21 ms·

Vanguard Is Growing Faster Than Everybody Else Combined

450 points by deegles 10y ago

uiri 10y ago
Original article (and not behind a paywall): http://news.morningstar.com/articlenet/article.aspx?id=802679 http://news.morningstar.com/articlenet/article.aspx?id=80267...
debatem1 10y ago
This feels like an article that will be shown for irony points in a documentary about Vanguard's collapse a few years from now.
- kevindong 10y ago
  Why do you say Vanguard will collapse?
  - faitswulff 10y ago
    I assumed OP was talking less about Vanguard and more about the breathless tone of the article.
  - debatem1 10y ago
    Post hoc ergo propter hoc. Articles like this showed up for Enron and MCI/WorldCom and all the others, extolling one virtue or another and showcasing their success. Now we have one for Vanguard, ergo it will fail. I'm not serious, of course. But pride does seem to come before the fall, and just out of an excess of caution I might move some money out of my vanguard funds next week.
    - tim333 10y ago
      You've got to take in to account that Vanguard doesn't actually do much - just buy stocks on your behalf and charge 0.12% for doing so. If it stopped doing that because some other operator was doing it for 0.08% it wouldn't be a big deal. The bigger deal would be if the general market collapsed for some reason but that would affect everyone, not just Vanguard.
      - debatem1 10y ago
        Ok. I'm curious why you're telling me this. What's your motivation? There's certainly no point in arguing with me, since I'm both reasonably poorly informed and aware of it; I have made no bones about the fact that my post was unserious. Yet you leap to the defense of what should, after all, be a very unexciting thing. And you aren't alone in doing so. That, like this breathless article, is mildly troubling to me. These institutions should engender no loyalty, embody no attributes; only then does the market actually work. Evidence of those tendencies suggests the distorting effect of human psychology. And in tone it is too much like what we saw before the collapse for my liking.
        askafriend 10y ago
        > Yet you leap to the defense of what should, after all, be a very unexciting thing. I actually think finance is interesting to read about and it can be exciting to try to make sense of the chaos. If all of this really was that boring, you probably wouldn't have even clicked to read the comments!
        icebraining 10y ago
        You're reading way too much into the motivations for comments. The simplest explanation is usually the best: https://xkcd.com/386/ https://xkcd.com/386/
        tim333 10y ago
        Well I've known Vanguard for about 30 years and am a fan as it's saved the investing public many billions over that time, certainly if you compare them to normal fund management companies even if just buying and holding shares directly is probably cheaper still. But I was just pointing out they offer a rather dull, value for money service and are not going to collapse Enron style. They could decline Sears style however.
      - deleted 10y ago
        [deleted]
    - pocketsquare2 10y ago
      You're comparing Vanguard to Enron & MCI / WorldCom. Would you mind explaining your analogy? It doesn't make sense to me. I don't think, for example, my investments in Vanguard funds are precarious because they are over-leveraged in bespoke weather derivatives.
    - sunnyps 10y ago
      You know that post hoc ergo propter hoc is a logical fallacy, right?
  - etherael 10y ago
    Thought experiment. Imagine you have a class full of studious and competent students, they do well on exams and generally display the performance characteristics and output you'd expect from a class full of studious and competent students. Then the rules change. From here on in, plagiarism is no longer a code violation. The obvious happens, everyone copies from the smartest kid in the class, measured by the heretofore pretty reliable indicators of proficiency built up in the previous system. But the next year comes along, and everyone's just that little bit less certain who the smartest kid in the actual class is, so instead they start measuring by how rich his father is, or how confident he sounds when he makes his declarations. Iterate the system a few generations, and although the first iteration will indeed result in better results across the board for all students, as people become more and more unhinged from the underlying realities of scholastic performance for students as they come and go through the system, would it not stand to reason that eventually you're just going to have a bunch of idiots copying people who yell the loudest, and seem the most like they're successful?
    - harry8 10y ago
      This analogy has its limitations but let's go with it a small way. Everyone has the choice to copy who they think is smart or write their own answer. Each person compares the expected value of writing their own answer with copying whoever they think is smart. Some win, some lose. As it gets harder to work out who is smart yet everyone is copying, beating that average becomes easier. That proportion of the class who are capable of beating that average have an incentive to try it. Stock picking has been massively overvalued for a long time. The costs people have paid for that value have been far too high. The index wins because it is /cheap/, the costs of investing in the index are low. As the market is now adjusting to that mispricing, among those stock pickers who can actually do it, there will be some good opportunities. Stock picking, whether buy someone like Buffet, or by an algo shop or whatever isn't going to go away. Every time the market is mispriced there's an opportunity. Price will end up somewhere close to value in the long run. It's amazing that with index funds it took so very long to happen. Malkiel pointed it out pretty clearly in a popular book that hasn't been out of print since, what, 40+ years ago. It's great, everyone should read it for its market insights, especially if you want to pick stocks. https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street
  - puranjay 10y ago
    Stretch the timescale long enough and everything will collapse. In the case of financial institutions, this timescale is often within a human lifespan. So you might be wrong today, might be wrong tomorrow, but if you bet on failure, you will eventually be right.
    - tonyedgecombe 10y ago
      In an apocalypse type scenario all bets are off anyway so you might as well ignore it.
    - spinchange 10y ago
      Your bet can remain wrong longer than you can remain solvent.
- runeks 10y ago
  It's also possible that Vanguard just delivers the same products as their competitors, just at a significantly lower price (management cost). Keep in mind also that "growing" in this context doesn't refer to huge profits (as far as I know). As far as I can see, as a non-expert, Vanguard just offers the same products as everyone else, except at half the yearly management cost. I mean, when you're looking for some index fund, and Vanguard is one third the cost, is it any surprise they're taking away customers from the incumbents? EDIT: For example, here's TLT (0.15% p.a.) vs Vanguard's long term bond etf (0.07% p.a.): https://personal.vanguard.com/us/funds/snapshot?FundId=3144&FundIntExt=INT https://personal.vanguard.com/us/funds/snapshot?FundId=3144&... https://www.ishares.com/us/products/239454/ishares-20-year-treasury-bond-etf https://www.ishares.com/us/products/239454/ishares-20-year-t...
  - bluGill 10y ago
    Vanguard is the incumbent in index funds. They invented them, and it was many years before anyone else offered them.
- lr4444lr 10y ago
  Collapse how? And what would the fallout be, that investors lose some money through lawyer fees and auction write-downs? The value added is in the services of trading the underlying equities, not the companies issuing the actual stock, which are as sound as the market indices they replicate.
sjeanpierre 10y ago
Charles Ponzi would be proud
- TDL 10y ago
  How is Vanguard a ponzi scheme?
  - nimchimpsky 10y ago
    its not.
nugget 10y ago
Anyone who wants to learn more about passive index investing should check out Bogleheads (bogleheads.org). My second favorite forum after HN.
- dv35z 10y ago
  Agreed - Intelligent, civil, and welcoming. Been reading (& posting occasionally) since 2007. The demographic tends to skew older, so there is a lot of life experience behind some of the commsnts. Check it out!
- mandlar 10y ago
  You may also want to check out /r/financialindependence on reddit.
konschubert 10y ago
I wouldn't be surprised if most of the money was coming from people's savings books. With zero interest rates, the next best thing to store one's savings is an ETF. I feel like the increase in stock prices in the recent years is caused by this demand, not by an increase in productivity. The sinking ROI of dividend-driven stocks is an indicator for that.
- virmundi 10y ago
  It's not just the proletariat's savings. It's eveyone's. Some places have negative rates. You pay the bank. This means that money had to go some where. We have it in the market. As a result smart people and dumb people like me have waited for the market to adjust down 25% or more. I lost 2k on a market short ETN. Given the amount of money just looking for a home the market has no where else to go but up until that money stops.
- deleted 10y ago
  [deleted]
NTDF9 10y ago
Here's a question for someone more savvy than me. What happens if the vast majority of stock investments end up in vanguard funds? In an economic crises, will everyone try to sell the same set of funds and will crash the funds themselves?
- tim333 10y ago
  If everyone sells then the market will go down as it does now. It doesn't make much difference if that happens via a fund holding or not.
  - theodorton 10y ago
    You can't sell without having someone buying.
    - sparky_z 10y ago
      Hence why the price goes down until someone does.
      - tim333 10y ago
        Yeah it was slightly loose speech. When most people put in sell orders the price drops till someone steps in to buy, if only the market maker, so the number of shares sold and bought match.
- slededit 10y ago
  Active traders will have an outsized impact on the movement of stocks. Which could allow for fun games in the derivatives market. E.g. force a stock up and short it in a derivative. This kind of activity was much easier in the past so its not unprecedented.
