The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: foxfire21 on March 15, 2012, 08:53:06 PM
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I'm 25. I'm a girl. And new to saving money. But, still tryin' to grow a 'stache. I have a Roth that I opened with Edward Jones about 3 years ago. Because my parents told me to. I've only been putting the minimum monthly contribution in, but I plan on increasing that. I'm wondering if it's worth it to switch from Edward Jones to a Vanguard account. What are the pros and cons? There's only about $1500 in it right now. EJ charges me a $40 fee per year. I don't have any complaints, just wondering if it makes a difference in the long run.
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I love Vanguard. They have good customer service, easy to use website and their customer service has been excellent in all my experiences. Most funds that I have with Vanguard have expense ratios around .25% so that is right along the same lines as your Edward Jones account ($1,500 x 0.025 = $37.50). I have never used Edward Jones but I know most people who are into getting the most of their brokerage/retirement accounts tend to use Vanguard as the gold standard. Keep in mind though that different funds have different expense ratios. And I believe Vanguard is 75% cheaper than the rest of its competitors.
If you did transfer they may charge you a small fee but it won't be too devastating. The main thing in my opinion when choosing a retirement fund is to make sure you are comfortable with the asset allocation and having low management fees. Brokerage accounts shouldn't matter as much.
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Congratulation on your early start on your stache. There are certainly cheaper options than Edward Jones and Vanguard is one of them. For now the difference is small but in the long run the difference will be substantial and add up to thousands of dollars. I do not have any money with Vanguard directly but they come well recommended and I have money invested in their funds in accounts at other companies.
Pros of switching to Vanguard -
No yearly fee for a Roth IRA
Much lower money management fees (%percent of assets invented per year) - Assuming you are invested in an active mutual fund at Edward Jones, you will likely save 1% of your total invested in management fees each and every year.* This is where the real savings are.
Con of switching to Vanguard -
More hands on and self directed (may not be a con)
*This assumes you believe in the benefits of indexing and index funds. I didn't want to get off track with something you may already know.
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I would encourage you to switch to vanguard as well. The money you save in fees each year will continue to compound, and the trouble/fees you incur now will pay off over the upcoming decades.
You will need $3000 to open up most accounts with Vanguard (other than a money market account). I would start with a total stock market index fund, or you can get a lifecycle/blend fund if you want to get some international exposure and/or bonds too. These are all-in-one funds which give you a mix of a few different assets and don't require you to do as much. But if you start off with a total stock market index fund, there will be plenty of time to add other funds over the next couple of years as your investment balance increases.
Others may prefer the Exchange-Traded Fund (ETF) route (essentially buying ownership of shares of different funds which can be bought and traded). I haven't done that myself but it seems like a reasonable strategy for some.
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I have accounts with Vanguard and I've been extremely pleased with them. As far as fees are concerned, you need to look at the funds you're invested in, not just the company you are using. Look at the expense ratio for each fund and pick the one that is best for you. For me, I try to invest in funds that mimic the S&P 500 and have low expense ratios. Vanguard offers many "exchange traded funds" (ETFs) with low expense ratios that do a good job of mimicking overall market performance. Good luck!
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Thanks for the advice! Much appreciated.
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Most funds that I have with Vanguard have expense ratios around .25% so that is right along the same lines as your Edward Jones account ($1,500 x 0.025 = $37.50).
You have 1 decimal place off on your math here: 0.025 = 2.5% not 0.25%. $1500 x 0.0025 = $3.75.