Vanguard Expense Ratios lowered

[DavidAnnArbor]

It's nice to know that as the stash increases Vanguard works to decrease the expense ratios

Total Stock Market Index:  0.05% -->  0.04%
500 Index :                      0.05% -->  0.04%
Small Cap Index:              0.08% -->  0.06%
Extended Market Index:    0.09% -->  0.08%
Total Bond Index:             0.06% -->  0.05%
Developed Markets Index:  0.09% -->  0.07%

[TheAnonOne]

Vtsax is going down a whopping 20%.

.01% doesn't sound like much, but in reality it is a fifth of the fee. Insane.

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[nereo]

Vtsax is going down a whopping 20%.

.01% doesn't sound like much, but in reality it is a fifth of the fee. Insane.

For the fund it's a large reduction: about $16.7MM less in fees for VTSAX
For your average investor it's not that big a deal: $10 savings per $100k invested.

Any reduction in fees is reason to celebrate, but it won't amount to a noticeable change to anyone's FI date.  Personally I wouldn't mind if they kept it at 0.05% and instead improved the service and speed for their clients.  - YMMV.

[TheAnonOne]

Vtsax is going down a whopping 20%.

.01% doesn't sound like much, but in reality it is a fifth of the fee. Insane.

For the fund it's a large reduction: about $16.7MM less in fees for VTSAX
For your average investor it's not that big a deal: $10 savings per $100k invested.

Any reduction in fees is reason to celebrate, but it won't amount to a noticeable change to anyone's FI date.  Personally I wouldn't mind if they kept it at 0.05% and instead improved the service and speed for their clients.  - YMMV.

For most here it could be thousands every decade. So not unbelievably high, but still nothing to scoff at.

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[smallstache]

This is likely the result of two things:  competition and scale.

Schwab recently lowered the expenses ratios on its index funds to as low as .03%, and Vanguard had to keep up.  Arguably, the Schwab funds are better because there is only a $1 minimum to get the .03% ER, unlike Vanguard's $10,000 minimum for Admiral shares.

The fund will not necessarily lose money on the reduction in ER.  Vanguard has fixed costs and incremental costs.  As more money is invested into the fund, the fixed costs as a percentage of total costs go down.  I don't know, but I would expect these fixed costs--think websites, fund managers' salaries, advertising--to be the majority of the total expects.  I would expect that incremental costs such as mailing statements, customer service reps and trading costs to be small.  As more money is invested, these items don't cost VG more, so the ER can fall.

[Kalergie]

I love this. It also shows that one should hold off swinging between companies. when Schwab reduced their fees, people were seriously considering switching over from vanguard.

[GrumpyPenguin]

I just noticed this too and checked here to make sure folks had noted it. Hooray!

[seattlecyclone]

Vtsax is going down a whopping 20%.

.01% doesn't sound like much, but in reality it is a fifth of the fee. Insane.

Remember to take significant figures into account. Vanguard does not make a habit of reporting their expenses in granularity smaller than a single basis point. What that means is that when they report an expense ratio of "0.05%", the actual expenses where somewhere between 0.045% (inclusive) and 0.055% (exclusive). Now that they report "0.04%" that means they're somewhere in the 0.035% to 0.045% range.

That means the true nature of the decrease could be anywhere from almost nil (if they went from 0.04500% to 0.04499%) to a 36% reduction (if they went from 0.0549% to 0.035%. My guess is that the true decrease is a single-digit percentage, and they just happened to cross that 0.045% threshold by a small amount. A 20% expense reduction in one year seems rather optimistic.

[secondcor521]

Vtsax is going down a whopping 20%.

.01% doesn't sound like much, but in reality it is a fifth of the fee. Insane.

Remember to take significant figures into account. Vanguard does not make a habit of reporting their expenses in granularity smaller than a single basis point. What that means is that when they report an expense ratio of "0.05%", the actual expenses where somewhere between 0.045% (inclusive) and 0.055% (exclusive). Now that they report "0.04%" that means they're somewhere in the 0.035% to 0.045% range.

That means the true nature of the decrease could be anywhere from almost nil (if they went from 0.04500% to 0.04499%) to a 36% reduction (if they went from 0.0549% to 0.035%. My guess is that the true decrease is a single-digit percentage, and they just happened to cross that 0.045% threshold by a small amount. A 20% expense reduction in one year seems rather optimistic.

Er, I don't think that's how it works.  But I could be wrong.

What I think happens is that Vanguard shovels off *exactly* 0.04%/365 of VTSAX net assets daily into their coffers (as well as analogous amounts from their other funds) and then pay their actual expenses out of those coffers.  Granted, those "coffers" are in turned owned by the mutual funds so any surplus or lack therein will reflect back to the funds themselves.

I don't think it works the other way around where they take their actual expenses and somehow allocate out to the funds to create some sort of odd expense ratio of 0.0428319% or whatever.

Although the net effect either way is essentially identical, so I guess I'm nitpicking.

[nereo]

Worth noting that Vanguard is client-owned and operated at cost.
This latest decrease in fees is almost certainly related to the cost-efficiency savings from having such a massive portfolio to manage and gains from having better technology.

[seattlecyclone]

Vtsax is going down a whopping 20%.

.01% doesn't sound like much, but in reality it is a fifth of the fee. Insane.

Remember to take significant figures into account. Vanguard does not make a habit of reporting their expenses in granularity smaller than a single basis point. What that means is that when they report an expense ratio of "0.05%", the actual expenses where somewhere between 0.045% (inclusive) and 0.055% (exclusive). Now that they report "0.04%" that means they're somewhere in the 0.035% to 0.045% range.

That means the true nature of the decrease could be anywhere from almost nil (if they went from 0.04500% to 0.04499%) to a 36% reduction (if they went from 0.0549% to 0.035%. My guess is that the true decrease is a single-digit percentage, and they just happened to cross that 0.045% threshold by a small amount. A 20% expense reduction in one year seems rather optimistic.

Er, I don't think that's how it works.  But I could be wrong.

What I think happens is that Vanguard shovels off *exactly* 0.04%/365 of VTSAX net assets daily into their coffers (as well as analogous amounts from their other funds) and then pay their actual expenses out of those coffers.  Granted, those "coffers" are in turned owned by the mutual funds so any surplus or lack therein will reflect back to the funds themselves.

I don't think it works the other way around where they take their actual expenses and somehow allocate out to the funds to create some sort of odd expense ratio of 0.0428319% or whatever.

Although the net effect either way is essentially identical, so I guess I'm nitpicking.

From vanguard.com:

As each fund passes its fiscal year-end, the annual expense ratio is calculated by dividing the fund's operational expenses by its average net assets. If the fund's assets are increasing faster than its costs, you'll enjoy lower expenses as a fund shareholder.

The fund spends the money it needs to spend without regard to hitting some exact basis point number. They run at cost. They periodically tally up the expenses, divide them by the assets under management, and report the result (rounded to the nearest basis point) as the expense ratio.

[secondcor521]

Well there you go.  You were right and I was wrong.  Thanks for the correction!