Author Topic: Give me the elevator pitch for Vanguard  (Read 2430 times)

Kalergie

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Give me the elevator pitch for Vanguard
« on: December 15, 2017, 01:14:36 AM »
So I had a debate with a friend of mine about Index funds and I tried explaining that investment companies with low fees are better than the fancy ones.

“But dude, what makes your beloved Vanguard so much better than mine? They all just want to make money, right?” Hard to argue with that. So obviously I failed to sufficiently explain why Vanguard, one of the largest of them all, IS NOT one of the bad apples just out there to collect their fees.

Can we come up with a 1-2 sentence elevators pitch why Vanguard is better? I mean, why is Vanguard so much cheaper? Not out of the good of their hearts, right?

Please help me out so I can confidently engage in above discussions. Thanks.


somers515

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terran

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Re: Give me the elevator pitch for Vanguard
« Reply #2 on: December 15, 2017, 08:39:24 AM »
Do you believe you can consistently pick stocks that beat the market long term? Do you believe you can can pick a fund manager who can consistently pick stocks that beat the market long term once you account for their fees? Do you believe you can pick a financial advisor who can pick a fund manager who can consistently pick stocks that beat the market long term once you account for both of their fees? If you answered yes to any of those questions, I bet you're wrong. If you answered no to all of those questions, good job, you should invest in an index fund that tracks the overall market and has the lowest fees possible. Solution: Vanguard (or similar offerings from Fidelity and others)

A little tongue in cheek, but that's the basic premise of Vanguard (and other low fee index funds).

Edit: Also, Vanguard has a unique company structure whereby the investors own the company that does the investing. This means that they are legally and morally required to do what is best for their investors (those that own their funds). By contrast companies like Fidelity and Schwab, which also offer low fee index funds, are owned by people who own their company by owning their stock on the open market (Schwab) or by being part of a particular very rich family (Fidelity) which means they are legally and morally obligated to do what is best for their owners (but not necessarily their customers who invest in their funds). Luckily Vanguard has been so successful that what is best for Fidelity's and Schwab's owners is to offer low fee market based index funds (sometimes even lower fee than Vanguard), but only in as much as some potential customers demand it. So, at the end of the day the investment options are pretty much the same but philosophically Vanguard is more aligned with your interests. FWIW, my wife and I have most of our money with fidelity because it's convenient based on my solo 401k and her employer plan being their.
« Last Edit: December 15, 2017, 08:50:18 AM by terran »

h82goslw

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Re: Give me the elevator pitch for Vanguard
« Reply #3 on: December 15, 2017, 02:37:45 PM »
Vanguard had more capital in-flows this year THAN THE NEXT 8 INVESTMENT COMPANIES COMBINED.
That hundreds of billions of dollars.
Vanguard charges .04% in fees for VTI compared to the typical 1.5% for a FA. 
That adds up to tens of thousands of dollars over decades.
Vanguard index funds (and index funds in general) have proven to beat the “professionals” 90% of the time...thus making you more money.

.....mic drop


Travis

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Re: Give me the elevator pitch for Vanguard
« Reply #4 on: December 15, 2017, 02:45:07 PM »
Q: "They all just want to make money, right?"

A: Vanguard makes the least per person, but still has orders of magnitude more people's money to invest.  In other words, they're taking less of your money to provide the same or better service and more people want to use them.

If you have a calculator or computer in front of you during this pitch, show him the difference over 10-20 years of what those fees are worth.  That was my "holy shit" moment.

Kalergie

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Re: Give me the elevator pitch for Vanguard
« Reply #5 on: December 16, 2017, 03:27:18 AM »
Great! Thanks for the answers.

I was well aware of the unique ownership structure Vanguard has. But honestly, if you’re not 100% confident in explaining it, it sure sounds like some fancy wording for dodgy pyramid scheme! :) at least if someone tried to pitch something like that to me without giving me proof it sure sounds dodgy. I would wonder why making things so complicated? Are you hiding something?

While I do not care what other people think or do, every now and then I have to give myself a sanity check that I’m doing the right thing here.

Thanks guys!

Fomerly known as something

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Re: Give me the elevator pitch for Vanguard
« Reply #6 on: December 16, 2017, 07:56:43 AM »
Simple:  Vanguard is a co-op vs a traditional corporation.  A co-op is owned by a group of people who banned together to get something in this case investment funds; a traditional corp is owned by a stockholders or someone else.

Bicycle_B

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Re: Give me the elevator pitch for Vanguard
« Reply #7 on: December 16, 2017, 06:48:04 PM »
It's been summarized, but in addition to lower profit due to co-op structure and lower cost due to high volume, Vanguard has a business reason to maintain a low cost strategy.  Doing so reinforces its advantages.  This virtuous cycle continues cutting their costs, resulting in more customers, resulting in lower costs, etc.  As a previous poster stated, this continues to work. 

So where a good competitor like Fidelity has SOME low cost options, Vanguard's will be more or less lowest cost in class for every type of fund they offer.  For the customer, they are not just lower in cost than average, they are more reliable about being lower in cost.

Travis

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Re: Give me the elevator pitch for Vanguard
« Reply #8 on: December 17, 2017, 10:23:10 AM »
It's been summarized, but in addition to lower profit due to co-op structure and lower cost due to high volume, Vanguard has a business reason to maintain a low cost strategy.  Doing so reinforces its advantages.  This virtuous cycle continues cutting their costs, resulting in more customers, resulting in lower costs, etc.  As a previous poster stated, this continues to work. 

So where a good competitor like Fidelity has SOME low cost options, Vanguard's will be more or less lowest cost in class for every type of fund they offer.  For the customer, they are not just lower in cost than average, they are more reliable about being lower in cost.

I believe Bogle's original index fund in the mid-1970s had an ER of .3%. As it caught on and that model grew and took on more capital it gradually dropped to where it is now.

BTDretire

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Re: Give me the elevator pitch for Vanguard
« Reply #9 on: December 18, 2017, 10:59:25 AM »
 Just compare the expense ratio of his fund to VTSAXs 0.04% expense ratio.

Kalergie

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Re: Give me the elevator pitch for Vanguard
« Reply #10 on: December 18, 2017, 12:53:17 PM »
Just compare the expense ratio of his fund to VTSAXs 0.04% expense ratio.

Yes, that is what I started with. "But where's the catch?"--- Is what my friend said. ;)

I got some awesome responses here, so thank you! I like to constantly challenge my believe system and assumptions not to fall for a cult-like mentality. That's why I needed this elevator pitch conversation. After all, I think the urge to go against the common wisdom is what brought us all here to this forum! :)

terran

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Re: Give me the elevator pitch for Vanguard
« Reply #11 on: December 18, 2017, 02:18:14 PM »
So where a good competitor like Fidelity has SOME low cost options, Vanguard's will be more or less lowest cost in class for every type of fund they offer.  For the customer, they are not just lower in cost than average, they are more reliable about being lower in cost.

Right. Vanguard is low cost because that's their primary objective. Fidelity et al are low cost when they decide is is profitable to them because it allows them to compete with other providers of a similar product while still making money off of you (either by the fund making money or being able to convince some of the people who came to them for the low cost fund to "upgrade" to something that they make more money off of -- like a loss leader in a store).