Author Topic: Where to stick funds before reaching minimum for taxable account?  (Read 4529 times)

Koreth

  • 5 O'Clock Shadow
  • *
  • Posts: 43
So, last year I started up a habit of sticking any extra monies I had  on hand into my IRA since I'd not maxed that out yet. This year, my IRA and HSA both will be maxed out through my normal contributions every paycheck. So stuffing windfalls and money left over from coming in under the month's budget into my IRA won't work this year. So I intend to open a taxable account with Vanguard.

However. Looking at Vanguard's funds, the ones available to me all have a minimum investment of $3000. Being a MMM neophyte, monthly budget surpluses and windfalls are still only on the order of tens to low hundreds of dollars, not thousands. So, it's gonna be a few months as I continue to analyze my spending and trim unnecessary bits before I have $3k to hand.

In the interim, where to stick the accumulating funds? Savings accounts offer palltry returns at the moment, tenths of a percent at best. Or am I over thinking this? Should I just hold onto the cash over the next N months until I have the minimum investment amount? Try for one of those fancy online savings accounts you have to jump through a few hoops to get better than tenths of a percent? Something else?
« Last Edit: January 18, 2016, 09:29:18 AM by Koreth »

nereo

  • Senior Mustachian
  • ********
  • Posts: 13085
  • Location: Just south of Canada
    • Here's how you can support science today:
Re: Where to stick funds before reaching minimum for taxable account?
« Reply #1 on: January 11, 2016, 02:21:24 PM »
You are talking about a very short period of time - less than one year - , so I think a typical savings account (yes, even with their paltry ~0.75% yields) is a fine place save money until you have enough to meet the fund minimum.


Alternatively, put your IRA contributions on hold temporarily and divert funds into your savings account to meet your $3k target faster (an extra $458/mo should get you there in just a few months).  Then once you have $3k for a taxable account stop funding that until you've maxed out your IRA for the year.

yes, you are overthinking this.  Investing shouldn't be difficult :-)

Cromacster

  • Handlebar Stache
  • *****
  • Posts: 1697
  • Location: Minnesnowta
Re: Where to stick funds before reaching minimum for taxable account?
« Reply #2 on: January 11, 2016, 02:28:10 PM »
Vanguard ETF's are an option.  They are comparable to the mutual fund, see VTI (ETF) vs. VTSAX.  They only can be purchased as whole shares, around 100$ for VTI.

Zman

  • 5 O'Clock Shadow
  • *
  • Posts: 76
Re: Where to stick funds before reaching minimum for taxable account?
« Reply #3 on: January 11, 2016, 02:33:36 PM »
+1 for ETF's... that how i got going and ETFs are cheap right meow

MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 2834
Re: Where to stick funds before reaching minimum for taxable account?
« Reply #4 on: January 11, 2016, 10:49:57 PM »
Another note about buying Vanguard ETFs at Vanguard: they charge $0 commission.  So with $300 you could buy 2 shares of "VTI" ($98 Mon) and 2 shares of "VXUS" ($42 Mon) and have about 70% US Stock and 30% international stock.

Jack

  • Magnum Stache
  • ******
  • Posts: 4726
  • Location: Atlanta, GA
Re: Where to stick funds before reaching minimum for taxable account?
« Reply #5 on: January 12, 2016, 10:50:53 AM »
Also, Vanguard ETFs have the same expense ratio as the equivalent Admiral share-class index fund, which means you'd need a $10000 initial investment, not $3000, to match it. Vanguard ETFs in a Vanguard brokerage account are the way to go.

Tester

  • Stubble
  • **
  • Posts: 244
Re: Where to stick funds before reaching minimum for taxable account?
« Reply #6 on: January 12, 2016, 05:01:05 PM »
I am just toying with Robinhood - don't ask why, I am beginning to understand how things work and put 80 USD/month there and buy some ETFs, to see from my own experience what happens.

As far as I saw you can buy Vanguard ETFs in Robinhood - so you could get your ETFs without having to put the whole 10000 at a time.

If I am completely misunderstanding the topic idea please let me know :).

MDM

  • Senior Mustachian
  • ********
  • Posts: 10147
Re: Where to stick funds before reaching minimum for taxable account?
« Reply #7 on: January 12, 2016, 10:47:15 PM »
However. Looking at Vanguard's funds, the one's available to me all have a minimum investment of $3000.

Not sure what is meant by "...available to me..." but the minimum is $1,000 for Vanguard Target Retirement Funds (e.g., VTTSX).

MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 2834
Re: Where to stick funds before reaching minimum for taxable account?
« Reply #8 on: January 12, 2016, 11:29:05 PM »
As far as I saw you can buy Vanguard ETFs in Robinhood - so you could get your ETFs without having to put the whole 10000 at a time.

If I am completely misunderstanding the topic idea please let me know :).
He said Admiral shares require $10,000 while ETFs do not.  You have it reversed.

Note Vanguard requires $3,000 to open a brokerage account:
https://investor.vanguard.com/etf/fees

An example of someone buying $3,000 US & international at today's closing prices:
$2070.18 (21 x $95.58) worth of Vanguard Total Stock Market ETF ("VTI"), 21 shares
$888.09 (21 x $42.29) worth of Vanguard Total International ETF ("VXUS"), 21 shares
They would spend $2958.27 at Vanguard to purchase the above 42 shares of ETFs, with $41.73 left over in their settlement account.

frugalnacho

  • Magnum Stache
  • ******
  • Posts: 4035
  • Age: 37
  • Location: Madison Heights, Michigan
Re: Where to stick funds before reaching minimum for taxable account?
« Reply #9 on: January 13, 2016, 08:23:02 AM »
You are talking about a very short period of time - less than one year - , so I think a typical savings account (yes, even with their paltry ~0.75% yields) is a fine place save money until you have enough to meet the fund minimum.