- hyperpallium 10y ago
  Another effect is over-valuing of stocks with sufficiently high caps to enter the index being tracked. (A similar already occurs with huge institutional investors (e.g. retirement fund managers) that have too much money to invest to worry about small caps - Warren Bufett also has this first-world problem. Yet another similar effect occurs through bigger caps getting more publicity, so more people invest in them, disproportionately driving up the price.) The result is smaller caps become more attractive (to small investors). Which results in greater investment in them - but only up to the point allowed by the above effects. So the undervaluing persists. Kinda similar to tiny startups finding tiny markets attractive, that aren't worth it for incumbent to pursue.
xwvvvvwx 10y ago
If all vanguard does is buy (not pick) stocks for you, why wouldn't you just skip the fee and buy the stocks yourself?
- nimchimpsky 10y ago
  show me where I can buy stocks for free ? Its cheaper to buy via vanguard.
  - marnett 10y ago
    Robinhood??
    - nabaraz 10y ago
      It's relatively new. They have no site, trading and research tools, investing plans etc. Most of the big brokers offer commission free trades on ETF's and mutual funds.
      - icelancer 10y ago
        Can you name a few that support commission-free trades on ETFs/Mutual Funds for Roth IRA accounts? Can't find one using Google. Thanks.
        nabaraz 10y ago
        Almost all of the top brokers have some sort of commission-free ETFs/mututal funds. - TDAmeritrade [1] - Schwab [2] [1] - https://research.tdameritrade.com/grid/public/etfs/commissionfree/commissionfree.asp https://research.tdameritrade.com/grid/public/etfs/commissio... [2] - http://www.schwab.com/public/schwab/investing/accounts_products/investment/etfs/schwab_etf_onesource http://www.schwab.com/public/schwab/investing/accounts_produ...
        icelancer 10y ago
watertorock 10y ago
Could vanguard become too big too fail? Is that a legitimate risk?
- lingben 10y ago
  no, they are an asset manager, not bank or other credit/lending inst
  - tanderson92 10y ago
    And they don't actually hold the stocks in their fund; they are held in trust at JPM depository trust.
ilyagr 10y ago
Vanguard seems to have gone a bit too far with cost-cutting in the customer services department. One of my most frustrating recent experiences was dealing with Vanguard's website and customer service. There were all kinds of issues, some minor annoyances, others serious time sinks. Here's an excerpt from a long and boring story: ... One day, I couldn't log in to their website. Attempting to go through "forgot my password" had me fill out a long form with security question. I filled it out, pressed submit, and was presented with the same form, but blank. No error message, nothing else. I thought their website must be broken that day, tried again the next day with the same result. After doing this a few times, I called them. Turns out, my account got into some invalid state. It took them more than a week after that to figure out what was wrong with the account and fix it. Then, my account fixed, I tired to buy some eft-s. Website replies: "Cannot perform this transaction, call us for assistance". I think that's a temporary outage, try again the next day. I called them again, waited a while to get an agent, found out they needed some more documents from me. I sent them in, but there was no way to find out if they were happy with the documents on their website ...
- SwellJoe 10y ago
  I don't understand how companies like that can thrive (but many do). If I have to pick up the phone to solve a problem even once, I'm angry. If I have to call them twice, I'm looking at alternatives. I may decide not to switch if the alternatives are even worse...but, I'm looking to get out of the shitty relationship I find myself in with that company. (This frustration is fresh in my mind because Security Metrics just told me to call them about PCI compliance...I refused, and will be going elsewhere for that service.) Big finance seems particularly bad at user-facing technology. Which doesn't really give me confidence in their back end tech.
  - hueving 10y ago
    You can't really switch 401k providers when your employer picks them.
    - SwellJoe 10y ago
jordanthoms 10y ago
How does control/governance for Vanguard actually work? It's apparently owned by the investors in the funds, but I own some ETFs through Vanguard and I've never seen a proxy form. Very happy with the service, just curious about that aspect.
- ajdlinux 10y ago
  My understanding is that individual fund investors will never see a proxy form - the fund's decisions on how it will vote are determined by the managers. Also, take a look at https://about.vanguard.com/vanguard-proxy-voting/ https://about.vanguard.com/vanguard-proxy-voting/
  - jordanthoms 10y ago
    I was referring more to control of Vanguard itself - i.e. choosing the Board of directors for Vanguard. I did a bit of digging though, and it seems they are actually elected by the shareholders of Vanguard funds - but they are appointed for lifetime terms, and up to 1/3 of the directors may be appointed by the other directors. So they only need to go to a vote of shareholders occasionally - looks like the last was in 2009. The proxy form from that meeting: http://www.vanguard.com/jumppage/proxy/PROXYA.pdf http://www.vanguard.com/jumppage/proxy/PROXYA.pdf
    - thisisit 10y ago
      That is one of the major concerns regarding indexing and Vanguard in general. The process for selecting directors in Vanguard indirectly affects the proxy voting for corporate governance in stocks owned by the fund. Many people think it will lead to lower competition because of the objective of the fund is to keep in line with the market and not beat it.
      - ajdlinux 10y ago
        FWIW I can't say I'm terribly happy with Vanguard's environmental proxy voting record...
warcher 10y ago
I'm fascinated at how Vanguard's essential idea plays out over the long term. The basic value proposition seems to be that Wall Street is extracting more value in fees than they're making in smart stock picks. Which thus far has been pretty accurate, but is the contribution of stock pickers actually zero? Is it negative? Where do we reach a fixpoint, and how? Do the stock pickers, clever scamps that they are, figure out a way to take advantage of the Bogleheads and their naivete? Are they already doing so? Is this going to turn the stock market into just one big house of cards? I mean, don't get me wrong, I absolutely buy that Wall Street is a bunch of crooks-- it's a hell of a lot easier to extract fees from your customers than it is to beat a market full of highly motivated Ivy Leauge MBAs. But where does it stop? If I've seen any trends in the financial markets, it's that every good idea will eventually be flogged to death, usually with catastrophic results.
- kirrent 10y ago
  I've read people who theorise that as index funds grow larger their shortcomings increases the rewards for more active traders who now have more opportunities available that aren't being taken advantage of by those index funds, no matter how closely and quickly they track a given index. Presumably that theory would lead to some equilibrium between the two investing styles.
  - warcher 10y ago
    I'm crossing my fingers for the ol invisible hand evening this whole thing out-- Wall Street takes a haircut on fees until they reach pricing equilibrium. It's not like financial analysts are without value. I just don't know if they deliver the value they extract. Bogle made a pretty compelling argument that they do not. Is there a doomsday scenario, haha?
- lz400 10y ago
  I think a few stock pickers are really good at their jobs while a lot of others are mediocre to plain bad. The problem is that the ones that are consistently good are usually boutique hedge funds not open for normal people, some of them like Renaissance Tech only invest their own money and take no external funds anymore. Part of this is that their edge only works if their moves don't alter the market too much and for that there's a limit to how much money they can manage. But at the end of the day if you are not a rich investor with access to stuff like that I wouldn't be surprised if chances are an index fund is going to outperform most stuff Wall Street might try to sell you.
seahonky 10y ago
Bogle, Graham & Buffett are the proletariat's guardian angels.
- powera 10y ago
  Paul Graham or Benjamin Graham?
  - aangjie 10y ago
    Sounds easy.. Based on context I'd say it's Benjamin.
- aminorex 10y ago
  If they lead them into an indexing bubble, they do them no service.
Animats 10y ago
With index funds so big, who determines prices? An index fund tied to the S&P 500 just buys stocks in the proportion that they're in the S&P 500. The price of the stock plays no role in that decision. At some point, this has to create problems, but so far it hasn't. It does mean the active traders, who are basically moving the same money around all day, have an outsized influence on prices. Index funds are so successful because managed stock funds, as a class, underperform the market indices. So do hedge funds, which are a net lose for their investors. People are finally aware that Wall Street's stock pickers mostly aren't very good.
- gabemart 10y ago
  I had assumed - perhaps incorrectly - that as more and more money is invested in index funds and similar passive vehicles, it becomes increasing easy to beat the market as an active trader. My thinking goes like this - as less money in invested actively, the market becomes less efficient at pricing. As the market becomes less efficient at pricing, it becomes easier to make money as an active trader. As it becomes easier to make money as an active trader, more money is invested actively, and the market becomes more efficient at pricing. I may be using "active trading" incorrectly -- I just mean any kind of non-passive trading, both long and short term. But presumably, any kind of active trading theoretically increases the pricing efficiency of the market?
  - bsder 10y ago
    HFT is very efficient. Individuals will simply not beat HFT unless they actually have insider information.
    - Shounak 10y ago
