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I'm doing some research because I'd like to open an IRA by the end of this year. I will probably only have about $500 so I have to choose a company with a $500 or less minimum. I'm looking at prospectuses which I can basically understand. But I don't understand the fees.

My question is this: What should I expect my fees to be on a very small IRA? As it grows? Is 1% (net expenses) good, bad, average, high, low?

Thanks for your answers and any other suggestions.

Rebecca
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It depends (helpful, no?). The fund itself will usually levy a fee that is a % of assets. Cheap funds like Vanguard S&P 500 will be down around .15% of assets. Bloated, actively-managed funds will charge 1.5% or better (typically) per year. On top of this, some companies also levy extra fees for small accounts. Try to find a brokerage or fund family that doesn't charge you for having a small account, and keep mutual fund annual fees to .5% or less. On no account should you pay anything for the following: front end load, back end load, surrender fees, 12b-1 fees (don't ask, you'll just get upset).
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I suggest Vanguard's VTSMX (total expense ratio of 0.16%) or VFINX (total expense ratio of 0.18%). These are the only two mutual funds I would recommend. Everything else is expensive JUNK!!
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galeno wrote:
I suggest Vanguard's VTSMX (total expense ratio of 0.16%) or VFINX (total expense ratio of 0.18%). These are the only two
mutual funds I would recommend. Everything else is expensive JUNK!!


Apparently, he doesn't know that both of these funds require at least $1K to start (in an IRA, $3K outside). Not much help.

I wish I could help you beccapooka but I managed to get enough together to start funding my IRA the first year, so I didn't have to research this. I don't know who has them for less than $1000, much less what the expense ratios are for small balances. Good luck finding out.

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Greetings Rebecca,

I'm doing some research because I'd like to open an IRA by the end of this year. I will probably only have about $500 so I have to choose a company with a $500 or less minimum.

I'd suggest TIAA-CREF(www.tiaa-cref.com) as one fund company that has minimums that low.

My question is this: What should I expect my fees to be on a very small IRA?

You should be able to find funds with expense ratios below .5% I think.

As it grows?

I'd suspect it may go down if there are low-balance or account maintainence fees that say Vanguard does have.

Is 1% (net expenses) good, bad, average, high, low?

Depends ALOT on the type of fund. Is it an index fund or is it actively managed? Load or no-load? Stock or Bond? US or foreign? Large-cap or small-cap? etc.

Regards,
JB
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If I were in your situation I'd put the $500 in an IRA money market deposit account at a bank. Many banks offer these with no fees.

Let the money accumulate in there until you've got enough to buy your desired mutual fund. Then when you fill out the application for the mutual fund you'll indicate that the account will be funded by a transfer from the bank's IRA.
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TIAA-CREF is one I am planning on looking at. I like the Vanguard Index Funds in that I have heard a lot of good things about them, but I know about the minimums and fees. I thought TD Waterhouse had $500 minimums but I may be wrong. I'm looking into it further. Sharebuilder also has a $500 minimum so I will be looking into what they offer as well.

My specific question about the 1% fees is in relationship to 3 index funds (large, mid, and small cap) offered by ING. I do keep my savings there and so I think it is only natural to look there for investment products as well. Of course if what they offer isn't competitive then I will want to go with another company. There prospectus looks pretty good. I just don't understand the fees. These three funds all have net expenses of 1% or less.

Thanks for all replies so far. Keep them coming. I'm sure I'll have more questions over the next 6 months or so as I save the money to open the IRA.

Rebecca
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Greetings Rebecca,

My specific question about the 1% fees is in relationship to 3 index funds (large, mid, and small cap) offered by ING.

They aren't your regular index funds as each states that the goal is to OUTPERFORM the index which is unlike a regular index fund if you look at Vanguard or TIAA-CREF describe their index funds which usually state that the fund seeks to mimic the return of the index.

From http://home.ingdirect.com/products/mutualfunds.html :
"The goal of this fund is to outperform the S&P 500. We can work towards this return because, unlike an ordinary index fund, we're not required to include poor performers that can limit growth potential."

There was a post I did about these that can be found on the index funds board at http://boards.fool.com/Message.asp?mid=16242954 fyi.

JB
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I suggest Vanguard's VTSMX (total expense ratio of 0.16%)

Just FYI...VTSMX has an expense ratio of 0.20%...and on the balance beccapooka is referring to, she would also have to pay fees of $20 per year -- $10 IRA Custodial fee and $10 account maintenance fee.

Given these fees, she is not a candidate for using Vanguard IMO.

ACME
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I thought TD Waterhouse had $500 minimums but I may be wrong. I'm looking into it further

TD Waterhouse has no minimums for IRA accounts. They also have no fees on their IRAs. The expense ratio on the S&P 500 fund is 0.35%...but this is partially due to fee waivers of 0.89% that expire 8/31/2003. I expect they'll extend the fee waiver, but there are no guarantees. Regardless, they are a better option for you than Vanguard due to the account minimums and the maintenance fees you have with Vanguard.

I don't know much about TIAA-CREF...

Hope that helps. Good luck and Fool On!

ACME
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You will have to look into minimums and account fees WRT TIAA-CREF, but having dealt with them as a customer in the past, I can only say good things. Since I have very little that is good to say about most life insurers, that is high praise indeed.
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JB,

Thanks. I read the thread from the other board. The Prospectus is available online now, and it looks like these funds have done very well.

I have a question. You mentioned there are similar funds from Aetna. I'm just wondering if that's a good thing or a bad thing. You seemed to be writing that info for people who would know and I don't.

Thanks.

Rebecca
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What do you think of VTI? the Vanguard vipers.
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Apparently, he doesn't know that both of these funds require at least $1K to start (in an IRA, $3K outside). Not much help.

I wish I could help you beccapooka but I managed to get enough together to start funding my IRA the first year, so I didn't have to research this. I don't know who has them for less than $1000, much less what the expense ratios are for small balances


Hi Pooka.

Try TIAA-CREF. They have a fund called the Equity Index (TCEIX) which is very much like VTSMX. I believe the initial minimum to open an IRA is $500. I have a roth there and am very pleased with the funds, the site and the service. (www.tiaacref.com)

Caat
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Greetings Rebecca,

I have a question. You mentioned there are similar funds from Aetna. I'm just wondering if that's a good thing or a bad thing.

I think it may be a good thing in that you can research how well the company has done in the past. To some degree there should be the question of getting an idea of how much risk and consistency there is in the fund and so if you can investigate the manager of the fund this can help and since ING funds are managed by Aetna this helps in the research.

Needless to say this doesn't mean the funds themselves are good or bad, just that there is more data to work from in building an opinion.

You seemed to be writing that info for people who would know and I don't.

No, I was pointing out what was an interesting tidbit then. An update of that is that some of Aetna's funds have been renamed so that the Aetna Index Plus Large Cap I is ING Index Plus Large Cap I with the ticker of AELIX that you could look at some information on www.morningstar.com about the fund.

You're Welcome,
JB
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Also check out the data tables at www.fundalarm.com for comparative performance data.
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Just FYI, Scottrade has no IRA fees and you can buy Vanguard funds and I think most mutual funds, with out sales charges. (other than the routine fund fees) You are stuck with the fund minimums though.

Ak, behind the power curve, as usual, in the hills north of Fairbanks.
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