Comments on: The Vanguard Catch-22

By: Dan

Dan — Mon, 31 Aug 2009 20:33:52 +0000

One could use Vanguard’s Star Fund, VGSTX, which is a fund of funds consisting of 11 other Vanguard funds. Minimum purchase is $1000 and the annual fee is waived if you sign up for electronic delivery. It’s also a balanced fund with a 60/40 split between stocks/fixed income (bonds and cash). The Stocks are split about 70/30 US to International so there is Foregin exposure. So you don’t need to wait till you get $3000, only $1000 and once you build this fund up in value. The expense ratio is 0.32% which is pretty low. Once you get to $4000+ you can branch out into another Vanguard fund that (with a $3000 minimu purchase). Eventually you can build a nice widely diversified portfolio. Checkout the Vanguard Portfolio suggestion at http://www.fundadvice.com. You can find a lot of useful free information at FundAdvice.

By: FINVEST

FINVEST — Mon, 01 Jun 2009 23:49:27 +0000

As a Fisher Investments employee, I learn more about the stock market and misperceptions surrounding it at http://www.fisherinvestmentsforum.com/stock-market-misperceptions

By: Beth

Beth — Mon, 24 Mar 2008 06:44:46 +0000

Vanguard sounds very interesting to me, but looking on their website, I’m not sure I understand the Roth investing options. If I have enough for the minimums, do you know if I can open a Roth IRA and put half of it in a Vanguard target fund and half in a non Vanguard fund like the Powershare Clean Energy Fund PBW or can I only choose from Vanguard ETFs? (I already have a 401K, so I’m not investing half of my entire retirement in alternative energy, but I would like some portion to be in that area) Thanks for any recommendations.

By: Seth

Seth — Tue, 04 Mar 2008 07:09:19 +0000

I just realized that the T. Rowe Price Capital Appreciate fund I’ve been investing in for three years has an expense ratio of .73. .73!!!! That’s crazy. I’m going to look into Vanguard and change my investment strategy. Thanks for this post, I finally understand.

By: Esther

Esther — Thu, 28 Feb 2008 12:53:41 +0000

I’ve had a Zecco account with 10 free trades/month since November using broad-based ETFs. As far as I can tell, all the dividends have arrived on time, and you can overcome the bid-ask spread somewhat by placing limit instead of market orders.

Is there a list of which ETFs delay giving out their dividends online?

By: Shannon

Shannon — Wed, 27 Feb 2008 23:26:33 +0000

Great article. I love your blog. I always enjoy reading your posts, especially the recent ones about investing in ourselves. Excellent information.

I recently started working at Paragon Wealth Management. They are a small investment firm in Utah. All of their accounts are held at Charles Schwab, and then they are actively managed by our portfolio managers. You can look at them as an option down the road. Their minimum investment is $200,000. Their returns are impressive. I plan to invest with them later in life, but for now I’m curious to look at Vanguard. Thanks for the recommendation.

By: Michael

Michael — Wed, 27 Feb 2008 18:22:13 +0000

Vanguard ETFs:
http://finance.google.com/finance?q=vanguard

Lots of options without minimums.

By: Marcia

Marcia — Wed, 27 Feb 2008 14:13:59 +0000

I started my investing career years ago at my bank. $25 a month – even though our family lived on an income below the “poverty line”. It gained and lost but over time I accumulated enough to buy in with the bigger guys. It’s like poker – some tables have bigger antes before you can play. My advice to everyone is just start – savings account, bank funds, and let it grow. I now have a “Money Guy” who watches my money and lets me know what moves are good. It’s been worth every automatic withdrawal!

By: Deb Coyle

Deb Coyle — Wed, 27 Feb 2008 12:45:19 +0000

Trent, just wanted to let you know that because of your blog I finally opened a savings account with ING. I have automatic payments withdrawn from my checking account each week and I am happy to report that the customer service was outstanding. Plus, I received a $25 bonus just for opening the account. Thanks Trent for your good advice. I love your blog and look forward to reading it each and every day.

By: Fuji

Fuji — Wed, 27 Feb 2008 09:31:54 +0000

That’s brilliant Bear, thank you for the clarification.
Thanks for the info Michael, didn’t catch your response the first time round – terrific information. :)

By: Bear

Bear — Wed, 27 Feb 2008 08:16:22 +0000

Here is the original Catch-22:

There was only one catch and that was Catch-22, which specified that a concern for one’s safety in the face of dangers that were real and immediate was the process of a rational mind. Orr was crazy and could be grounded. All he had to do was ask; and as soon as he did, he would no longer be crazy and would have to fly more missions. Orr would be crazy to fly more missions and sane if he didn’t, but if he was sane he had to fly them. If he flew them he was crazy and didn’t have to; but if he didn’t want to he was sane and had to. Yossarian was moved very deeply by the absolute simplicity of this clause of Catch-22 and let out a respectful whistle.
“That’s some catch, that Catch-22,” Yossarian observed.
“It’s the best there is,” Doc Daneeka agreed.

