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Irritated: Doingitallwrong's Personal Finance Blog
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Irritated

July 2nd, 2014 at 06:11 pm

S has a very small rollover IRA at Fidelity. ($2300) We just recently rolled an old 401(k) into it, so now we're ready to invest in something other than a money market mutual fund. I figured Vanguard's Total Stock Market Index would be the way to go, but unfortunately Vanguard raised their minimum investment to $3000, even for IRAs. So, after some searching and finding almost *no* funds that have less than a $2500 minimum, I figured I'd invest in the Vanguard STAR fund and then, once it hit $3K or greater, exchange into the VTSMX.

Except when I tried to do the trade, I kept getting an error that the fund has a $2500 minimum. So, more research, and I combed through the 10,000+ funds that Fidelity offers as open to new investors, and couldn't find any with a minimum of less than $2500. Fishy. I checked the IRA account agreement, and it says nothing about minimum investments, except that you must meet the fund's minimum requirement. I contacted Fidelity and sure enough, the only mutual funds you can invest less than $2500 in through their accounts are money market mutual funds.

I'm not entirely irritated with their policy, but I'm irritated that a) it's not mentioned in the account agreement anywhere, and b) both the account agreement and the trading platform give the impression that it's the fund's minimum investment requirement that matters, and not Fidelity's. (In fact the trading platform specifically states, "The selected mutual fund has a minimum investment requirement of $2,500.")

So I have a few options: 1) I can leave the money in the money market mutual fund; 2) I can contribute an additional $200-700 to bring the account up to $2500-3000 and invest in one of the Vanguard funds; 3) I can invest in an ETF or stock; or 4) I can transfer the IRA to a new Vanguard IRA and follow the STAR-to-VTSMX plan.

Number 1 is least desirable, because the money is earning almost no interest and since this is long-term retirement savings, I'd rather maximize earnings as much as possible. Number 2 is not much better, since we don't qualify for a deductible IRA and I'd rather use the $200-700 to pay off debt at this point (plus honestly I chafe at feeling compelled to contribute to an IRA simply so that I can invest in a product that might actually make money!). Number 3 is doable, Vanguard has a Total Stock Market ETF with essentially identical performance as the mutual fund. Number 4 is attractive primarily because of my pique at Fidelity.

Actually number 3 is probably the best choice, now that I've listed them all out, because it will get me invested in the better-performing fund from the start. (The STAR fund has been significantly underperforming the Total Stock Market Index for the last couple of years.) In my still-irritated state, though, it would be satisfying to tell Fidelity to stuff it. (Although a) they probably would never know or care why I transferred the account and b) S's current 401(k) is at Fidelity and is a much larger account, and of course we can't move that one.)

So I guess I'll stay at Fidelity and buy the Vanguard ETF -- but I might wait a day or two until I'm less irritated about the whole thing!

6 Responses to “Irritated”

  1. MonkeyMama Says:

    If you are set on a Vanguard fund, it makes more sense to rollover the money into Vanguard. Fidelity charges large fees to buy Vanguard funds. I would probably do a rollover based on your displeasure and the benefit of getting $1,000 invested ASAP.

  2. Rachael777 Says:

    Agree w MM. I LOVE Vanguard! Smile

  3. Petunia 100 Says:

    STAR will underperform when stocks are doing well, as it is 60% stocks and 40% bonds. Another option at Vanguard is a target retirement fund. Those are invested in total stock market, total international stock market, total bond market, and total international bond market. The minimum investment is 1k.

    If you stay with Fidelity, is there a commission to buy Vanguard ETFs?

    Yet another option is Schwab. You can open an account with only $100, and there are several Schwab ETFs which can be traded with no commission. There is a total market ETF with an ER of just .04%, it even beats Vanguard.

  4. Another Reader Says:

    You can stay with Fidelity and buy one of their no commission ETF's. I believe they have a total market ETF. The disadvantage to ETF's is you have to buy them in whole share increments, so you will likely end up with a few dollars in cash in the account. Fidelity charges a commission to buy Vanguard ETF's. It's the same as the stock trading commission, $7.95. They charge a lot more to buy Vanguard mutual funds.

    Schwab has a total market ETF with no commission as well as several other very low expense ratio ETF's. They also have a low ER total market mutual fund with no minimum to open IIRC. Mutual funds have the advantage that you can put in dollar amounts and not share multiples.

    If you are stuck on Vanguard, you will have to open a STAR or Target Date account because you are below minimum for the other accounts. I own some specific funds at Vanguard plus some Vanguard ETF's, but I don't love their website. Their customer service, especially the concierge account transfer group, has improved a lot recently, but they still have to contend with outdated systems.

    I have assets at all three companies. Overall, I prefer Fidelity, but with a small amount to invest, I would probably go with Schwab or Vanguard. If you want to talk to someone eyeball to eyeball, Fidelity and Schwab have the edge, with lots of local offices.

  5. doingitallwrong Says:

    Thanks for the input! For some reason I thought Fidelity waived the "non-Fidelity fund" fees for IRA accounts, but I bet I was actually thinking of 401(k)s.

    I forgot about Schwab -- they have a Total Stock Market Index fund that I tried to purchase at the start but it came back with the $2500 minimum -- at the time I figured Schwab had just changed their minimum but no, it's only $100. I guess I'll do a little more research between Schwab and Vanguard (and MFs vs ETFs)!

  6. My English Castle Says:

    yep, the Fidelity fees are return eaters.

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