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Posted: 1:40 p.m. Tuesday, May 17, 2011

Vanguard lowers fund minimums to $1,000

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Vanguard has lowered the minimums on many of its funds to $1,000 in an effort to ratchet up the competition for your discount investment dollar.

The discount investment house has been a longtime favorite of mine in the investment world. Because Vanguard is a cooperative, everything that the company does is for the investors who have an account with them.

But competition has forced them to sharpen their game. Schwab has been doing a particularly good job at trying to "out-Vanguard" Vanguard in recent years. "Chuck" even has products that are cheaper than their Vanguard equivalents.

Vanguard has historically had high minimums on funds, with some of them starting at $25,000! That's why through the years I've recommended the Vanguard Star Fund as a great entry point for just about anybody. For the longest time, the Star Fund was the sole Vanguard fund that only required $1,000 to open.

But now Vanguard has opened the overwhelming number of its funds to those who have $1,000, including target-date retirement funds. This makes a big, big, big difference for you. Somebody who might have been locked out of the game can now get in with a company that prides itself on ultra-low expenses.

Target-date retirement funds are the best recommendation I have for someone who just wants to take a "set it and forget approach" to investing. With a target-date retirement fund, you select the year that's closest to your expected date of retirement. Then the fund manager handles adjusting your asset allocation over the years to minimize your risk as you get closer to retirement. No mess, no fuss.

Vanguard used to have $3,000 minimums on its target-date retirement funds! But now $1,000 gets you started.

If coming up with $1,000 is a bridge too far, there's an alternative from T. Rowe Price. This respected Baltimore company has its Automatic Asset Builder program, where you can open a retirement account with zero dollars down if you agree to automatically deposit $50 every month. T. Rowe Price has a similar variety of funds to Vanguard that are just slightly more expensive (but still low cost).

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