Index Fund Ques


P

Patrick Holzer

After reading and consideration about the type of investor I would
like to be, I have found that index fund investing appeals to me. My
thought is that I would like to invest in an index fund that includes
all, if not many, of the domestic US traded stocks (Like the S&P 500
Index Fund). Additionally, I would like to invest in a Bond index
Fund and an International Index Stock fund. Are there any suggestions
for funds that I could research?

Also, if I open up a discount brokerage account to purchase shares of
these funds, is it possible for me to on a monthly schedule purchase
shares even if the amount does not allow for a purchase of a whole
share? For example, a share of a Bond Index Fund is $101. On Oct 31,
I automatically spend $100 to buy a share of the bond stock. Do I
have a portion of the stock through my discount broker or must I
always buy in whole shares?? How does this autopilot purchasing
through discount brokerages work?

Thanks in advance,
Patrick Holzer
 
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D

Dave Dodson

If you can meet the minimum investments of $10,000, you might consider
Fidelity Total Market Index (FSTMX), Fidelity Spartan International
Index (FSIIX), and Fidelity US Bond Index (FBIDX). The expense ratios
all are a low 0.10%. Fidelity gives great service. And yes, you can
sign up for automatic investments to be made from your bank account,
and you can purchase fractional shares.

Dave
 
A

anoop

Dave Dodson wrote:

...
Index (FSIIX), and Fidelity US Bond Index (FBIDX). The expense ratios
all are a low 0.10%.
The bond index fund has an expense ratio of 0.32%.

Also, it looks like they have recently lowered the minimum
required for investing in FBIDX (a good thing!). Until a few
months ago I am almost certain the minimum required was $100K!
Can anyone confirm this so I know I wasn't dreaming.

Anoop
 
S

sligorm

Patrick said:
After reading and consideration about the type of investor I would
like to be, I have found that index fund investing appeals to me. >
You can purchase funds without going through a broker direct from any
of the fund families, ie Fidelity, Vanguard, T Rowe Price, etc. All of
their web sites has details of fees, ratings, past performances- no
gaurntee of futher preformance- but gives a idea. I have five funds
with Vanguard all are Index funds. Their fees are amongst the lowest. I
also hold Fidelity and T Rowe Price managed funds in my portfolio.
 
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E

Elle

anoop said:
The bond index fund has an expense ratio of 0.32%.

Also, it looks like they have recently lowered the minimum
required for investing in FBIDX (a good thing!). Until a few
months ago I am almost certain the minimum required was $100K!
Can anyone confirm this so I know I wasn't dreaming.
The minimum required is $10k. Go to fidelity.com , type FBIDX in at the the
top, and pick the appropriate hit that comes up.

But a caveat: I still don't like intermediate or long-term bond funds right
now. FBIDX is intermediate term, with an average maturity of 6.3 years and a
duration of 4 years. The interest rate yield curve has flattened and might
invert. Interest rates will trend upwards in the coming years, IMO. So the
principal invested in this fund today is likely to decline in value, and one
would have to make up ground with the interest/dividend payments over the
years. For example OTOH, perhaps this is not a big deal if the fund is kept
for 20 years or more.

I personally would go with a bond/CD ladder. Invest the interest from the
ladder in, say, FDRXX, which is currently paying about 3.2%, until there's
enough accumulated to add to a rung of the bond ladder. One can buy both CDs
and bonds through Fidelity. Buy one each of: 1-year CD/Bond, 2-year
CD/Bond... up to five years. When each comes due, buy a new five-year
CD/Bond. As for your $100 a month: Also store this in something like FDRXX
until you have enough to add to a rung in a bond ladder. Typically, bonds
and CDs are purchased in $1000 increments.

Vanguard is also a reputable company with low expense ratios and its own
index funds that probably meet the OP's requirements.

With others, I also recommend opening an account directly with the mutual
fund company whose funds you anticipate buying. I have an account with
Fidelity so, a little similar to what Dave suggested, FSMKX (or FSTMX) and
FSIIX also leapt to my mind, FSMKX being Fidelity's S&P 500 index fund and
FSIIX being its international index fund. Last I heard (a few months ago),
FSIIX had the lowest expense ratio of any international fund.

Yes, you can buy fractional shares.

