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Author: PMcMullenCT Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75532  
Subject: Re: Initial IRA Investments Question Date: 5/14/2001 8:59 PM
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Q: Why do some many mutual fund co have initial investments of $1,000 or more for IRA's when you can only contribute $2,000 a year. some funds also require you to make a minimum purchase of $100 to buy more shares. that over %50 of your monthly contributions if you max out your IRA every year. that doesn't seem to be a good way to stay diversified. considering the Vanguard 500 index fund, which seems to be a great fund to have in your IRA, fits this critieria, I am a little confused.

From Vanguard's point of view, they are trying to keep costs to a minimum, which benefits shareholders, and benefits Vanguard by attracting more shareholders. Every customer requires resources to send statements, provide service and process contributions and withdrawals. Lots of small customers are more expensive than fewer customers with larger balances.

Other providers may offer lower minimum balance requirements as a "loss leader" to encourage new investors, who tend to have smaller balances, to open accounts with them, assuming of course that as balances grow, they will become more profitable (rather than move their money to Vanguard funds with lower expense ratios).
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