      I believe the comment was talking about any kind of active trading (i.e. picking individual stocks to buy and sell), not only HFT, which uses millisecond fluctuations in security price to make a profit.
      - 10y ago
yalogin 10y ago
Vanguard is the reason why Betterment and wealth front never made any sense to me. There is no way they can be better than just putting in vanguard funds myself. I still do t understand what their value proposition is.
- silverpikezero 10y ago
  Tax Loss Harvesting. This is the sole reason why Betterment(/Wealthfront) is superior to Vanguard. The benefits of this technique more than offset any fees they charge.
  - HappyTypist 10y ago
    If you have a Roth IRA tax loss harvesting makes no sense. Also, Vanguard can easily implement TLH.
  - zeroer 10y ago
    That's really debatable. After 10~15 years of investment in Betterment or Wealthfront, in all likelihood all of your investments will be in the black, and there will be no opportunities for loss harvesting. But you're still stuck paying the 25 basis points per year unless you sell (and thus incur the capital gains, anyways).
    - acchow 10y ago
      False - this is not how tax loss harvesting works. Even if you are in the black every year, you can still benefit from it.
      - zeroer 10y ago
        That is exactly how tax loss harvesting works. Here's a quote from Betterment: "What is Tax Loss Harvesting? Tax loss harvesting is the practice of selling a security that has experienced a loss." https://www.betterment.com/tax-loss-harvesting/ https://www.betterment.com/tax-loss-harvesting/
atemerev 10y ago
Of course. There wasn't a significant recession since 2009. It is psychologically very easy to buy into a rising market. When the next (inevitable) correction happens, the tide will change and stock pickers will return to the spotlight. (It might be not rational, of course. But markets are never rational. They are efficient — efficient in projection of our hopes and fears).
- davidgl 10y ago
  > "It might be not rational, of course. But markets are never rational. They are efficient — efficient in projection of our hopes and fears" Beautifully said
- dlubarov 10y ago
  I don't think market conditions have much to do with it. Whether to invest in the market, or in a certain asset class, is a separate decision from whether to pick stocks or buy a passively managed fund. Passively managed money has been increasing because there are more low-cost funds available, and lots of education about stock picking versus passively managed funds (e.g. Warren Buffet, A Random Walk).
  - Ntrails 10y ago
    > Whether to invest in the market, or in a certain asset class, is a separate decision from whether to pick stocks or buy a passively managed fund. Picking stocks vs Picking managers vs Passively investing, but sure. You're right in principle but i'd question whether it's true in practice?
  - atemerev 10y ago
    Well, the question is scientifically valid. My theory predicts that when the next major recession happens, Vanguard and other passively managed funds will become dramatically less popular (which will amplify the fall), and actively managed funds will come back. Your theory predicts that none of this will happen when recession strikes. So, I propose we wait and see. :)
StavrosK 10y ago
I would very much like to invest in index funds, but Vanguard need a social security number, which I don't have. Does anyone know of an alternative that doesn't require an SSN, or something comparable to Vanguard in the EU?
- tonfa 10y ago
  Do you know about ETF? Most of the Vanguard mutual funds have an ETF version.
  - StavrosK 10y ago
    I'm afraid I'm not very up to speed, all I know is that I want index funds, basically. I have heard of ETFs, but not in any great detail.
    - lordnacho 10y ago
      Basically any brokerage account can buy the ETF like it's a stock (which is what it is). So just log into your account, find the ticker, and buy it.
      - StavrosK 10y ago
        Oh, that's great, thank you. I will open a brokerage account here and buy the ETF then, thanks again.
- martinml 10y ago
  You would have to go through a EU bank who would act as a middleman. There are many of them that have zero fees so it would be practically like if you were investing directly with Vanguard.
  - StavrosK 10y ago
    Ah, that's an interesting suggestion, thank you. Do you know any banks, or what I could search for to find them? I'm clueless about this, I'm afraid.
cJ0th 10y ago
The fact that Vanguard is growing faster than everybody else combined is interesting indeed. The article itself, however, reads like one big ad for Vanguard. The fact that the NYT is somewhat affiliated with them ("They number well over 20 million and include New York Times employees: Vanguard runs the company’s 401(k) retirement plans.") doesn't help either. What I miss is a critical examination of the situation. They're just drinking the Kool-Aid. Although negativity on HN is often too high I am glad it is here when it comes to articles like this one!
- posguy 10y ago
  Its the plight of the newsreader, whereby you add nothing when writing about a subject, do no research on it, and avoid thinking critically about the news you've been told to publish or read to the viewers on TV. Newsreaders are not journalists, and being unable to form an opinion of their own, they are often willing to regurgitate anything their sources tell them without fail.
  - aminorex 10y ago
    I'll go one step further: "Journalists" are not journalists, and being unable to form an opinion of their own, they are often willing to regurgitate anything their sources tell them without fail.
    - aminorex 10y ago
      I seem to have struck a nerve. You know it is true. The white house press corps, the science coverage, etc. Most reporters are undeserving of the association with journalism on the level of an, e.g. greenwald. They act as propaganda channels for "authorities".
  - arcbyte 10y ago
    I don't know what world you're living in. The news is too full of opinion these days. If only I could find a source that JUST reported the facts I would give them all my money.
q-base 10y ago
Think I may need to dig deeper into this. But a few questions that one of you may be able to answer. Seems like you won't get super large returns but on the other hand you won't risk super large losses either. But sounds like instead of having cash on a bank account, earning no interest, it may be worth putting them into EFT's? Or have I totally misunderstood? Is it only possible to tie your money up for longer periods for instance? Any caveats as Dane looking at Vanguard? Fee's, cross rates or other I may have missed in this?
- snotrockets 10y ago
  There is a risk, but it is averaged over hundreds of equities instead of just a few, as with directly buying shares (unless you can afford to spread a lot; if you do, you can afford a wealth manager). If just a few equities are decreasing in value, it'll balance out. But if they all loose, like on October 19th, 1987, when the S&P 500 lost 20.47%, you'd be much poorer.
  - q-base 10y ago
    Thanks a lot. I need to read up on investing in index funds and Vanguard sounds like a good bet if I decide to go that way.
ivoras 10y ago
It makes me a bit sad that such index funds are not available in my part of the world - even though this is one of the shittiest countries in the EU, services like these are needed precisely because all the other services are so bad.
- mertens 10y ago
  which country is that? because there are many options available here in Western Europe (alternatives to Vanguard are iShares, SPDRs Europe, Amundi, ...).
code4tee 10y ago
Glad to see people finally waking up to the fact that most active money managers are actually terrible at managing your money.
headmelted 10y ago
As a Vanguard customer, I can understand why people are so enthusiastic about their products, and have known for a while that passive investment, and Vanguard in particular, was growing while active management was on the decline. At no point did I think the difference in inflows was anywhere close to 8.5x. And it does worry me. I'm familiar with the contention that even having some active players in the market will arbitrage the prices back to fair value, but when they compose such a small share of such a large market that's no longer a trustworthy assumption to make. There's no law that I know of that prevents active players from exploiting the knowledge that passive money will go wherever the market tells it to. There have got to be a lot of opportunities here for profiting, legally, at the expense of those passive investors, that goes beyond simple margin arbitrage. My point is, the less active money there is around, the less accurate our concept of a correct value can be. This situation has the potential to de-stabilise the economy sooner rather than later.
- bike4beer 10y ago
  About ten years ago I sold some real estate and moved some money into a Vangaurd fund it was easy, took a few minutes to setup the account online, and transfer from my credit union to the fund. Done. Five years later I tried to get the money back, I tried online but the website always failed and told me to reset my password. Finally after months I called, after hours of waiting on the phone ( skype ) I was told it was a tech problem, and need to talk to tech. After months of playing tag I finally got past the password and it said that the new password was sent to my mail, but I have to 'login' to read the mail, and they will not send your mail 'internet mail', so now I can't get any communication, and still can't access. Whenever I call its always the same problem, its non-english speaking people, also they only do telephone support a few hours a day, its not 24 hours like say Fidelity. So now its been 10+ years, and I have never been able to make a withdrawl, when I call I always get a run around, there is no Vanguard office where I live, so there is no 'face' to make demands. When I make requests I never get a response. In summary, Vangaurd is a black-hole; Be careful I'm glad in this case its only $10k, I'm sure by the time I ever need the money they'll say it was an abandoned account the money passed to gov, most country's have such laws where an account abandoned say 3+ years the money goes to the general fund. Anybody else here have a similar 'vanguard story to tell'?
Applejinx 10y ago
