Updated December 2019. Vanguard announced another round of expense ratio cuts to 56 of their mutual funds and ETFs. Here are a few highlights:
- Vanguard Total International Stock Market (VXUS) is now 0.08%.
- Vanguard Short-Term Inflation-Protected Securities (VTIP) is now 0.05%.
- Vanguard FTSE Emerging Markets ETF (VWO) is now 0.10%.
- Vanguard FTSE All-World ex-US ETF (VEU) is now 0.08%.
- Vanguard Tax-Exempt Bond ETF (VTEB) is now 0.06%.
- Vanguard FTSE All-World ex-US Small-Cap ETF (VSS) is now 0.11%.
- Vanguard Total World Stock ETF (VT) is ow 0.08%.
Vanguard Select ETFs. These 13 ETFs are what Vanguard thinks should be the building blocks of your portfolio. Here are expense ratios on the four broadest ones + their classic S&P 500 ETF:
- Vanguard Total US Stock Market (VTI) at 0.03%.
- Vanguard Total International Stock Market (VXUS) at 0.08%.
- Vanguard Total US Bond Market (BND) at 0.035%.
- Vanguard Total International Bond (BNDX) at 0.08%.
- Vanguard 500 Index (VOO) at 0.03%.
Background. When you invest in a mutual fund or ETF, the fund company charges you a fee called the annual net expense ratio. If you hold a steady $10,000 in a hypothetical fund with a 1% expense ratio, that would result in an annual charge of $100. These expenses are actually deducted daily in tiny increments from the funds’ net asset value (NAV), and while the numbers can seem small they will compound quietly and relentlessly over time. Here is an illustration from the Vanguard website:
Vanguard has a long history of lowering their expense ratios as their assets under management grow, whereas the industry average hasn’t changed nearly as much (source).
The Vanguard Effect. In recent years as index funds have shot up in popularity, most of the major providers have introduced similar low-cost products (notably iShares, Fidelity, and Schwab). Every subsequent “price drop” is less newsworthy or impactful to my portfolio. However, I think competition is great and even Vanguard needs to be kept on its toes. I have bought ETFs from other providers when they are the best available option.
However, you can’t ignore the fact that Vanguard has been the leader in the industry. The super-low-cost ETFs only exist where Vanguard has already established itself. If Vanguard hasn’t pushed the cost down in a specific area, their competitors know that and keep the costs high. Here’s a chart showing the “Vanguard Effect“.
As of December 2019, you can buy Vanguard ETFs for free at all of the major brokerage firms including Fidelity, Schwab, TD Ameritrade, and E-Trade.
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