I think discount brokerages are more for people whose interest is stocks,
not mutual funds, and who plan to do a lot of stock trading. I expect the
costs to be lower going through a mutual fund company (which often also have
stock brokerage services that are quite competitive in price).

Congrats on coming to the conclusion that index funds are the best choice
for you. I have come to the same conclusion for myself, though I do hold
stock positions (because I have the time and am willing to do the research)
and am considering some exchange traded funds with similarly low expenses
and, of course, good diversity.

I threw together this site that lists education sites on index funds, fwiw:
http://home.earthlink.net/~elle_navorski/id6.html
 
B

Bucky

anoop said:
Also, it looks like they have recently lowered the minimum
required for investing in FBIDX (a good thing!). Until a few
months ago I am almost certain the minimum required was $100K!
Can anyone confirm this so I know I wasn't dreaming.
Yes, the min used to be $100K, pretty ridiculous.
 
P

Patrick Holzer

You can purchase funds without going through a broker direct from any
of the fund families, ie Fidelity, Vanguard, T Rowe Price, etc. All of
their web sites has details of fees, ratings, past performances- no
gaurntee of futher preformance- but gives a idea. I have five funds
with Vanguard all are Index funds. Their fees are amongst the lowest. I
also hold Fidelity and T Rowe Price managed funds in my portfolio.
Thank you all so much for replies. After reviewing some funds listed
in the replies, I found that they had a $10K minimum initial
investment. In my situation, I have a small percentage of that
initial minimum that I was going to start with. I have $500 or so to
begin with. Are there any solid index funds (domestic, international,
bond) that have a small minimum initial investment such as I have?
Thank you so much!

Patrick
 
J

jIM

one advantage of T Rwoe Price is they will waive minimums if you use
their asset builder program ($50 minimum contribution per month).
 
E

Elle

Patrick Holzer said:
I have $500 or so to
begin with. Are there any solid index funds (domestic, international,
bond) that have a small minimum initial investment such as I have?
Have you considered exchange traded funds (ETFs), purchased using a discount
broker like Scottrade?

For an introduction to ETFs, see

http://finance.yahoo.com/etf/education

www.etfconnect.com

... or google. :)

Keep checking back. I'm sure someone will echo this suggestion and mention
specific ETFs.
 
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A

anoop

Patrick said:
Thank you all so much for replies. After reviewing some funds listed
in the replies, I found that they had a $10K minimum initial
investment. In my situation, I have a small percentage of that
initial minimum that I was going to start with. I have $500 or so to
begin with. Are there any solid index funds (domestic, international,
bond) that have a small minimum initial investment such as I have?
Thank you so much!
You might want to look into buying ETFs with sharebuilder.com.
They do buy fractional shares unlike most other brokerages.
And they don't have any minimum requirements. But to get
their best commissions when buying you have to enroll in an
automatic investment plan.

Downside (vs mutual funds) is you will have to pay normal trading
commissions to sell and rebalancing your portfolio may be
tricky/expensive.

You'd have to do the math to figure out what makes sense for you.

On the mutual fund side make sure to account for
- Expense ratio (probably higher than ETF),
- Low balance fees (especially important in your case). Low
balance fees can sometimes run as high as $10/quarter per fund.

For the ETF w/ brokerage case, you need to lookout for
- Commission for buying,
- Commission for selling/rebalancing,
- Expense ratio of the ETF.

Anoop
 
T

Tad Borek

Patrick said:
After reading and consideration about the type of investor I would
like to be, I have found that index fund investing appeals to me. My
thought is that I would like to invest in an index fund that includes
all, if not many, of the domestic US traded stocks (Like the S&P 500
Index Fund). Additionally, I would like to invest in a Bond index
Fund and an International Index Stock fund. Are there any suggestions
for funds that I could research?

Also, if I open up a discount brokerage account to purchase shares of
these funds, is it possible for me to on a monthly schedule purchase
shares even if the amount does not allow for a purchase of a whole
share? For example, a share of a Bond Index Fund is $101. On Oct 31,
I automatically spend $100 to buy a share of the bond stock. Do I
have a portion of the stock through my discount broker or must I
always buy in whole shares?? How does this autopilot purchasing
through discount brokerages work?
Patrick,

* The S&P 500 is a large-cap stock index so buying an index fund based
on it is an investment in US-based large company stocks. If you want a
broad-based index fund look for one tracking the Russell 3000, Wilshire
5000, or similar index. Some of these have a name including the term
"Total Market". Be sure NOT to get one tracking the "Nasdaq Composite"
though - it's not at all the same type of index and includes a lot of
garbage.