If this is not an Enron-like foreshadowing, it says something rather dark. It certainly looks like a 'bubble is about to pop' indicator, though it's generalized to the whole financial sector (to the extent that a blind index fund represents it, at least). If it does pop, it suggests that an industry that is on average not as good as its own average, is itself overvalued (as numerous other comments strongly imply). If it does NOT pop, it's speaking a deeper truth. It speaks to a collective, society-wide agreement: those with power should automatically get more power. Those with money should automatically get more money. The mechanism doesn't matter: it's like a moral duty to reverse Robin Hood and fill in the reasons later. If a dumb blind index beats everything and never fails, that means we've gone all-in on redistribution of wealth to 'the winner', defined as whoever has all the wealth. And the only way to break that loop is pitchforks and guillotines. Some might say in the age of automation, AI and robotics, such disruptive things are impossible. But the original pitchforks and guillotines were in the age of early industrialization, and I'm sure nobody thought machinery and tools could end up turned against the rich and powerful. Everything's a tool eventually. Vanguard popping is the SOFT option.
- lolc 10y ago
  They don't own the assets hey manage, so they can't overvalue and go pop like Enron did. Ways to pop Vanguard: - Pop the stock market - Game their indexes - Insider trading You notice how a lot of people are already trying to do all three so it's not easy to pop Vanguard.
sytelus 10y ago
Total market cap of S&P 500 have increased from $13T to $21T from 2012 to 2017 without having corresponding underlying financial growth in companies. This $8T difference feels tantalizingly close to new investment money flowed in via ETFs. I am wondering if current rise in S&P 500 can almost entirely attributed to new money flowing in to ETFs. If this thesis is correct then we can continue to expect more bull market for next few years as we are very likely not even half way through this cycle of money flowing from active strategies to passive strategies. In other words rise of S&P 500 indexes would become self full filling prophecy for at least next few years.
- danmaz74 10y ago
  Are you assuming that active strategy wasn't investing in S&P 500?
- udev 10y ago
  New money into ETFs does not necessarily mean new money into the market. A big part of that is money just switching from actively managed mutual funds to passive index funds, e.g. recently pension funds in some states.
  - sytelus 10y ago
    Active strategy may be investing in small/mid caps, currency, commodities, bonds, emerging markets and so on. Lot of that money would be pulled in to biggest popular indexes now such as S&P 500.
    - deleted 10y ago
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- nikcub 10y ago
  > This $8T difference feels tantalizingly close to new investment money flowed in via ETFs FT says it is about $2T net in the past 8 years, and about a third of volume today[0]. Also an interesting article because it talks about the potential issues on market volatility ETF inflows introduce [0] https://www.ft.com/content/d12ac93c-a507-11e6-8b69-02899e8bd9d1 https://www.ft.com/content/d12ac93c-a507-11e6-8b69-02899e8bd...
cylinder 10y ago
Well, now's the time to leave equities or go active. I've never heard of anyone getting rich by following the herd.
- dsacco 10y ago
  If your goal is to get rich, sure. But going with the herd isn't necessarily unsafe. The goal of "getting rich" is generally incongruous with passive investing either way. The risk/reward profile of active investing and index fund investing are completely different, so that will be more than a decision of upside you want to pursue.
  - cylinder 10y ago
    It remains to be seen how risky passive index investing is now that so much money is in it.
- zeroer 10y ago
  You haven't talked to many people then. There are plenty of people who've built wealth via index funds.
- nommm-nommm 10y ago
  I've built my wealth significantly with index funds. "Get rich?" No, but that's not my goal because getting rich requires a ton more risk, usually leverage, and tons of work.
clubm8 10y ago
There's been something I've been thinking about: with so many people purchasing index funds, what happens when there is a major downturn in the market? What happens when millions of people sell off their shares in say, VASGX (basically an 80/20 stock/bond index fund)? Would that effectively tank the entire market rather than sectors doing poorly.
- mason55 10y ago
  Really depends on what indexing implies. If you're talking about a world where everyone trades actively but instead of trading individual companies they only trade broad index funds then, yes, swings in the market would be amplified. Although in that world you would imagine that there would be a lot of alpha to be picked off by smart traders and so that should counteract the "dumb money" actively trading indexers. If indexing also implies passive/"set and forget"-style trading then you would actually dampen market swings. You'd have fewer people selling as the market tanked and fewer people buying the big rallies.
- nojvek 10y ago
  I think lots of investors have herd mentality. If it's rising, pump more money, If it's descending, pull out money. I definitely see a big crash if people don't trust the market. Right now things are great as there is a lot of hot money flowing. If people hide the money then you'd need something like stimulus to jump start the system again.
- southphillyman 10y ago
  One of the "Pros" of passive investment is that you are in it for the long haul and not reactive to immediate swings in the market. In your scenario I believe the investor is supposed to treat a downswing like you would a 401k account. Cry inside at the losses and wait for recovery since your target date is likely 20-30 yrs down the road.
southphillyman 10y ago
I was a contractor at Vanguard around 2007-2008. IIRC, pay wasn't that good but rank and file FTE recieved 30k+ bonuses (allegedly). With this recent growth I wonder if compensation there has grown at a similar rate. I rarely hear people mention it as a good place to work or as having highly competitive compensation.
- mfb2 10y ago
  The compensation structure has been significantly revamped since then. Partnership isn't what it used to be, so people don't get the big payments like they used to.
hackeraccount 10y ago
someone explain "reversion to the mean" I don't understand it.
- haltingthoughts 10y ago
  If an average is unusually high/low it will tend to go back to the mean after time. In the stock market this means that looking over a short timespan one will see large variance in the returns but over a long timespan (30+ years) the returns will be more consistent and nearly all positive.
unlmtd 10y ago
Unlimited liability is a lie. Equity is liability. Zero is not the floor of DJI. A dollar is 1.5g of gold, so the real 100 year chart is very flat, and that's without re-indexing costs. I'll have the full amount, in species please. Ohh and I didn't even touch on fiduciary risk. If you want to hold equity, have the actual paper certificates in your physical possession. They will tell you that 'we can't do that' but it's BS. Take delivery of your shit, the tide is going out.
foobiekr 10y ago
... vanguard being the only brokerage not to offer two factor is a little frustrating.
- antongribok 10y ago
  They do support Yubikey, the feature is called "Security Key", not to be confused with SMS Auth called "Security Code". https://www.bogleheads.org/forum/viewtopic.php?t=205031 https://www.bogleheads.org/forum/viewtopic.php?t=205031
jalopy 10y ago
Ultimately this is a good thing for the stock pickers that remain - fewer dollars spent actively discovering the true value of companies means longer stretches and wider swings of mispricings.
quantumhobbit 10y ago
I seems like there should be an opportunity for active investors to make money off of all the passively managed money. All I can think of would be to take advantage of the margin of the index. For example buy stock #501 and a discount and sell when it crosses into the sp 500 since vanguard will prop up the price by buying it for tge index fund. Similarly shorting #499. I'm sure that the market has gotten more sophisticated than this though. So how does it work in practice?
- tanderson92 10y ago
  Look here: https://personal.vanguard.com/us/funds/snapshot?FundIntExt=INT&FundId=0040#tab=2 https://personal.vanguard.com/us/funds/snapshot?FundIntExt=I... The Vanguard S&P500 index fund currently contains 511 stocks. Even the S&P500 index itself holds 505 stocks.
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- kgwgk 10y ago
  It's not obvious when a company is going to be added to an index. The strategy may work, but there are no guarantees. https://www.indexologyblog.com/2015/07/07/inside-the-sp-500-adds-drops-and-tall-tales/ https://www.indexologyblog.com/2015/07/07/inside-the-sp-500-... https://www.usatoday.com/story/money/columnist/krantz/2013/07/05/stocks-soar-added-sp-500/2447185/ https://www.usatoday.com/story/money/columnist/krantz/2013/0...
dragontamer 10y ago
> The scale of that inflow becomes clear when it is compared with the rest of the mutual fund industry — more than 4,000 firms in total. No mentions of ETFs? SPDR is not a mutual fund company. > Already, six out of the 10 largest mutual funds by asset size belong to Vanguard, with the largest, Vanguard Total Stock Market Index, now weighing in at $465 billion, according to Morningstar. The elephant in the room is ETFs like SPDR. SPY (SPDR's largest fund) has $230 Billion in assets. It isn't quite as big as Vanguard, but clearly SPY needs to be mentioned. The silence is deafening. "Classic" active mutual fund companies may be dying, but a new breed of investing has already begun... and its competing against Vanguard quite gloriously. Low cost, quickly traded, with large numbers of derivatives: ETFs.
cmurf 10y ago
I imagine they must have some kind of stop loss strategy; there's a bunch of research comparing various strategies to buy and hold, and buy and hold is pretty much 2nd worst, with the worst being an overly aggressive stop loss (like sell everything at a 5% drop).
olleromam91 10y ago
Lot of posts in here about the inherent problems ahead being "self correcting". Anyone have thoughts on when getting back into active funds would be smart?

