Vanguard Mutual Funds Charge The Lowest Fees

2007-03-08 10:33:40

( Financial )



Investors in Vanguard mutual funds belong to a group that is unique in the mutual fund industry. Vanguard funds are managed by the Vanguard investments group, which is the only nonprofit investment company that's owned by the people like you who invest in Vanguard mutual funds. Due to this unique organizational structure, Vanguard mutual funds officials say they are able to provide better-than-average annual returns and to have the lowest fees in the industry.

You will note that all other mutual fund companies are owned by third parties, that is, their stockholders, or other private owners. Thus, the profits coming from management of the funds are distributed to the private stockholders alone. To many, this distinction is crucial.

You are familiar with the expense-ratio concept, which is central to mutual fund investing. The mutual fund companies that manage the fund earn money by charging the fund holders high management fees, which are tolerated as long as these do not exceed a certain percentage. The average ratio in the industry is at least one percentage point higher than Vanguard mutual. In most mutual funds, these revenues go to the private stockholders of the separate fund managers.

Under the Vanguard structure, profits from operating the funds go back to you through lower operating expenses. Vanguard funds company management even pays out bonuses based on how low they are able to keep costs down. As a result, Vanguard funds management expense ratios are the lowest in the industry.

In the effort to control costs, Vanguard funds company has divided its management responsibilities for Vanguard investments. You will thus find the company managing its index funds, including Vanguard ETF portfolios, and bond funds in-house; however, it farms out management for its actively managed stock funds to other sub-advisors. The management has developed the ability to be adept at picking their managers and sub-advisors.


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