $10 fees, or maybe I still would be scattered all over. Hard to say. Sometimes I think/thought Vanguard is a little nearsighted when it comes to how hard they press on small investors, but of course I understand their goal of keeping costs low.

In your case, if you want a brokerage account, stick with Schwab. Vanguard is really geared toward mutual fund investing, many do not like their VBS platform, and their fees favor only large investors. Schwab has a very competitive pricing plan and I have moved some money there because like you, I also have their CC.

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Post by linuxizer » Wed Jan 20, 2010 6:19 am

letsgobobby wrote:Ten years ago when I had a net worth of about $10k, I left Vanguard. I was annoyed with some of their fund language in which they charged me $10 per fund for having a low balance rather than $10 per IRA account as I had thought they would. Note they subsequently changed their language from "account" to "fund" as I'm sure I was not the only one to complain.
They waive the $10 fee if you sign up for paperless billing. I believe this was an option even 10 years ago, as I never recall getting charged fees.

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Post by leod » Wed Jan 20, 2010 8:55 am

i too signed up for e-delivery and i have not seen any fees yet on taxable and tax-advantage accounts with fund <10K.

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Post by nick22 » Wed Jan 20, 2010 9:33 am

If using ETFs and need a brokerage, I agree that using an alternate brokerage (not VG) is a good idea for small accounts. I find the VG trading commission and yearly IRA account fee onerous ($25-30 each). I have my mutual fund IRA accounts at VG, but use Firstrade for my IRA ETF accounts (no yearly account fee and $6.95 trade commission).

So, sounds like Schwab is a pretty good brokerage, and if you are holding ETFs, that choice would make sense.

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Post by nisiprius » Wed Jan 20, 2010 10:23 am

I was with Schwab for a number of years. They were good, I liked them. Better than Vanguard Brokerage Services, about the same as Fidelity. My son likes them a lot.

The big choice you have to make is that Schwab charges a transaction fee for most if not all Vanguard funds--certainly all the plain vanilla ones--and so you have to decide how much you care about using Vanguard funds versus brand X.

I am personally conflicted about this. My brain says that it doesn't really matter that much. My brain is right. But let me tell you how a similar choice played out for me just recently. Basically, if X is both a brokerage and a mutual fund company, you will find that X's fee and policy structure gently guide you into using mostly X's own mutual funds.

I wanted to hold a TIPS fund at Fidelity. (Assume my reasons are sound). I wanted Vanguard's TIPS fund, VIPSX. But I ruled it out because of nasty transaction fees. I ruled out TIPS ETFs for various reasons.

Fidelity's TIPS fund, FINPX had a ten-year growth chart that is enough below VIPSX to annoy me. A helpful Boglehead pointed out some non-Fidelity TIPS funds that have no transaction fee at Fidelity. I was seriously considering American Century Inflation Adjusted, ACITX, whose growth chart is a close match for VIPSX.

But two things bothered me about ACITX. First, like a dummy, I read the prospectus, well, glanced at it anyway. Just about every prospectus only promises to invest 80% of the fund in what you think it's invested in. But FINPX and ACITX says the other 20% can include wild and wooly stuff, derivatives and such. And get this: the ACITX prospectus says
To generate additional income, the fund may purchase securities, including mortgage dollar rolls, in advance through when-issued and forward commitment transactions. The fund may commit up to 35% of its total assets to such transactions. The fund also may invest in derivative instruments or in mortgage- or asset-backed securities, provided that such investments are in keeping with the fund’s investment objective.
Do I know what this means? Not a clue. Do they really ever put 35% of their TIPS fund in mortgage dollar rolls? What are mortgage dollar rolls? Are they mm mm good buttered and crusty? Dunno. What I get from this is that ACITX almost matches VIPSX, not through good honest TIPS management but by juicing up the portfolio with arcane stuff I don't understand with scary words like "mortgage" in them.

Fidelity's FINPX prospectus does not have a paragraph like that, but they still talk about derivatives and such. In Vanguard's VIPSX prospectus the section on what they invested in looked "clean" to me.

But so what. Who cares about the prospectus? <--- :wink: (wink indicating irony here).

The second thing was that I want to use the fund to park money that will be used to purchase individual TIPS at auction, and I'm too lazy to check the auction calendar, and Fidelity doesn't impose a transaction fee but does impose a redemption fee if you don't hold for 180 days and what if I feel like buying TIPS before then, so forget about it.

What's the result? Because I wanted to use my Fidelity account, I ended up putting $10,000 into a Fidelity fund that has

1) an expense ratio I don't like (about 0.5% versus about 0.2% for VIPSX),

2) a prospectus I don't like:
In the FINPX prospectus, Fidelity wrote:FMR may engage in transactions that have a leveraging effect on the fund, including investments in derivatives, regardless of whether the fund may own the asset, instrument or components of the index underlying the derivative, and forward-settling securities. FMR may invest a significant portion of the fund's assets in these types of investments.
3) past performance I don't like.

Not a big deal, really. I just want you to see how I sort of got cornered. If you go with Schwab, you will undoubtedly find that you end up mostly using Schwab's own funds. And that's not a bad thing, but be sure you know how you really feel about Schwab's funds versus Vanguard's.
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.

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