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Interestingly, the reason expense ratios are now so low is that Vanguard entered the market, basically innovated the index fund, slashed all the expense ratios,
by asdfman123 8y ago
Interestingly, the reason expense ratios are now so low is that Vanguard entered the market, basically innovated the index fund, slashed all the expense ratios, and now everyone has to compete with them.
But Vanguard is not-for-profit company because it's owned by its shareholders.
I think capitalism works in a lot of situations and I'm not against it, but there are certain scenarios where the "free market" logic doesn't really work or apply because of various reasons. In medicine it seems to be a race to higher prices.
- lotsofpulp 8y agoMedicine is nowhere near a free market, hence why there aren't suppliers entering the market to push the price down.
- briandear 8y agoIt’s all supply and demand. In the UK you don’t have a free market — you have essentially price caps (capped at “free”) — this causes shortages. In the US, you don’t have the same price caps, but then generally you don’t have shortages. A person willing to pay market rates can almost always get care in the US, while no amount of money can speed up a UK NHS surgery waiting list. Really the answer is a balance somewhere in the middle, but my point is that the free market does work, when it’s allowed to. The problem in the US is that the market is highly distorted by Medicaid and Medicare reimbursement rates as well as opaque price competition.
- theandrewbailey 8y ago> But Vanguard is not-for-profit company because it's owned by its shareholders. Isn't every company owned by its shareholders, for-profit or not?
- asdfman123 8y agoWhoops, I meant to say it's not-for-profit because it's owned by its customers. If you buy any of their funds, you also buy a small piece of Vanguard. To be pedantic, I don't know if you would classify that as not-for-profit or not, but the point is there isn't some external entity trying to make a profit off of you.
- gowld 8y agoThat "not for profit" (mis)intetrpretation is a huge myth. The execs of vanguard take home salaries and bonuses based on their performance, as decided by management (themselves). That's economically equivalent to them being owners and taking profits.
- firebird84 8y agoI think he means by its fundholders. If you own a share of VTSAX (for example), you also own a piece of Vanguard. If you own a share of a fidelity index fund, you do NOT own a piece of fidelity.