Starting Brokerage Account Questions

[SkinsFan0521]

Hi,

Up to this point, my wife & I have been focusing on retirement accounts, but now we would like to open a brokerage account in order to fund our years of ER before we have access to our retirement accounts at 59.5.

We already have Roth IRA accounts with Fidelity (invested in FSTMX), so I was just going to open up a brokerage account with Fidelity also. But, I plan to invest in low cost index funds and I looked and from what I could tell, the minimum amount to invest in Fidelity's S&P 500 index fund (FUSVX) is $10k. The problem is that we are only planning on contributing a few hundred $ a month to begin with.

So, with our small monthly contribution amount and our plan to invest in low cost index funds, what suggestions do you have for where we should open a brokerage account and what fund(s) we should start investing in? Just for simplicity sake, I'd prefer to open it with Fidelity and maybe I'm just missing some better fund options with lower minimums.

Thanks!

[LOL!]

Fidelity has no-commission ETFs, but there are also different "classes" of the index mutual funds at Fidelity. So why not use FSTMX instead of FUSVX or even FSTVX. Eventually in both your Roth IRA and your taxable account the FSTMX will be switched tax-free to FSTVX when you read the minimum needed for FSTVX.

No reason to own FUSVX since it has 100% overlap with FSTMX. You might as well use FSTMX.

If you don't have the initial $2500 minimum to start with FSTMX, just use your emergency fund to start with to get there and put the monthly contribution back into the emergency fund for awhile.

Or buy ITOT which is an iShares ETF which I think is no-commission at Fidelity.
https://www.fidelity.com/etfs/ishares

[SkinsFan0521]

Quote:

Originally Posted by LOL! Fidelity has no-commission ETFs, but there are also different "classes" of the index mutual funds at Fidelity. So why not use FSTMX instead of FUSVX or even FSTVX. Eventually in both your Roth IRA and your taxable account the FSTMX will be switched tax-free to FSTVX when you read the minimum needed for FSTVX. No reason to own FUSVX since it has 100% overlap with FSTMX. You might as well use FSTMX. If you don't have the initial $2500 minimum to start with FSTMX, just use your emergency fund to start with to get there and put the monthly contribution back into the emergency fund for awhile. Or buy ITOT which is an iShares ETF which I think is no-commission at Fidelity. https://www.fidelity.com/etfs/ishares

Thanks for the reply and suggestion of ITOT. I had thought about using some emergency fund money temporarily, but I'm just not super comfortable with that idea.

I do have a question about ITOT though... what's the real difference between that and FSTMX or something like that? ITOT has a .03% expense ratio, so it's just as low as the others.

Thanks!

[LOL!]

The real difference is that ITOT is an ETF with all that entails and FSTMX is a mutual fund with all that entails. One is like beer in a bottle and one is like beer on tap.

[pb4uski]

I would phrase it as beer in a bottle and the other is beer in a can.

Speaking of which, a beer sounds real good right now... excuse me while I go and get one.

[Scuba]

I second the ETF suggestion. There are many available for no or low commission.

[Al18]

If you've decided you want to use a S&P 500 Index fund, you can buy FUSEX for $2500, which has an expense ratio of .09%. If you have a $9999 balance, you'll pay $9 in fees per year. Once your balance in the fund is more than $10000, Fidelity will automatically move you to FUSVX - which has a .035% expense ration, or $3.50 yearly on $10000.

[SkinsFan0521]

Thanks everyone for the replies and suggestions, I really appreciate it. I think we'll stick with the ETF option for now and then maybe consider moving to a mutual fund after we have enough money built up in the ETF to sell and buy the mutual fund (I understand that I'd have to pay taxes on the capital gains at that time).

After maxing Roth 401k and Roth IRA for both my wife & I, we only have a few hundred "extra" dollars a month that we can allocate to investments. We can't come up with $2500 to start a mutual fund unless we raid our emergency fund. That's just not something that I'm comfortable with.

Thanks again for the help!

[Gotadimple]

Quote:

Originally Posted by SkinsFan0521 Thanks everyone for the replies and suggestions, I really appreciate it. I think we'll stick with the ETF option for now and then maybe consider moving to a mutual fund after we have enough money built up in the ETF to sell and buy the mutual fund (I understand that I'd have to pay taxes on the capital gains at that time).

That's a strategy, but really, you can use index ETF's in place of mutual funds. You will find that ETF's that index to the same benchmark as a mutual fund will often have a lower expense ratio, leaving more of your investment to grow.

In a taxable account, an indexed ETF or indexed mutual fund will always be more tax efficient than managed ETF's or mutual funds. For your first investment pick an ETF that you consider to be a core holding. New money can buy other ETF's or mutual funds as you build your savings. Now would be a good time to start thinking about asset allocation as well.

From the Oblivious Investor:

"If you’re investing in a taxable account (as opposed to a 401(k) or IRA), index funds can help you not only to minimize costs, but to minimize taxes as well. With mutual funds, you pay taxes each year on your share of the capital gains realized within the fund’s portfolio."

https://obliviousinvestor.com/index-funds/

[RobbieB]

I wouldn't raid the emergency fund either, emergencies happen.

At $200/mo you will have the minimum in a year. It can be your next years Christmas present to yourselves -

[OldShooter]

Hopefully you are someplace with a Fido office. Like others, they have tiers of free personal service based on AUM. I think their top tier requires only $100K which maybe you have in your Roth? Anyway, interview a couple of their brokers to find one who is a good fit. In that process find out where you fit in their service hierarchy. Also ask the question you're asking here. As others have pointed out, there are lots of ways to solve it.

[foxfirev5]

Quote:

Originally Posted by OldShooter Hopefully you are someplace with a Fido office. Like others, they have tiers of free personal service based on AUM. I think their top tier requires only $100K which maybe you have in your Roth? Anyway, interview a couple of their brokers to find one who is a good fit. In that process find out where you fit in their service hierarchy. Also ask the question you're asking here. As others have pointed out, there are lots of ways to solve it.

Good advice but I believe you need to add a zero to your number for top tier service. And I'm sure there are levels beyond that.
However over the years Fido has been great for customer service for me and the local office a great asset. But,You still need to do your homework.

[OldShooter]

Quote:

Originally Posted by foxfirev5 Good advice but I believe you need to add a zero to your number for top tier service. And I'm sure there are levels beyond that. However over the years Fido has been great for customer service for me and the local office a great asset. But,You still need to do your homework.

Yes. I phrased that badly. I am teaching an adult ed investing class and visited the Fido branch to get the pitch. $100K is the point where they will assign an individual (fiduciary) to you at no charge. That was the key for me, expecting to not be lecturing to heavy hitters. Certainly there are service levels above that point, but if the OP can get that far that would be A Good Thing.