New Change--Vanguard Subsequent Investment Minimum ($1)

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Kenster1
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New Change--Vanguard Subsequent Investment Minimum ($1)

Post by 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.
Last edited by Kenster1 on Fri Jan 22, 2010 4:05 pm, edited 4 times in total.
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Post by 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.
Last edited by eurowizard on Fri Jan 22, 2010 4:07 pm, edited 1 time in total.
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Post by 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?
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Post by indexfundfan »

Looks like Vanguard is taking after Schwab.
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Post by 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!
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Post by 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. :lol:
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Post by Kenster1 »

Ice-9 wrote: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. :lol:
Yes - how about this for a new marketing campaign --- Maxing out your Roth IRA is as simple and as little as investing less than $20 per non-holiday weekday!!!

Ohhh I'm a little behind as I only invested $5 today :roll:
Last edited by Kenster1 on Fri Jan 22, 2010 4:37 pm, edited 1 time in total.
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Post by 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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$20/day for Roth

Post by 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?
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Post by natureexplorer »

Is the minimum for direct deposit automatic investments even lower?
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Post by knowmad »

eurowizard wrote:I dislike this change. This is going to increase VG's costs and this increase the ER.
Are you sure this will increase VG's costs?
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Post by mdrileynyc »

Are you sure this will increase VG's costs?
Seems to me if the transaction and confirmation are electronic, this shouldn't cost much of anything.
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Post by 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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Post by 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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Post by 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?
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Post by BeachPerson »

Since much of the investment process is done via the web, I doubt it will increase the expense ratio.
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Post by Zook13 »

Ice-9 wrote: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. :lol:
That's epic DCA... :D
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Post by NAVigator »

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

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Post by 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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Post by sommerfeld »

gd wrote: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?
actually, the old format was more paper-efficient if you had a lot of transactions in a single account. they no longer break out each fund onto a separate page -- but they have fewer transactions per page!
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Post by 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.
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Post by 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.
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Post by 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.
Last edited by Kenster1 on Sat Jan 23, 2010 8:06 pm, edited 1 time in total.
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Post by zhiwiller »

eurowizard wrote: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?
Let me guess, you have over 100k invested :roll:
If VG did that, I'd move to Fidelity or Schwab and never come back. Or maybe they should just drop all retail investors and only have institutional investors, then they could drop the ER even further.
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Post by FredPeterson »

eurowizard wrote: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
So you're saying only someone with $100k+ has the right to diversify and manage their money? Rather arrogant and elitest.

Like the poster above me said - if this happened, Vanguard would probably have a massive outflow that would never come back.
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Post by KyleAAA »

eurowizard wrote: 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.
Why not? Of course it can be both. There's nothing difficult about it.

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.
eurowizard wrote: Does a person with $20k need to slice and dice across 10 funds?
Yes, absolutely. But that's also a red herring because they can't currently do that at Vanguard.

eurowizard wrote: 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.
That is a huge, huge assumption. Small investors don't drive up costs THAT much, and their cost will decrease to almost nothing as Vanguard upgrades its technology infrastructure.
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Post by Fbone »

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

Is there much cost savings keeping it at $3000?
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Post by sport »

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

Is there much cost savings keeping it at $3000?
I can remember when the minimum was $500 and then they raised it to $1000. Now it is $3000. My guess is that they would be more likely to raise it to $5000 than to lower it. With inflation over the years, the $3000 limit grows smaller in real terms.

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Post by 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
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Post by 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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Post by FredPeterson »

joe8d wrote: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.
I agree. Though the problem with Vanguard is that they have very little marketing. Most people hear of Vanguard through friends who already know of them or random searches on the Internet. People who don't do much research are only going to see the commercials online for Schwab and Fidetly. Not that they aren't great places also, but Vanguard is regularly overlooked unless mentioned by others.
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Post by Jack »

joe8d wrote: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.
A $1000 account in an average fund with an expense ratio of 0.20% earns Vanguard a grand total of two bucks a year. You can't service an account for $2 a year without increasing costs to other customers. Two dollars wouldn't even pay for printing and sending the annual statement, let alone handle even one customer service phone call.
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Post by Kenster1 »

Jack wrote:
joe8d wrote: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.
A $1000 account in an average fund with an expense ratio of 0.20% earns Vanguard a grand total of two bucks a year. You can't service an account for $2 a year without increasing costs to other customers. Two dollars wouldn't even pay for printing and sending the annual statement, let alone handle even one customer service phone call.
For nonretirement accounts, traditional IRAs, Roth IRAs, UGMAs/UTMAs, SEP-IRAs, and education savings accounts (ESAs):
Vanguard charges a $20 annual account service fee for each Vanguard fund with a balance of less than $10,000 in an account. This fee does not apply if you sign up for account access on Vanguard.com and choose electronic delivery of statements, confirmations, fund reports, and prospectuses. This fee also does not apply to members of our Flagship® and Voyager Services®, which require a minimum of $100,000 in total eligible household assets held at Vanguard by you and your immediate family members who reside at the same address.
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Post by Jack »

