Vanguard just made lower-cost Admiral funds available to (almost) everyone

While not as complicated as the offerings of some mutual fund companies, Vanguard has long sold several different share classes to the public: “Investor” shares, “Admiral” shares, and ETF shares. While all three share classes hold the same underlying assets, they can have quite different expense ratios, with Investor shares the most expensive, and lower-cost Admiral and ETF shares similarly, although not identically, priced. Certain large asset managers also have access to even-lower-cost “Institutional” shares.

Minimum investment amounts have been lowered for virtually all Admiral index shares

Effective immediately, the minimum investment required for 38 existing index mutual fund Admiral shares has been lowered from $10,000 to $3,000, which was the prior minimum investment for Investor shares.

Five additional Admiral shares will become available in January 2019 with the same reduced minimum investment.

Convert your Investor shares now (or later)

Vanguard says they’ll automatically convert eligible Investor share holdings above the $3,000 threshold into Admiral shares in the middle of 2019, but you can also do so manually as of today. Just log into your Vanguard account and click on the lowercase “i” next to each of your Investor share holdings, and you’ll be prompted to convert any eligible index fund holdings into lower-cost Admiral shares.

This may even apply to Vanguard-administered individual 401(k) accounts

When I wrote last year about the process of setting up a Vanguard solo 401(k) account, I noted that such accounts didn’t have access to Admiral shares. While going through the somewhat tedious process above of converting my Investor shares into Admiral shares, I wondered whether the change also applied to solo 401(k) accounts. I didn’t execute the trade, but I also didn’t run into any error messages when trying to exchange my current LifeStrategy fund for Admiral shares of an index fund.

The reason you might care about this is that Vanguard’s Target Retirement and LifeStrategy funds hold Investor shares as their underlying constituents, and pass those higher costs on to you. If you can reconstruct those holdings with lower-cost Admiral shares (and you don’t mind periodically rebalancing), you can theoretically save some money each year due to the lower Admiral share expense ratios.

I’m not sure if that’s worth doing for a “set it and forget it” investor, but it’s an option as long as you can trust yourself not to trade the constituent funds recklessly.