A long time ago, Vanguard founder Jack Bogle came up with a novel idea for a mutual fund company. Keep fees low, passively mimic the market, and let the shareholders mutually own the company. Then he went out to tell the world about his anti-Wall Street creation and thankfully had help along the way.
In his monthly newsletter Richard C. Young’s Intelligence Report (IR), Dick Young echoed Bogle’s low-cost investing approach to his tens of thousands of readers. According to Bogle, Dick Young brought more investors into the Vanguard fold than any other newsletter writer. IR was sophisticated but still packaged in an easy-to-understand format investors could trust. Dick’s recommendations for Vanguard held weight with readers.
Fast forward to today, when the pressure on Vanguard to create other sources of revenue is huge. Passive index funds/ETFs have been a wild success. That success inspired a lot of competition, and that competition brought lower fees, which have been driven down close to zero dollars. Now Vanguard is bringing in a rainmaker from BlackRock to man the ship.
The reality of passive investing is that the passive index fund has become a commodity. Passive indexes are navigated with the intelligence of a self-driving car. All’s good until something wrong happens. And not everyone’s ready for that. Not everyone understands how dangerous trillions upon trillions of dollars can be when it’s stuffed into the same car.
This means those still with Vanguard should undergo a necessary reality check: who’s running your money? If you have money there, you see the emails, you see the hard sell to become your active manager with passive funds, and you see the target date funds or something similar being offered. The reversal for more fees continues.
What you don’t typically see recommended are the Vanguard Wellesley or Wellington funds. They’re managed by The Wellington Group, up the road from me in Boston, MA. Vanguard pays them as the sub-advisor.
And yet, these legendary funds can be held at my favored Fidelity Investments, which is still a family-run operation. An operation that isn’t pressured for more earnings growth.
Action Line: If you’re still with Vanguard and share my concerns, we should talk. The grass can be greener.