* When you buy a traditional mutual fund (including index funds), you
purchase in dollar quantities rather than share quantities, like: Buy
$2133.45 Fund A or $3000 Fund B. By nature you end up with fractional
shares. With exchange-traded funds (ETFs), a newer flavor of index
funds, you trade by share quantities - like "Buy 50 shares SPY" (an
exchange-traded S&P 500 index fund). But ETFs aren't suited to your type
of investing, they really make sense only with larger dollar amounts, so
there's probably no need to deal with that.

* You mentioned $500 and adding gradually - that is kind of tough. You
really need to start with more than that. There are low-minimum funds
out there but most of the ones I'm aware of make it up other ways
(expenses, account fees - whether visible or not). It's just not
cost-effective for a fund company to accept a $500 investment with all
the paperwork that entails. And you could buy ETFs through a discount
broker but that kind of defeats the cost advantages of index funds,
which is a primary reason for buying them at all. Even a $10 trade fee
is going to be 2% of your $500 investment and you wouldn't be
diversified across US stocks, bonds, and international stocks unless you
further divided the $500. You're probably best off buying a single
fund-of-index-funds that includes the US stock, international stock, and
bond holdings. Vanguard has a few alternatives in their "LifeStrategy"
series. No, you couldn't do this today with $500 but you could save up
the $2k or $3k it takes to make the initial-purchase minimum then get on
a monthly contribution plan. Why rush it?

-Tad
 
P

Patrick Holzer

Patrick,

* The S&P 500 is a large-cap stock index so buying an index fund based
on it is an investment in US-based large company stocks. If you want a
broad-based index fund look for one tracking the Russell 3000, Wilshire
5000, or similar index. Some of these have a name including the term
"Total Market". Be sure NOT to get one tracking the "Nasdaq Composite"
though - it's not at all the same type of index and includes a lot of
garbage.

* When you buy a traditional mutual fund (including index funds), you
purchase in dollar quantities rather than share quantities, like: Buy
$2133.45 Fund A or $3000 Fund B. By nature you end up with fractional
shares. With exchange-traded funds (ETFs), a newer flavor of index
funds, you trade by share quantities - like "Buy 50 shares SPY" (an
exchange-traded S&P 500 index fund). But ETFs aren't suited to your type
of investing, they really make sense only with larger dollar amounts, so
there's probably no need to deal with that.

* You mentioned $500 and adding gradually - that is kind of tough. You
really need to start with more than that. There are low-minimum funds
out there but most of the ones I'm aware of make it up other ways
(expenses, account fees - whether visible or not). It's just not
cost-effective for a fund company to accept a $500 investment with all
the paperwork that entails. And you could buy ETFs through a discount
broker but that kind of defeats the cost advantages of index funds,
which is a primary reason for buying them at all. Even a $10 trade fee
is going to be 2% of your $500 investment and you wouldn't be
diversified across US stocks, bonds, and international stocks unless you
further divided the $500. You're probably best off buying a single
fund-of-index-funds that includes the US stock, international stock, and
bond holdings. Vanguard has a few alternatives in their "LifeStrategy"
series. No, you couldn't do this today with $500 but you could save up
the $2k or $3k it takes to make the initial-purchase minimum then get on
a monthly contribution plan. Why rush it?

-Tad
Tad:

Thank you so much for your reply. From doing my reasreach and looking
at all the responses I got, I think I will save up for the initial
investment and look at the funds you suggested.

Again, thanks. I have read your responses here for a while and you
help point people in the right direction.

Patrick


======================================= MODERATOR'S COMMENT:
Please trim the post to which you are responding. "Trim" means that except for a few lines to add context, the previous post is deleted.
 
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B

bo peep

<< If I roll the Profit Sharing $ into a newly opened IRA account, is
there a problem with my initial deposit being more than I am allowed in
a single year?>>

No, the limits do not apply to rollovers.

John Cowart
 

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