450 points by deegles 10y ago

uiri 10y ago

Original article (and not behind a paywall): http://news.morningstar.com/articlenet/article.aspx?id=802679 http://news.morningstar.com/articlenet/article.aspx?id=80267...

debatem1 10y ago

This feels like an article that will be shown for irony points in a documentary about Vanguard's collapse a few years from now.

kevindong 10y ago
Why do you say Vanguard will collapse?
- faitswulff 10y ago
  I assumed OP was talking less about Vanguard and more about the breathless tone of the article.
- debatem1 10y ago
  Post hoc ergo propter hoc. Articles like this showed up for Enron and MCI/WorldCom and all the others, extolling one virtue or another and showcasing their success. Now we have one for Vanguard, ergo it will fail. I'm not serious, of course. But pride does seem to come before the fall, and just out of an excess of caution I might move some money out of my vanguard funds next week.
  - tim333 10y ago
    You've got to take in to account that Vanguard doesn't actually do much - just buy stocks on your behalf and charge 0.12% for doing so. If it stopped doing that because some other operator was doing it for 0.08% it wouldn't be a big deal. The bigger deal would be if the general market collapsed for some reason but that would affect everyone, not just Vanguard.
    - debatem1 10y ago
      Ok. I'm curious why you're telling me this. What's your motivation? There's certainly no point in arguing with me, since I'm both reasonably poorly informed and aware of it; I have made no bones about the fact that my post was unserious. Yet you leap to the defense of what should, after all, be a very unexciting thing. And you aren't alone in doing so. That, like this breathless article, is mildly troubling to me. These institutions should engender no loyalty, embody no attributes; only then does the market actually work. Evidence of those tendencies suggests the distorting effect of human psychology. And in tone it is too much like what we saw before the collapse for my liking.
      - askafriend 10y ago
        > Yet you leap to the defense of what should, after all, be a very unexciting thing. I actually think finance is interesting to read about and it can be exciting to try to make sense of the chaos. If all of this really was that boring, you probably wouldn't have even clicked to read the comments!
      - icebraining 10y ago
        You're reading way too much into the motivations for comments. The simplest explanation is usually the best: https://xkcd.com/386/ https://xkcd.com/386/
      - tim333 10y ago
        Well I've known Vanguard for about 30 years and am a fan as it's saved the investing public many billions over that time, certainly if you compare them to normal fund management companies even if just buying and holding shares directly is probably cheaper still. But I was just pointing out they offer a rather dull, value for money service and are not going to collapse Enron style. They could decline Sears style however.
    - deleted 10y ago
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  - pocketsquare2 10y ago
    You're comparing Vanguard to Enron & MCI / WorldCom. Would you mind explaining your analogy? It doesn't make sense to me. I don't think, for example, my investments in Vanguard funds are precarious because they are over-leveraged in bespoke weather derivatives.
  - sunnyps 10y ago
    You know that post hoc ergo propter hoc is a logical fallacy, right?
- etherael 10y ago
  Thought experiment. Imagine you have a class full of studious and competent students, they do well on exams and generally display the performance characteristics and output you'd expect from a class full of studious and competent students. Then the rules change. From here on in, plagiarism is no longer a code violation. The obvious happens, everyone copies from the smartest kid in the class, measured by the heretofore pretty reliable indicators of proficiency built up in the previous system. But the next year comes along, and everyone's just that little bit less certain who the smartest kid in the actual class is, so instead they start measuring by how rich his father is, or how confident he sounds when he makes his declarations. Iterate the system a few generations, and although the first iteration will indeed result in better results across the board for all students, as people become more and more unhinged from the underlying realities of scholastic performance for students as they come and go through the system, would it not stand to reason that eventually you're just going to have a bunch of idiots copying people who yell the loudest, and seem the most like they're successful?
  - harry8 10y ago
    This analogy has its limitations but let's go with it a small way. Everyone has the choice to copy who they think is smart or write their own answer. Each person compares the expected value of writing their own answer with copying whoever they think is smart. Some win, some lose. As it gets harder to work out who is smart yet everyone is copying, beating that average becomes easier. That proportion of the class who are capable of beating that average have an incentive to try it. Stock picking has been massively overvalued for a long time. The costs people have paid for that value have been far too high. The index wins because it is /cheap/, the costs of investing in the index are low. As the market is now adjusting to that mispricing, among those stock pickers who can actually do it, there will be some good opportunities. Stock picking, whether buy someone like Buffet, or by an algo shop or whatever isn't going to go away. Every time the market is mispriced there's an opportunity. Price will end up somewhere close to value in the long run. It's amazing that with index funds it took so very long to happen. Malkiel pointed it out pretty clearly in a popular book that hasn't been out of print since, what, 40+ years ago. It's great, everyone should read it for its market insights, especially if you want to pick stocks. https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street
- puranjay 10y ago
  Stretch the timescale long enough and everything will collapse. In the case of financial institutions, this timescale is often within a human lifespan. So you might be wrong today, might be wrong tomorrow, but if you bet on failure, you will eventually be right.
  - tonyedgecombe 10y ago
    In an apocalypse type scenario all bets are off anyway so you might as well ignore it.
  - spinchange 10y ago
    Your bet can remain wrong longer than you can remain solvent.
runeks 10y ago
It's also possible that Vanguard just delivers the same products as their competitors, just at a significantly lower price (management cost). Keep in mind also that "growing" in this context doesn't refer to huge profits (as far as I know). As far as I can see, as a non-expert, Vanguard just offers the same products as everyone else, except at half the yearly management cost. I mean, when you're looking for some index fund, and Vanguard is one third the cost, is it any surprise they're taking away customers from the incumbents? EDIT: For example, here's TLT (0.15% p.a.) vs Vanguard's long term bond etf (0.07% p.a.): https://personal.vanguard.com/us/funds/snapshot?FundId=3144&FundIntExt=INT https://personal.vanguard.com/us/funds/snapshot?FundId=3144&... https://www.ishares.com/us/products/239454/ishares-20-year-treasury-bond-etf https://www.ishares.com/us/products/239454/ishares-20-year-t...
- bluGill 10y ago
  Vanguard is the incumbent in index funds. They invented them, and it was many years before anyone else offered them.
lr4444lr 10y ago
Collapse how? And what would the fallout be, that investors lose some money through lawyer fees and auction write-downs? The value added is in the services of trading the underlying equities, not the companies issuing the actual stock, which are as sound as the market indices they replicate.

sjeanpierre 10y ago

Charles Ponzi would be proud

TDL 10y ago
How is Vanguard a ponzi scheme?
- nimchimpsky 10y ago
  its not.

nugget 10y ago

Anyone who wants to learn more about passive index investing should check out Bogleheads (bogleheads.org). My second favorite forum after HN.

dv35z 10y ago
Agreed - Intelligent, civil, and welcoming. Been reading (& posting occasionally) since 2007. The demographic tends to skew older, so there is a lot of life experience behind some of the commsnts. Check it out!
mandlar 10y ago
You may also want to check out /r/financialindependence on reddit.

konschubert 10y ago

I wouldn't be surprised if most of the money was coming from people's savings books. With zero interest rates, the next best thing to store one's savings is an ETF. I feel like the increase in stock prices in the recent years is caused by this demand, not by an increase in productivity. The sinking ROI of dividend-driven stocks is an indicator for that.

virmundi 10y ago
It's not just the proletariat's savings. It's eveyone's. Some places have negative rates. You pay the bank. This means that money had to go some where. We have it in the market. As a result smart people and dumb people like me have waited for the market to adjust down 25% or more. I lost 2k on a market short ETN. Given the amount of money just looking for a home the market has no where else to go but up until that money stops.
deleted 10y ago
[deleted]

NTDF9 10y ago

Here's a question for someone more savvy than me. What happens if the vast majority of stock investments end up in vanguard funds? In an economic crises, will everyone try to sell the same set of funds and will crash the funds themselves?

