19 June 2019
John Woerth
Vanguard's Spokesperson
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The Benefit Of Buying Below Sticker Price
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I’ll admit it…I’m a bit of a pack rat. After working here for more than 30 years, I’ve accumulated and inherited a lot of stuff—articles, memos, brochures, newsletters, books, and VHS (but no 8-track) tapes. One of my prized possessions is the December 1949 Fortune magazine featuring the article “Big Money in Boston” that inspired Vanguard Founder John C. Bogle to pen his college thesis on the mutual fund industry.

While recently digging through my files, I came across a 40-year-old press release announcing a signal event in Vanguard’s history and good news for clients. On February 9, 1977, Vanguard converted our 14 funds to no-load status. Up to that point, the funds were sold with sales charges of up to 8.5%.

A history of reducing the cost of investing

If you invested $10,000 in Vanguard 500 Index Fund in 1977, you’d pay an $850 commission, plus $40 in annual fund operating expenses. Today, that same investment would cost you just $5 a year in annual operating expenses if you’re invested in Admiral™ or ETF shares.

We eliminated commissions 40 years ago. We’ve reduced our complex-wide average expense ratio from 0.89% in 1975 to 0.18% today. And we recently announced another round of reductions.

Simply put, Vanguard is the industry’s all-the-time, across-the board low-cost leader. The proof is in the pudding: 99% of our mutual funds are in the lowest-cost decile of their respective categories. (Source: Vanguard calculations using asset-weighted fund expense data from Morningstar, Inc.)

Buying below sticker price

You already know that low costs are absolutely critical to long-term investment success, which is likely one oft he reasons you invest with us. You’re not only buying at the low-cost fund shop, you’re also being frugal with your fund selections.

Let me explain.

Our complex-wide average expense ratio, which is a straight average, is 0.18%, or $18 for every $10,000 invested.* But on average, Vanguard investors actually pay less than “sticker price.” When Vanguard clients put more investment dollars into lower-cost funds and share classes (such as Admiral, ETF, and Institutional shares), they’repaying an average asset-weighted expense ratio of just 0.12%, or $12 for every$10,000 invested.**

Choosing low-cost funds is a powerful way for you to maximize your investment dollars, but it can’t compare with the impact of boosting your savings rate. Stay tuned.

* The complex-wide average expense ratio of 0.18% is simply a straight average, taking the total of the expense ratios of the various shares of Vanguard’s funds and dividing by the number of fund shares, using data from Lipper, a Thomson Reuters company.

** Asset weighting assigns higher weights to the expenses of the funds with larger assets. For each fund, the expense ratio is multiplied by this weight and, subsequently, its asset-weighted total is summed to obtain the asset-weighted average for a set of funds. (Derived from Morningstar data.)

Note: All investing is subject to risk, including the possible loss of the money you invest.

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