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Author: jocave One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76235  
Subject: Re: Low-Minimum Roth IRA's Date: 4/18/1999 4:54 PM
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I'm interested in starting out in an S&P 500 Index Fund. Unfortunately, the ones I've looked into (SSGA and T. Rowe Price) on Morningstar suggest that they either have a 12b-1 fee (SSGA, even though its TOTAL expense ratio is less than the Vanguard S&P 500 Index Fund) or else a Maximum Potential redemption fee (T. Rowe Price, even though its total expense ratio is still pretty low).

In the case of SSGA, do I need to worry about the 12b-1 charge when the total expense ratio is low? In the case of T. Rowe Price, is the potential of a redemption fee cause for alarm?
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I'm not sure why you dislike 12b-1 fees more than other fees. The 12b-1 designation merely means that the money goes to advertising rather than running the fund. Assuming the 12b-1 fee is a %'age of assets (and I've *always* seen 12b-1's expressed as % of assets), just concern yourself with the total fees (i.e. 12b-1 + expense ratio). That assumes, of course, that you don't have a moral objection to 12b-1 fees.

As far as the redemption fee on the T. Rowe Price fund, I wouldn't be terribly upset at a 0.5% fee on shares held less than 6 months. Assuming you plan on holding more than 6 months, it's probably beneficial to you, in that people are less tempted to move money in and out of the fund on a short term basis. When people take money out of a fund, the manager has to sell stocks in the fund to pay out, generating captial gains which must be distributed to the shareholders, and which you then owe taxes on (boo!). While this stability probably doesn't matter much while the market goes up and more money is coming in than leaving the fund, it could be important on the downside.

I'd be happy with any of the funds you mention.
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