tim333 10y ago
If everyone sells then the market will go down as it does now. It doesn't make much difference if that happens via a fund holding or not.
- theodorton 10y ago
  You can't sell without having someone buying.
  - sparky_z 10y ago
    Hence why the price goes down until someone does.
    - tim333 10y ago
      Yeah it was slightly loose speech. When most people put in sell orders the price drops till someone steps in to buy, if only the market maker, so the number of shares sold and bought match.
slededit 10y ago
Active traders will have an outsized impact on the movement of stocks. Which could allow for fun games in the derivatives market. E.g. force a stock up and short it in a derivative. This kind of activity was much easier in the past so its not unprecedented.
hyperpallium 10y ago
Another effect is over-valuing of stocks with sufficiently high caps to enter the index being tracked. (A similar already occurs with huge institutional investors (e.g. retirement fund managers) that have too much money to invest to worry about small caps - Warren Bufett also has this first-world problem. Yet another similar effect occurs through bigger caps getting more publicity, so more people invest in them, disproportionately driving up the price.) The result is smaller caps become more attractive (to small investors). Which results in greater investment in them - but only up to the point allowed by the above effects. So the undervaluing persists. Kinda similar to tiny startups finding tiny markets attractive, that aren't worth it for incumbent to pursue.

xwvvvvwx 10y ago

If all vanguard does is buy (not pick) stocks for you, why wouldn't you just skip the fee and buy the stocks yourself?

nimchimpsky 10y ago
show me where I can buy stocks for free ? Its cheaper to buy via vanguard.
- marnett 10y ago
  Robinhood??
  - nabaraz 10y ago
    It's relatively new. They have no site, trading and research tools, investing plans etc. Most of the big brokers offer commission free trades on ETF's and mutual funds.
    - icelancer 10y ago
      Can you name a few that support commission-free trades on ETFs/Mutual Funds for Roth IRA accounts? Can't find one using Google. Thanks.
      - nabaraz 10y ago
        Almost all of the top brokers have some sort of commission-free ETFs/mututal funds. - TDAmeritrade [1] - Schwab [2] [1] - https://research.tdameritrade.com/grid/public/etfs/commissionfree/commissionfree.asp https://research.tdameritrade.com/grid/public/etfs/commissio... [2] - http://www.schwab.com/public/schwab/investing/accounts_products/investment/etfs/schwab_etf_onesource http://www.schwab.com/public/schwab/investing/accounts_produ...
        icelancer 10y ago

watertorock 10y ago

Could vanguard become too big too fail? Is that a legitimate risk?

lingben 10y ago
no, they are an asset manager, not bank or other credit/lending inst
- tanderson92 10y ago
  And they don't actually hold the stocks in their fund; they are held in trust at JPM depository trust.

ilyagr 10y ago

Vanguard seems to have gone a bit too far with cost-cutting in the customer services department. One of my most frustrating recent experiences was dealing with Vanguard's website and customer service. There were all kinds of issues, some minor annoyances, others serious time sinks. Here's an excerpt from a long and boring story: ... One day, I couldn't log in to their website. Attempting to go through "forgot my password" had me fill out a long form with security question. I filled it out, pressed submit, and was presented with the same form, but blank. No error message, nothing else. I thought their website must be broken that day, tried again the next day with the same result. After doing this a few times, I called them. Turns out, my account got into some invalid state. It took them more than a week after that to figure out what was wrong with the account and fix it. Then, my account fixed, I tired to buy some eft-s. Website replies: "Cannot perform this transaction, call us for assistance". I think that's a temporary outage, try again the next day. I called them again, waited a while to get an agent, found out they needed some more documents from me. I sent them in, but there was no way to find out if they were happy with the documents on their website ...

SwellJoe 10y ago
I don't understand how companies like that can thrive (but many do). If I have to pick up the phone to solve a problem even once, I'm angry. If I have to call them twice, I'm looking at alternatives. I may decide not to switch if the alternatives are even worse...but, I'm looking to get out of the shitty relationship I find myself in with that company. (This frustration is fresh in my mind because Security Metrics just told me to call them about PCI compliance...I refused, and will be going elsewhere for that service.) Big finance seems particularly bad at user-facing technology. Which doesn't really give me confidence in their back end tech.
- hueving 10y ago
  You can't really switch 401k providers when your employer picks them.
  - SwellJoe 10y ago

jordanthoms 10y ago

How does control/governance for Vanguard actually work? It's apparently owned by the investors in the funds, but I own some ETFs through Vanguard and I've never seen a proxy form. Very happy with the service, just curious about that aspect.

ajdlinux 10y ago
My understanding is that individual fund investors will never see a proxy form - the fund's decisions on how it will vote are determined by the managers. Also, take a look at https://about.vanguard.com/vanguard-proxy-voting/ https://about.vanguard.com/vanguard-proxy-voting/
- jordanthoms 10y ago
  I was referring more to control of Vanguard itself - i.e. choosing the Board of directors for Vanguard. I did a bit of digging though, and it seems they are actually elected by the shareholders of Vanguard funds - but they are appointed for lifetime terms, and up to 1/3 of the directors may be appointed by the other directors. So they only need to go to a vote of shareholders occasionally - looks like the last was in 2009. The proxy form from that meeting: http://www.vanguard.com/jumppage/proxy/PROXYA.pdf http://www.vanguard.com/jumppage/proxy/PROXYA.pdf
  - thisisit 10y ago
    That is one of the major concerns regarding indexing and Vanguard in general. The process for selecting directors in Vanguard indirectly affects the proxy voting for corporate governance in stocks owned by the fund. Many people think it will lead to lower competition because of the objective of the fund is to keep in line with the market and not beat it.
    - ajdlinux 10y ago
      FWIW I can't say I'm terribly happy with Vanguard's environmental proxy voting record...

warcher 10y ago

I'm fascinated at how Vanguard's essential idea plays out over the long term. The basic value proposition seems to be that Wall Street is extracting more value in fees than they're making in smart stock picks. Which thus far has been pretty accurate, but is the contribution of stock pickers actually zero? Is it negative? Where do we reach a fixpoint, and how? Do the stock pickers, clever scamps that they are, figure out a way to take advantage of the Bogleheads and their naivete? Are they already doing so? Is this going to turn the stock market into just one big house of cards? I mean, don't get me wrong, I absolutely buy that Wall Street is a bunch of crooks-- it's a hell of a lot easier to extract fees from your customers than it is to beat a market full of highly motivated Ivy Leauge MBAs. But where does it stop? If I've seen any trends in the financial markets, it's that every good idea will eventually be flogged to death, usually with catastrophic results.

kirrent 10y ago
I've read people who theorise that as index funds grow larger their shortcomings increases the rewards for more active traders who now have more opportunities available that aren't being taken advantage of by those index funds, no matter how closely and quickly they track a given index. Presumably that theory would lead to some equilibrium between the two investing styles.
- warcher 10y ago
  I'm crossing my fingers for the ol invisible hand evening this whole thing out-- Wall Street takes a haircut on fees until they reach pricing equilibrium. It's not like financial analysts are without value. I just don't know if they deliver the value they extract. Bogle made a pretty compelling argument that they do not. Is there a doomsday scenario, haha?
lz400 10y ago
I think a few stock pickers are really good at their jobs while a lot of others are mediocre to plain bad. The problem is that the ones that are consistently good are usually boutique hedge funds not open for normal people, some of them like Renaissance Tech only invest their own money and take no external funds anymore. Part of this is that their edge only works if their moves don't alter the market too much and for that there's a limit to how much money they can manage. But at the end of the day if you are not a rich investor with access to stuff like that I wouldn't be surprised if chances are an index fund is going to outperform most stuff Wall Street might try to sell you.

seahonky 10y ago

Bogle, Graham & Buffett are the proletariat's guardian angels.

powera 10y ago
Paul Graham or Benjamin Graham?
- aangjie 10y ago
  Sounds easy.. Based on context I'd say it's Benjamin.
aminorex 10y ago
If they lead them into an indexing bubble, they do them no service.

