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Author: xu4054 Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 27821  
Subject: Index Fund Drip Date: 7/16/1999 10:58 AM
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Hi all,

I am looking into the possibility of an S&P (or even better, a NASDAQ)Index Fund Drip program, the reason being that I seem to be where I was since the beginning of this year but all the major indices have all gone up nicely. I don't have much money to invest so I figure DRIPping is most suitable for me, I have zero experience in mutual funds, just hope to find a fee-free or(with minimal cost) that doesn't require much initial investment, is Vanguard a good candidate? Hope you can enlighten me, I went to their website and don't know where to start, I am probably on the wrong board, is there a Fool's school board somewhere, couldn't find it though.

Thanks.

Dan
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Author: TMFElwood Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8879 of 27821
Subject: Re: Index Fund Drip Date: 7/16/1999 11:26 AM
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Hi, Dan!

The Vanguard 500 Index would match your criteria, however there is a minimum of $3,000 to begin, or $1,000 with an IRA or Custodian account. The expense ratio is 0.18%.

For more information, visit Vanguard here: http://majestic.vanguard.com/FP/DA/0.1.Overview/290914112416112636/29018.1303581?FUND_ID=40.

Another option might be the MoneyPaper MP63 fund. I'm not familiar with the particlular details, but you can learn more here: www.moneypaper.com.

Hope this helps. Fool on!

Vince





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Author: swingkid2000 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8888 of 27821
Subject: Re: Index Fund Drip Date: 7/17/1999 1:43 AM
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Hi, I found a pretty decent S&P 500 fund. The expense ratio is normally kind of high (about .83%), but recently, the fund manager has waived some of those expenses, so the expense ratio is about .44% according to the Yahoo profile.

You mentioned you wish to find a fund with no minimum investment. Well if you agree to sign up for their automatic investment program, Strong will allow you to open up an account in their Index 500 fund (SINEX), or any other of their funds for that matter. You may also choose to have all your dividends reinvested and thus in a sense DRiP using a mutual fund. However, they only pay dividends about once a year or so.

BTW, I think the term you may be looking for is dollar cost averaging (DCA) rather than dividend reinvesting (DRiP). Usually the term DRiP is reserved for reinvestment programs that involve individual stocks. Many mutual funds allow for dividends to be reinvested however, so I guess in a sense ...

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Author: indycctx Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8889 of 27821
Subject: Re: Index Fund Drip Date: 7/17/1999 9:16 AM
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Hi, I found a pretty decent S&P 500 fund. The expense ratio is normally kind of high (about .83%), but recently, the fund manager has waived some of those expenses, so the expense ratio is about .44% according to the Yahoo profile.


YOW! That's pretty darn expensive for an index fund. Even .44% is a bit stiff. Go to Vanguard. They'll charge you less than half of that. And remember, the manager has waived some expenses now, but won't continue to do so in the future; when you're not looking you'll end up paying the normal fees. By then you'll face the choice of trailing the market by almost a full percentage point, or being forced to realize your capital gains and pay taxes on them (thus losing future gains compounded on the previously deferred taxes).

It boggles my mind (so to speak) why anybody would accept such fees on an index fund. After all, one of the main reasons mutual funds lose to the index, on average, is their high expenses. (If you look at the amount the average fund trails the market, you'll see that it's just a bit over the average expense rate.) The other reasons have to do with opportunity and transaction costs of high turnover.

The index fund you found is, to be sure, better than your average 'churn the portfolio and gouge the investor' mutual fund, but it's a poor choice compared to Vanguard. Go to http://www.vanguard.com/ and check for yourself.

Never go on an adventure without a hat!
Indy

http://users.interconnect.net/indy/

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Author: Trevar Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8890 of 27821
Subject: Re: Index Fund Drip Date: 7/17/1999 12:29 PM
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I think I read that the original poster was looking for a fund with no minimum or a low minimum to get started and an automatic monthly investment option. Vanguard has high minimums for all their index funds ($3,000 for taxable accounts, $1,000 for IRAs), and I don't think they offer automatic investment options. Their expense ratios are the lowest in the business, but for some investors the high minimums and lack of an automatic investment option are major obstacles.

To the original poster: You might want to take a look at TIAA-CREF's mutual funds. They are fairly new funds but they are modeled after TIAA-CREF's extremely solid and excellently performing equity funds that have been available to institutional investors for many, many years. The mutual funds have low minimums ($250), and I think they even waive that minimum if you sign up for automatic monthly investments of at least $50 or $100 dollars. The expense ratios are also quite low. TIAA-CREF practices an enhanced form of indexing -- about 80% true indexing (based on computer-run mathematical models), about 20% is actively managed with a goal to beating the market return by just a small amount. The company has been quite successful with this strategy over the years. Here's their website: http://www.tiaa-cref.org.

Trevar

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Author: TMFRunkle Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8893 of 27821
Subject: Re: Index Fund Drip Date: 7/17/1999 4:24 PM
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It's great that you found an index fund without a minimum investment - many of them require a rather high amount to get started.

BTW, I think the term you may be looking for is dollar cost averaging (DCA) rather than dividend reinvesting (DRiP). Usually the term DRiP is reserved for reinvestment programs that involve individual stocks. Many mutual funds allow for dividends to be reinvested however, so I guess in a sense ...