Kenster1 wrote:
Jack wrote:
joe8d wrote: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.
A $1000 account in an average fund with an expense ratio of 0.20% earns Vanguard a grand total of two bucks a year. You can't service an account for $2 a year without increasing costs to other customers. Two dollars wouldn't even pay for printing and sending the annual statement, let alone handle even one customer service phone call.
For nonretirement accounts, traditional IRAs, Roth IRAs, UGMAs/UTMAs, SEP-IRAs, and education savings accounts (ESAs):
Vanguard charges a $20 annual account service fee for each Vanguard fund with a balance of less than $10,000 in an account. This fee does not apply if you sign up for account access on Vanguard.com and choose electronic delivery of statements, confirmations, fund reports, and prospectuses. This fee also does not apply to members of our Flagship® and Voyager Services®, which require a minimum of $100,000 in total eligible household assets held at Vanguard by you and your immediate family members who reside at the same address.
"This fee does not apply if you sign up for account access on Vanguard.com and choose electronic delivery of statements, confirmations, fund reports, and prospectuses."

So for two bucks a year, Vanguard would still have to mail out annual statements, 1099s, and answer phone calls. A lower limit might make more sense if there were fewer exceptions to the annual fee, but I'm guessing that Vanguard has studied the trade offs and have determined that at this time the $3000 minimum is optimal.
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Post by bnw2001 »

Jack wrote:
joe8d wrote: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.
A $1000 account in an average fund with an expense ratio of 0.20% earns Vanguard a grand total of two bucks a year. You can't service an account for $2 a year without increasing costs to other customers. Two dollars wouldn't even pay for printing and sending the annual statement, let alone handle even one customer service phone call.
Well could you service it for $6/year, which is what you'd get on a $3000 minimum? Probably not, either.
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Post by 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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Post by UrbanMedic »

--
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Post by Kenster1 »

Jack wrote:["This fee does not apply if you sign up for account access on Vanguard.com and choose electronic delivery of statements, confirmations, fund reports, and prospectuses."

So for two bucks a year, Vanguard would still have to mail out annual statements, 1099s, and answer phone calls. A lower limit might make more sense if there were fewer exceptions to the annual fee, but I'm guessing that Vanguard has studied the trade offs and have determined that at this time the $3000 minimum is optimal.
But wow -- isn't it amazing that for just 40-something cents I can have a letter picked up from my mail-box by the post-man, processed in their distribution center, cargo'd onto a flight across the country, sorted and processed again and then hand delivered to the destination location.

All of that man-power, fuel for the transportation, fuel for the postal van to pickup and deliver, hourly pay of the postal delivery workers -- and I can do it for just a mere 40-something cents for postage???
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Post by sport »

Kenster1 wrote:
Jack wrote:["This fee does not apply if you sign up for account access on Vanguard.com and choose electronic delivery of statements, confirmations, fund reports, and prospectuses."

So for two bucks a year, Vanguard would still have to mail out annual statements, 1099s, and answer phone calls. A lower limit might make more sense if there were fewer exceptions to the annual fee, but I'm guessing that Vanguard has studied the trade offs and have determined that at this time the $3000 minimum is optimal.
But wow -- isn't it amazing that for just 40-something cents I can have a letter picked up from my mail-box by the post-man, processed in their distribution center, cargo'd onto a flight across the country, sorted and processed again and then hand delivered to the destination location.

All of that man-power, fuel for the transportation, fuel for the postal van to pickup and deliver, hourly pay of the postal delivery workers -- and I can do it for just a mere 40-something cents for postage???
I can remember when in was only 3 cents. If it was a greeting card in an unsealed envelope, it was only 2 cents.

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Post by 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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Post by 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.

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Post by 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.


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Post by indexfundfan »

SP-diceman wrote: If someone needs to re-balance with a value of
$1237. They can just do it. Rather than thinking $1200 vs $1300.
Vanguard has always allowed "odd" values as long as it is $100 or more. E.g. $101, $105, $113 etc are all allowed under the old scheme.
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Post by leod »

FredPeterson wrote:
eurowizard wrote: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
So you're saying only someone with $100k+ has the right to diversify and manage their money? Rather arrogant and elitest.

Like the poster above me said - if this happened, Vanguard would probably have a massive outflow that would never come back.
i agree, why set the bar too high. 100K will make it like an executive club?

i think 3K or 5K minimum is ok. but not 100K. you cannot open roth with 100K and build a nest egg. my guess is the are more people with <100K saved anyway.

VG should at least impose a fee if fund is <10K and does not have an automatic investment like fidelity but this might also scare small investors
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Post by sscritic »

UrbanMedic wrote: It's like running into someone that thinks they're better because they shop at Target instead of WalMart.
You know my daughter? You really had me laughing at that one; it struck my nerve if no one else's. :D
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