Animats 10y ago

With index funds so big, who determines prices? An index fund tied to the S&P 500 just buys stocks in the proportion that they're in the S&P 500. The price of the stock plays no role in that decision. At some point, this has to create problems, but so far it hasn't. It does mean the active traders, who are basically moving the same money around all day, have an outsized influence on prices. Index funds are so successful because managed stock funds, as a class, underperform the market indices. So do hedge funds, which are a net lose for their investors. People are finally aware that Wall Street's stock pickers mostly aren't very good.

gabemart 10y ago
I had assumed - perhaps incorrectly - that as more and more money is invested in index funds and similar passive vehicles, it becomes increasing easy to beat the market as an active trader. My thinking goes like this - as less money in invested actively, the market becomes less efficient at pricing. As the market becomes less efficient at pricing, it becomes easier to make money as an active trader. As it becomes easier to make money as an active trader, more money is invested actively, and the market becomes more efficient at pricing. I may be using "active trading" incorrectly -- I just mean any kind of non-passive trading, both long and short term. But presumably, any kind of active trading theoretically increases the pricing efficiency of the market?
- bsder 10y ago
  HFT is very efficient. Individuals will simply not beat HFT unless they actually have insider information.
  - Shounak 10y ago
    I believe the comment was talking about any kind of active trading (i.e. picking individual stocks to buy and sell), not only HFT, which uses millisecond fluctuations in security price to make a profit.
    - 10y ago

yalogin 10y ago

Vanguard is the reason why Betterment and wealth front never made any sense to me. There is no way they can be better than just putting in vanguard funds myself. I still do t understand what their value proposition is.

silverpikezero 10y ago
Tax Loss Harvesting. This is the sole reason why Betterment(/Wealthfront) is superior to Vanguard. The benefits of this technique more than offset any fees they charge.
- HappyTypist 10y ago
  If you have a Roth IRA tax loss harvesting makes no sense. Also, Vanguard can easily implement TLH.
- zeroer 10y ago
  That's really debatable. After 10~15 years of investment in Betterment or Wealthfront, in all likelihood all of your investments will be in the black, and there will be no opportunities for loss harvesting. But you're still stuck paying the 25 basis points per year unless you sell (and thus incur the capital gains, anyways).
  - acchow 10y ago
    False - this is not how tax loss harvesting works. Even if you are in the black every year, you can still benefit from it.
    - zeroer 10y ago
      That is exactly how tax loss harvesting works. Here's a quote from Betterment: "What is Tax Loss Harvesting? Tax loss harvesting is the practice of selling a security that has experienced a loss." https://www.betterment.com/tax-loss-harvesting/ https://www.betterment.com/tax-loss-harvesting/

atemerev 10y ago

Of course. There wasn't a significant recession since 2009. It is psychologically very easy to buy into a rising market. When the next (inevitable) correction happens, the tide will change and stock pickers will return to the spotlight. (It might be not rational, of course. But markets are never rational. They are efficient — efficient in projection of our hopes and fears).

davidgl 10y ago
> "It might be not rational, of course. But markets are never rational. They are efficient — efficient in projection of our hopes and fears" Beautifully said
dlubarov 10y ago
I don't think market conditions have much to do with it. Whether to invest in the market, or in a certain asset class, is a separate decision from whether to pick stocks or buy a passively managed fund. Passively managed money has been increasing because there are more low-cost funds available, and lots of education about stock picking versus passively managed funds (e.g. Warren Buffet, A Random Walk).
- Ntrails 10y ago
  > Whether to invest in the market, or in a certain asset class, is a separate decision from whether to pick stocks or buy a passively managed fund. Picking stocks vs Picking managers vs Passively investing, but sure. You're right in principle but i'd question whether it's true in practice?
- atemerev 10y ago
  Well, the question is scientifically valid. My theory predicts that when the next major recession happens, Vanguard and other passively managed funds will become dramatically less popular (which will amplify the fall), and actively managed funds will come back. Your theory predicts that none of this will happen when recession strikes. So, I propose we wait and see. :)

StavrosK 10y ago

I would very much like to invest in index funds, but Vanguard need a social security number, which I don't have. Does anyone know of an alternative that doesn't require an SSN, or something comparable to Vanguard in the EU?

tonfa 10y ago
Do you know about ETF? Most of the Vanguard mutual funds have an ETF version.
- StavrosK 10y ago
  I'm afraid I'm not very up to speed, all I know is that I want index funds, basically. I have heard of ETFs, but not in any great detail.
  - lordnacho 10y ago
    Basically any brokerage account can buy the ETF like it's a stock (which is what it is). So just log into your account, find the ticker, and buy it.
    - StavrosK 10y ago
      Oh, that's great, thank you. I will open a brokerage account here and buy the ETF then, thanks again.
martinml 10y ago
You would have to go through a EU bank who would act as a middleman. There are many of them that have zero fees so it would be practically like if you were investing directly with Vanguard.
- StavrosK 10y ago
  Ah, that's an interesting suggestion, thank you. Do you know any banks, or what I could search for to find them? I'm clueless about this, I'm afraid.

cJ0th 10y ago

The fact that Vanguard is growing faster than everybody else combined is interesting indeed. The article itself, however, reads like one big ad for Vanguard. The fact that the NYT is somewhat affiliated with them ("They number well over 20 million and include New York Times employees: Vanguard runs the company’s 401(k) retirement plans.") doesn't help either. What I miss is a critical examination of the situation. They're just drinking the Kool-Aid. Although negativity on HN is often too high I am glad it is here when it comes to articles like this one!

posguy 10y ago
Its the plight of the newsreader, whereby you add nothing when writing about a subject, do no research on it, and avoid thinking critically about the news you've been told to publish or read to the viewers on TV. Newsreaders are not journalists, and being unable to form an opinion of their own, they are often willing to regurgitate anything their sources tell them without fail.
- aminorex 10y ago
  I'll go one step further: "Journalists" are not journalists, and being unable to form an opinion of their own, they are often willing to regurgitate anything their sources tell them without fail.
  - aminorex 10y ago
    I seem to have struck a nerve. You know it is true. The white house press corps, the science coverage, etc. Most reporters are undeserving of the association with journalism on the level of an, e.g. greenwald. They act as propaganda channels for "authorities".
- arcbyte 10y ago
  I don't know what world you're living in. The news is too full of opinion these days. If only I could find a source that JUST reported the facts I would give them all my money.

q-base 10y ago

Think I may need to dig deeper into this. But a few questions that one of you may be able to answer. Seems like you won't get super large returns but on the other hand you won't risk super large losses either. But sounds like instead of having cash on a bank account, earning no interest, it may be worth putting them into EFT's? Or have I totally misunderstood? Is it only possible to tie your money up for longer periods for instance? Any caveats as Dane looking at Vanguard? Fee's, cross rates or other I may have missed in this?

snotrockets 10y ago
There is a risk, but it is averaged over hundreds of equities instead of just a few, as with directly buying shares (unless you can afford to spread a lot; if you do, you can afford a wealth manager). If just a few equities are decreasing in value, it'll balance out. But if they all loose, like on October 19th, 1987, when the S&P 500 lost 20.47%, you'd be much poorer.
- q-base 10y ago
  Thanks a lot. I need to read up on investing in index funds and Vanguard sounds like a good bet if I decide to go that way.

ivoras 10y ago

It makes me a bit sad that such index funds are not available in my part of the world - even though this is one of the shittiest countries in the EU, services like these are needed precisely because all the other services are so bad.

mertens 10y ago
which country is that? because there are many options available here in Western Europe (alternatives to Vanguard are iShares, SPDRs Europe, Amundi, ...).

code4tee 10y ago

Glad to see people finally waking up to the fact that most active money managers are actually terrible at managing your money.

headmelted 10y ago

As a Vanguard customer, I can understand why people are so enthusiastic about their products, and have known for a while that passive investment, and Vanguard in particular, was growing while active management was on the decline. At no point did I think the difference in inflows was anywhere close to 8.5x. And it does worry me. I'm familiar with the contention that even having some active players in the market will arbitrage the prices back to fair value, but when they compose such a small share of such a large market that's no longer a trustworthy assumption to make. There's no law that I know of that prevents active players from exploiting the knowledge that passive money will go wherever the market tells it to. There have got to be a lot of opportunities here for profiting, legally, at the expense of those passive investors, that goes beyond simple margin arbitrage. My point is, the less active money there is around, the less accurate our concept of a correct value can be. This situation has the potential to de-stabilise the economy sooner rather than later.

bike4beer 10y ago
About ten years ago I sold some real estate and moved some money into a Vangaurd fund it was easy, took a few minutes to setup the account online, and transfer from my credit union to the fund. Done. Five years later I tried to get the money back, I tried online but the website always failed and told me to reset my password. Finally after months I called, after hours of waiting on the phone ( skype ) I was told it was a tech problem, and need to talk to tech. After months of playing tag I finally got past the password and it said that the new password was sent to my mail, but I have to 'login' to read the mail, and they will not send your mail 'internet mail', so now I can't get any communication, and still can't access. Whenever I call its always the same problem, its non-english speaking people, also they only do telephone support a few hours a day, its not 24 hours like say Fidelity. So now its been 10+ years, and I have never been able to make a withdrawl, when I call I always get a run around, there is no Vanguard office where I live, so there is no 'face' to make demands. When I make requests I never get a response. In summary, Vangaurd is a black-hole; Be careful I'm glad in this case its only $10k, I'm sure by the time I ever need the money they'll say it was an abandoned account the money passed to gov, most country's have such laws where an account abandoned say 3+ years the money goes to the general fund. Anybody else here have a similar 'vanguard story to tell'?