There is no way out of a Catch-22. However, in this situation there is a way out: Save money in a savings account until you can invest in an index fund.

By: pfodyssey

pfodyssey — Wed, 27 Feb 2008 06:10:45 +0000

Count me in as well among the T Rowe Price folks. Generally, I would propose that someone go ahead and begin putting money away in something like T Rowe Price Asset Builder (min $50 / month) as opposed to putting it in a typical savings account until they could make the minimum investment amount.

As suggested, depending upon what your investment strategy and desired portfolio allocation is, I have found T Rowe Price to be extremely competitive…if not better. Some time ago, I did a comparison between the two:

http://pfodyssey.wordpress.com/2007/04/13/t-rowe-price-versus-vanguard/

By: RacerX

RacerX — Wed, 27 Feb 2008 04:28:51 +0000

Great tip about saving to reach minimums. I am doing that now with my E*Trade Savings. I earn 4% unitl I am ready to “roll-up’

Great post, thanks!

By: Also Dave

Also Dave — Wed, 27 Feb 2008 04:02:18 +0000

I would argue: not a catch-22. It’s not a no-win-situation. You don’t need the best investment options to build up $3k in capital, just some options. And they are plenty. In fact, if you’re able to save $3k to invest for the long haul, you’re better off b/c expenses are lower without dealing with the less than dedicated investor moving money in and out of the funds. So, if you’re serious about investing, you’ll earn more in the long run b/c of the $3k minimum. It’s win-win.

By: Frank Kelly

Frank Kelly — Wed, 27 Feb 2008 01:49:22 +0000

I’ll second the recommendation for T. Rowe Price. I use Vanguard for the bulk of my investing (Traditional IRA). But my family’s Roths, and Coverdells & 529s are with T. Rowe Price because they waive the minimum once you deposit $50 a month in each fund (there are some yearly fees if you are under some level).

T. Rowe is a pretty close second to Vanguard in terms of cost and I find they’re actually better than Vanguard on service.

By: Chris

Chris — Wed, 27 Feb 2008 01:34:32 +0000

Michael (@8:44 am), thanks for your post… I didn’t realize that there were places that had *that* low of minimums.

I’ve been looking for an investment solution for our young children… my parents buy them savings bonds, but I’ve wanted to find something with a better rate of return. I’d love to get them into Vanguard, but considering that they’ve only got a couple hundred bucks each, that’s not going to happen for a while.

Thanks to Michael’s post, though, I think I’ve found my solution: open custodial accounts with Schwab until they get to 3k, and then move them to Vanguard. I see that most of Schwab’s accounts have $100 minimums… anyone have any particular recommendations? As a subscriber to the Vanguard philosophy, the primary thing I look for (after return) is the expense ratio, and while their index funds have higher ratios than does Vanguard, it’s only until the accounts get to $3k. But back to my question: anyone recommend a particular Schwab fund, for aggressive growth?

By: Fred

Fred — Wed, 27 Feb 2008 00:51:59 +0000

Zecco is great if you can avoid the transaction fees, but that requires $2,500 in equity. If you’re doing monthly deposits of say $100, it will take you almost two years to get to $2,500 depending on the market and you’ll have dumped 4.5% of your intial investment into comissions.

The only time this actually makes sense is if the market is doing well enough to offset your 4.5% expense and return something in excess of what you can get from a savings account at ING/HSBC/your bank here.

By: Shuchong

Shuchong — Wed, 27 Feb 2008 00:23:53 +0000

There’s one (admittedly very specific) exception to Vanguard’s min investment policy. They will waive the minimum investment requirement for those investing in a SEP IRA (must have self-employment income… for example, revenue from a blog:) ). I just opened a SEP with them for less than $700, after calling them to make sure it was okay.

The waiver only applies to funds that have a $3,000 min or lower, but the majority of Vanguard funds fall into this category anyway.

By: Suma

Suma — Tue, 26 Feb 2008 23:15:44 +0000

We love Vanguard and they have a min buy in to keep fees low. Makes sense to me! And if you think 3k is unfair you haven’t heard of their Admiral shares ;-)

By: Trent

Trent — Tue, 26 Feb 2008 23:08:17 +0000

It is a catch-22, actually. You need some capital to get the best investment options, and you need the best investment options to build up your capital. The only way out is to tough it out by using suboptimal methods.