Actually, the programs we talk about are Optional Cash Purchase plans, BUT the companies have called them Dividend Reinvestment Plans. It's probably rooted in the history of how they developed. I once got into a discussion about this item in a chat. The individual I was talking to insisted you could not make optional cash purchases in a DRIP. I told him my Coke statement said "Dividend Reinvestment Plan" He insisted I was wrong about the optional cash payments I thought I'd made to Coke (where did they go?). It was a very difficult chat...

George

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Author: TMFRunkle Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8894 of 27821
Subject: Re: Index Fund Drip Date: 7/17/1999 4:39 PM
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Let me go back on the Index fund - that expense ratio is awfully high. I checked E-Trade, and it offers a fund with a 0.32% expense ratio. It requires $1,000 minimum investment, which is lower than Vanguard, but only requires $250 for an IRA. That's not too bad, I would look twice at a fund with a 0.88% expense ratio, even if it is waived to 0.44%.

Vanguard requires a minimum of $3,000 for a regular account and $1,000 for an IRA. However, its expense ratio is only 0.11%. Obviously, if you can get up the money, Vanguard is pretty good.

George

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Author: indycctx Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8895 of 27821
Subject: Re: Index Fund Drip Date: 7/17/1999 6:01 PM
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Vanguard requires a minimum of $3,000 for a regular account and $1,000 for an IRA. However, its expense ratio is only 0.11%. Obviously, if you can get up the money, Vanguard is pretty good.

I believe you meant to type 0.19% -- pretty darn good, still. (Don't want to hype Vanguard more than its worth, which is still considerable...)

Never go on an adventure without a hat!
Indy

http://users.interconnect.net/indy/

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Author: Knavish One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8897 of 27821
Subject: Re: Index Fund Drip Date: 7/17/1999 7:43 PM
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I too have funds in the Vanguard 500 index fund, I guess us guys from South Texas like the Vanguard. What a great fund, super low expenses. (Don't know that I've seen lower). Gee, even if you just saved the money on a monthly basis, it wouldn't take you terribly long to reach 3000$, anyway it's the best mutual fund in the world, in my slightly biased opinion. Even if they don't offer automatic checking deduction. Knavish

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Author: swingkid2000 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8906 of 27821
Subject: Re: Index Fund Drip Date: 7/18/1999 1:28 AM
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I just wanted to thank everyone for responding to my response to the original poster.

Actually, I didn't have the $3000 to start a Vanguard account. I, like the original poster, just wanted to get started. Hopefully I'll build my account to be valued at or above $3000 in a year or two. At that point, I guess I'll have to take a capital gains tax hit (some short term some long term) and sell out my Strong Index 500 shares and buy Vanguard shares. Actually, I may take a look at TIAA-CREF. Thanks for the tip Trevar.

For small accounts that are just getting started, the fees aren't that overwhelming anyway. If we take Strong's fee of 0.83%, the fees are about $25 dollars a year for a $3000 account. For Vanguard with an expense ratio of about 0.19%, the fees would only be about $6. It's a huge difference percentage-wise, but it's not that huge in real dollars, that is unless you get a really big account. That is precisely why I want to move to Vanguard as soon as is feasible.

BTW, Vanguard does offer automatic investing. I copied this from their website:

Automatic Investment Plan (AIP)
Through this plan, you can establish a schedule (monthly, bimonthly, quarterly, semiannual, or annual) by which $50 to $100,000 is withdrawn from your bank account and invested in your Vanguard fund account.


http://www.vanguard.com/catalog/service/5_3_1_2.html

Fool On!!!

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Author: GLSmyth Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8910 of 27821
Subject: Re: Index Fund Drip Date: 7/18/1999 8:20 AM
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I don't think they offer automatic investment options

Vanguard does offer automatic investment. Every month I have a chunk moved from my checking account to one of their money markets, and another to their Balanced Index Fund.

george

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Author: indycctx Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8911 of 27821
Subject: Re: Index Fund Drip Date: 7/18/1999 9:22 AM
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For small accounts that are just getting started, the fees aren't that overwhelming anyway. If we take Strong's fee of 0.83%, the fees are about $25 dollars a year for a $3000 account. For Vanguard with an expense ratio of about 0.19%, the fees would only be about $6. It's a huge difference percentage-wise, but it's not that huge in real dollars, that is unless you get a really big account. That is precisely why I want to move to Vanguard as soon as is feasible.

For accounts under $10,000 with Vanguard, there is a yearly $10 fee (unless you have $50,000 total in all accounts with them, then it's waived IIRC). So that makes the difference for small accounts even less than you thought. Sounds like you've got a good plan. (Although if you think you can get together $3000 in a year or two, you might consider just banking it until you can open a Vanguard account. And a Roth IRA only requires $1000 to open with them...)

Never go on an adventure without a hat!
Indy

http://users.interconnect.net/indy/

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Author: Trevar Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8914 of 27821
Subject: Re: Index Fund Drip Date: 7/18/1999 12:23 PM
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Vanguard requires a minimum of $3,000 for a regular account and $1,000 for an IRA. However, its expense ratio is only 0.11%. Obviously, if you can get up the money, Vanguard is pretty good.

If you're talking about the Vanguard 500 Index Fund (sorry, I didn't take time to go back to the beginning of the thread to find out), I would like to clarify that the expense ratio is actually 0.18% -- I just checked it on Vanguard's website (http://majestic.vanguard.com/FP/DA/0.1.Overview/?FUND_ID=40).

Trevar

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