Alternatively, put your IRA contributions on hold temporarily and divert funds into your savings account to meet your $3k target faster (an extra $458/mo should get you there in just a few months).  Then once you have $3k for a taxable account stop funding that until you've maxed out your IRA for the year.

yes, you are overthinking this.  Investing shouldn't be difficult :-)

+1

Tester

  • Stubble
  • **
  • Posts: 244
Re: Where to stick funds before reaching minimum for taxable account?
« Reply #10 on: January 13, 2016, 11:54:37 AM »
He said Admiral shares require $10,000 while ETFs do not.  You have it reversed.

Note Vanguard requires $3,000 to open a brokerage account:
https://investor.vanguard.com/etf/fees

An example of someone buying $3,000 US & international at today's closing prices:
$2070.18 (21 x $95.58) worth of Vanguard Total Stock Market ETF ("VTI"), 21 shares
$888.09 (21 x $42.29) worth of Vanguard Total International ETF ("VXUS"), 21 shares
They would spend $2958.27 at Vanguard to purchase the above 42 shares of ETFs, with $41.73 left over in their settlement account.

Ok, I got it about the Admiral shares.

Still, regarding the 3,000 required for a Vanguard account:
In Robinhood I can buy one share of VTI of VXUS.
It is free, no transaction fees...
Perhaps it is a solution to be able to access those without a 3000 lump sum.
Then, after you have enough perhaps you can go/transfer to Vanguard (keep in mind I am a newbie here so this might seem like a stupid thing to say :) )?
Even if you can't transfer to Vanguard, you still have your ETFs.

MDM

  • Senior Mustachian
  • ********
  • Posts: 10147
Re: Where to stick funds before reaching minimum for taxable account?
« Reply #11 on: January 13, 2016, 12:03:09 PM »
Still, regarding the 3,000 required for a Vanguard account....

You can open an account with $1000 for a Target Date fund, e.g. VTTSX.  From https://investor.vanguard.com/mutual-funds/fees:
Quote
Minimum investment requirements

The following minimums apply to individual and joint accounts, Roth and traditional IRAs, UGMA/UTMA accounts, and most other account types.
Investor Shares

    $1,000 for Vanguard Target Retirement Funds

Cromacster

  • Handlebar Stache
  • *****
  • Posts: 1697
  • Location: Minnesnowta
Re: Where to stick funds before reaching minimum for taxable account?
« Reply #12 on: January 14, 2016, 08:36:38 AM »

Note Vanguard requires $3,000 to open a brokerage account:
https://investor.vanguard.com/etf/fees

There is/was a way around this.  I helped my brother setup an account for his son, which didn't start with 3,000.  I don't remember exactly what we did...but we added the money to a non brokerage MMA with vanguard, then purchased shares of VTI, which prompted the opening of a brokerage account and it went through fine.  Not sure if what we did was just a loophole that has now been fixed with the recent changes they have made to their brokerage accounts.  But I can verify that at one point the only money in that account was 2 shares of VTI with no other investments.

Greenroller

  • 5 O'Clock Shadow
  • *
  • Posts: 75
  • Location: COLORADO
Re: Where to stick funds before reaching minimum for taxable account?
« Reply #13 on: January 18, 2016, 07:54:36 AM »
Subbing

nereo

  • Senior Mustachian
  • ********
  • Posts: 13085
  • Location: Just south of Canada
    • Here's how you can support science today:
Re: Where to stick funds before reaching minimum for taxable account?
« Reply #14 on: January 18, 2016, 08:28:44 AM »

Jack

  • Magnum Stache
  • ******
  • Posts: 4726
  • Location: Atlanta, GA
Re: Where to stick funds before reaching minimum for taxable account?
« Reply #15 on: January 18, 2016, 08:31:54 AM »
Subbing
huh?  Please explain further.

He means "sub[scri]bing" to the thread.

nereo

  • Senior Mustachian
  • ********
  • Posts: 13085
  • Location: Just south of Canada
    • Here's how you can support science today:
Re: Where to stick funds before reaching minimum for taxable account?
« Reply #16 on: January 18, 2016, 08:41:26 AM »
Subbing
huh?  Please explain further.

He means "sub[scri]bing" to the thread.
ahh....!  Thanks Jack.  I'm use to the "posting to follow" but I guess that's unnecessarily long.

Koreth

  • 5 O'Clock Shadow
  • *
  • Posts: 43
Re: Where to stick funds before reaching minimum for taxable account?
« Reply #17 on: January 18, 2016, 09:46:35 AM »
An update to all:

I did get the brokerage account opened, and quickly, since I used the same contact info and funding sourced Vanguard had on file from my tIRA. The brokerage account came with a money market account used for the settlement of funds when trading between various ETFs and mutual funds. I threw in an extra $100 that I had on hand. However, apparently there's a 7 day hold on money transferred into the account, so It won't be until later this week that I can actually use the  funds to buy ETF shares.