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Investment costs: 'How low can Vanguard go?'

06 March 2017 | Markets and Economy

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In this video – an excerpt from a webcast that aired in the United States recently – Vanguard Chief Executive Offer Bill McNabb and Chief Investment Officer Tim Buckley explain why even small differences in the fees charged by investment providers can make a big difference for investors.

Rebecca Katz (moderator): Why don't we switch gears a little bit and jump to a couple of Vanguard-specific questions.

We have a question from Mike in Chadds Ford, Pennsylvania, who says, 'The expenses on the ETF I owned recently dropped. So thanks for that. But I'm not sure that the 20 bucks [about £16] that's going to save me on my $10,000 investment [about £8,150] is getting me to retirement much earlier.' So, how low can Vanguard go? Part of our culture, driving costs lower?

Bill McNabb (Vanguard chief executive officer): Part of our culture is to continue to – as we see the benefits of economies of scale, we try to pass those on to the investors in the form of lower cost. Obviously, the lower you get, and some of our ETFs are extremely low at this point, it gets harder to do that. So are we done? No.

I would say in terms of getting ready for retirement, changing savings rate is probably going to have a bigger impact than anything we're going to be able to do further on the expense ratio.

Rebecca Katz: What do you mean by that?

Bill McNabb: Well, I think we will keep reducing expense ratios as we can, but if we save him only $20 by doing that, he's going to get closer to retirement by changing his savings rate by a percent or 2% of his total compensation to set aside for retirement. That's going to make a much bigger difference.

Rebecca Katz: Yeah. You've talked a lot about saving more being something, maybe one of those New Year's resolutions we should all have.

Tim Buckley (Vanguard chief investment officer): Yeah. I'm going to put in a little plug for kind of the structure of Vanguard, and as an owner, he should want that $20. When the three of us come into work every day, we're driven to make sure they get the best returns, the best service at the lowest possible cost. And that's a real differentiator.

And so when we have banner years, when we make great investments in the business, we grow faster than we expect, we have more scale, we get to pass that savings back to our clients; and we do that. We can't issue, like a normal company, a dividend or buy-back stock or give it to a private family. We actually give it back to people in the form of a lower expense ratio.

Rebecca Katz: Well, I was going to say, on someone who had $100,000 or $1 million [about £81,500–£815,000] with us, that's not $20 and it's every year, so it can really add up over time.

Tim Buckley: Yup, it compounds.

Important information:

This video is directed at professional investors and should not be distributed to, or relied upon by retail investors.

This video is designed for use by, and is directed only at persons resident in the UK. This video was produced by The Vanguard Group, Inc. It is for educational purposes only.
 
The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.
 
The opinions expressed in this video are those of individual speakers and may not be representative of The Vanguard Group, Inc. Any projections should be regarded as hypothetical in nature and do not reflect or guarantee future results.
 
Issued by Vanguard Asset Management, Ltd, which is authorised and regulated in the UK by the Financial Conduct Authority.

VAM-2017-01-20-4266

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