Applejinx 10y ago

If this is not an Enron-like foreshadowing, it says something rather dark. It certainly looks like a 'bubble is about to pop' indicator, though it's generalized to the whole financial sector (to the extent that a blind index fund represents it, at least). If it does pop, it suggests that an industry that is on average not as good as its own average, is itself overvalued (as numerous other comments strongly imply). If it does NOT pop, it's speaking a deeper truth. It speaks to a collective, society-wide agreement: those with power should automatically get more power. Those with money should automatically get more money. The mechanism doesn't matter: it's like a moral duty to reverse Robin Hood and fill in the reasons later. If a dumb blind index beats everything and never fails, that means we've gone all-in on redistribution of wealth to 'the winner', defined as whoever has all the wealth. And the only way to break that loop is pitchforks and guillotines. Some might say in the age of automation, AI and robotics, such disruptive things are impossible. But the original pitchforks and guillotines were in the age of early industrialization, and I'm sure nobody thought machinery and tools could end up turned against the rich and powerful. Everything's a tool eventually. Vanguard popping is the SOFT option.

lolc 10y ago
They don't own the assets hey manage, so they can't overvalue and go pop like Enron did. Ways to pop Vanguard: - Pop the stock market - Game their indexes - Insider trading You notice how a lot of people are already trying to do all three so it's not easy to pop Vanguard.

sytelus 10y ago

Total market cap of S&P 500 have increased from $13T to $21T from 2012 to 2017 without having corresponding underlying financial growth in companies. This $8T difference feels tantalizingly close to new investment money flowed in via ETFs. I am wondering if current rise in S&P 500 can almost entirely attributed to new money flowing in to ETFs. If this thesis is correct then we can continue to expect more bull market for next few years as we are very likely not even half way through this cycle of money flowing from active strategies to passive strategies. In other words rise of S&P 500 indexes would become self full filling prophecy for at least next few years.

danmaz74 10y ago
Are you assuming that active strategy wasn't investing in S&P 500?
udev 10y ago
New money into ETFs does not necessarily mean new money into the market. A big part of that is money just switching from actively managed mutual funds to passive index funds, e.g. recently pension funds in some states.
- sytelus 10y ago
  Active strategy may be investing in small/mid caps, currency, commodities, bonds, emerging markets and so on. Lot of that money would be pulled in to biggest popular indexes now such as S&P 500.
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nikcub 10y ago
> This $8T difference feels tantalizingly close to new investment money flowed in via ETFs FT says it is about $2T net in the past 8 years, and about a third of volume today[0]. Also an interesting article because it talks about the potential issues on market volatility ETF inflows introduce [0] https://www.ft.com/content/d12ac93c-a507-11e6-8b69-02899e8bd9d1 https://www.ft.com/content/d12ac93c-a507-11e6-8b69-02899e8bd...

cylinder 10y ago

Well, now's the time to leave equities or go active. I've never heard of anyone getting rich by following the herd.

dsacco 10y ago
If your goal is to get rich, sure. But going with the herd isn't necessarily unsafe. The goal of "getting rich" is generally incongruous with passive investing either way. The risk/reward profile of active investing and index fund investing are completely different, so that will be more than a decision of upside you want to pursue.
- cylinder 10y ago
  It remains to be seen how risky passive index investing is now that so much money is in it.
zeroer 10y ago
You haven't talked to many people then. There are plenty of people who've built wealth via index funds.
nommm-nommm 10y ago
I've built my wealth significantly with index funds. "Get rich?" No, but that's not my goal because getting rich requires a ton more risk, usually leverage, and tons of work.

clubm8 10y ago

There's been something I've been thinking about: with so many people purchasing index funds, what happens when there is a major downturn in the market? What happens when millions of people sell off their shares in say, VASGX (basically an 80/20 stock/bond index fund)? Would that effectively tank the entire market rather than sectors doing poorly.

mason55 10y ago
Really depends on what indexing implies. If you're talking about a world where everyone trades actively but instead of trading individual companies they only trade broad index funds then, yes, swings in the market would be amplified. Although in that world you would imagine that there would be a lot of alpha to be picked off by smart traders and so that should counteract the "dumb money" actively trading indexers. If indexing also implies passive/"set and forget"-style trading then you would actually dampen market swings. You'd have fewer people selling as the market tanked and fewer people buying the big rallies.
nojvek 10y ago
I think lots of investors have herd mentality. If it's rising, pump more money, If it's descending, pull out money. I definitely see a big crash if people don't trust the market. Right now things are great as there is a lot of hot money flowing. If people hide the money then you'd need something like stimulus to jump start the system again.
southphillyman 10y ago
One of the "Pros" of passive investment is that you are in it for the long haul and not reactive to immediate swings in the market. In your scenario I believe the investor is supposed to treat a downswing like you would a 401k account. Cry inside at the losses and wait for recovery since your target date is likely 20-30 yrs down the road.

southphillyman 10y ago

I was a contractor at Vanguard around 2007-2008. IIRC, pay wasn't that good but rank and file FTE recieved 30k+ bonuses (allegedly). With this recent growth I wonder if compensation there has grown at a similar rate. I rarely hear people mention it as a good place to work or as having highly competitive compensation.

mfb2 10y ago
The compensation structure has been significantly revamped since then. Partnership isn't what it used to be, so people don't get the big payments like they used to.

hackeraccount 10y ago

someone explain "reversion to the mean" I don't understand it.

haltingthoughts 10y ago
If an average is unusually high/low it will tend to go back to the mean after time. In the stock market this means that looking over a short timespan one will see large variance in the returns but over a long timespan (30+ years) the returns will be more consistent and nearly all positive.

unlmtd 10y ago

Unlimited liability is a lie. Equity is liability. Zero is not the floor of DJI. A dollar is 1.5g of gold, so the real 100 year chart is very flat, and that's without re-indexing costs. I'll have the full amount, in species please. Ohh and I didn't even touch on fiduciary risk. If you want to hold equity, have the actual paper certificates in your physical possession. They will tell you that 'we can't do that' but it's BS. Take delivery of your shit, the tide is going out.

foobiekr 10y ago

... vanguard being the only brokerage not to offer two factor is a little frustrating.

antongribok 10y ago
They do support Yubikey, the feature is called "Security Key", not to be confused with SMS Auth called "Security Code". https://www.bogleheads.org/forum/viewtopic.php?t=205031 https://www.bogleheads.org/forum/viewtopic.php?t=205031

jalopy 10y ago

Ultimately this is a good thing for the stock pickers that remain - fewer dollars spent actively discovering the true value of companies means longer stretches and wider swings of mispricings.

quantumhobbit 10y ago

I seems like there should be an opportunity for active investors to make money off of all the passively managed money. All I can think of would be to take advantage of the margin of the index. For example buy stock #501 and a discount and sell when it crosses into the sp 500 since vanguard will prop up the price by buying it for tge index fund. Similarly shorting #499. I'm sure that the market has gotten more sophisticated than this though. So how does it work in practice?

tanderson92 10y ago
Look here: https://personal.vanguard.com/us/funds/snapshot?FundIntExt=INT&FundId=0040#tab=2 https://personal.vanguard.com/us/funds/snapshot?FundIntExt=I... The Vanguard S&P500 index fund currently contains 511 stocks. Even the S&P500 index itself holds 505 stocks.
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kgwgk 10y ago
It's not obvious when a company is going to be added to an index. The strategy may work, but there are no guarantees. https://www.indexologyblog.com/2015/07/07/inside-the-sp-500-adds-drops-and-tall-tales/ https://www.indexologyblog.com/2015/07/07/inside-the-sp-500-... https://www.usatoday.com/story/money/columnist/krantz/2013/07/05/stocks-soar-added-sp-500/2447185/ https://www.usatoday.com/story/money/columnist/krantz/2013/0...

dragontamer 10y ago

> The scale of that inflow becomes clear when it is compared with the rest of the mutual fund industry — more than 4,000 firms in total. No mentions of ETFs? SPDR is not a mutual fund company. > Already, six out of the 10 largest mutual funds by asset size belong to Vanguard, with the largest, Vanguard Total Stock Market Index, now weighing in at $465 billion, according to Morningstar. The elephant in the room is ETFs like SPDR. SPY (SPDR's largest fund) has $230 Billion in assets. It isn't quite as big as Vanguard, but clearly SPY needs to be mentioned. The silence is deafening. "Classic" active mutual fund companies may be dying, but a new breed of investing has already begun... and its competing against Vanguard quite gloriously. Low cost, quickly traded, with large numbers of derivatives: ETFs.

cmurf 10y ago

I imagine they must have some kind of stop loss strategy; there's a bunch of research comparing various strategies to buy and hold, and buy and hold is pretty much 2nd worst, with the worst being an overly aggressive stop loss (like sell everything at a 5% drop).

olleromam91 10y ago

Lot of posts in here about the inherent problems ahead being "self correcting". Anyone have thoughts on when getting back into active funds would be smart?