Vanguard STAR Mutual Fund (VGSTX) Ã¢â‚¬â€œ An Option for the Investing Rookie
December 3, 2006
We have our Roth IRA’s in a variety of Vanguard index funds. We chose Vanguard for the same reasons that Trent lists: low expenses, good selection of index funds, and great company reputation.
One thing that I found challenging when getting started investing was coming up with the account minimums that are required by various financial institutions. As part of their strategy of keeping their expenses low, Vanguard raised their account minimums for IRA’s from $1000 to $3000 about a year ago. The reasoning was that accounts with very low balances cost them the same to maintain as very large accounts.
By raising the minimums for an IRA investment, Vanguard did reduce their expenses but they also priced those that are just getting started out of the market. I called Vanguard the other day, inquiring about options for a family member that is looking to open a Roth IRA and was pleased to find they do still offer one fund for beginners.
The Vanguard STAR Mutual Fund has an initial minimum investment of $1000, and minimum additional investments of $100. With an expense ratio of 0.36% and decent 1 year (8.67%), 3 year (11.35%), 5 year (8.59%), and 10 year (9.29%) returns this seems to be a good option for someone just opening an investment account without a lot of capital.
As of 10/31/2006, the asset allocation of the fund is 12.6% short-term reserves, 25.20% Bonds, and 62.20% Stocks. This may be more of a conservative approach than investors with a long time horizon are looking for. However, after their Star Fund investment has grown to $3000 they can move that amount into another Vanguard fund of their choice.
I’m still researching the best choice for a good entry level investment vehicle so if anyone has any other suggestions please let me know.
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