Why Vanguard is a role model for the fund industry «
Among all fund companies, Vanguard has finished first or second in terms of inflows in all but two of the past 20 years
At the risk of sounding like a commercial for the Valley Forge, Pa.-based giant—which controls well over $3 trillion in assets worldwide—the question is, “Why invest anywhere else?”
That’s not a plug, but a truism.
If Vanguard has become the default standard for fund investors—and it has—then investors should be asking certain questions before picking any other company as steward for their money.
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Vanguard has earned its position as the fund industry’s big dog with a relentless focus on costs and common sense, and a dedication to reaching long-term success without obsessive interest in topping the market over the short run. The company is not infallible—far from it—but is a deserving role model for the industry, even if it operates with advantages from having trillions of dollars in assets that smaller firms can’t hope to replicate.
What investors want to take from Vanguard are those underpinnings of investment success; thus, “Why not Vanguard?” is an appropriate test before buying a fund from any of the competition.
It’s also a two-way test, one that any Vanguard investor should apply as well, examining other options instead of blindly throwing money in with their favorite.
Vanguard will not win every contest any more than it gets all of the dollars going into funds. It is an appropriate benchmark, however, because a comparison-buyer who concludes that they’re better off going with Number One most likely sidesteps a mistake.
If they buy the competition, they should be thoroughly convinced.
Even Vanguard investors could do the test and decide that they are better off avoiding the family’s weak sisters.
Here are the points to measure other funds against Vanguard’s offerings:
This is not necessarily about pinching pennies and measuring absolute costs, but simply taking a look at what you consider “reasonable.” Performance is not guaranteed but expenses are, so don’t volunteer to pay significantly more if you don’t believe you will be rewarded for your dollars.
The average expense ratio for a plain-vanilla stock fund is roughly 0.75%. Vanguard’s costs for an actively managed fund in that space are much less.
If you’re examining a fund with costs at least a half percentage point higher than the Vanguard alternative, that’s a significant negative.