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The 0.17% is only for the "investor class" shares, which starts at 3k. Invest 10k and you get "admiral class" shares which charge only 0.05%. At $5m you can get

by jcdavis 12y ago

The 0.17% is only for the "investor class" shares, which starts at 3k. Invest 10k and you get "admiral class" shares which charge only 0.05%. At $5m you can get "institutional "which only charges 0.04%, and at $200m you can get "institutional plus" that charges 0.02%, which any big pension fund could have

obstinate 12y ago
That's really interesting. So you could put $200M of assets into a Vanguard fund and only get charged $40k/y for that. It seems like a very small number when you put it that way.
- alextgordon 12y ago
  Which begs the question, how are they really making their money?
  - cmdkeen 12y ago
    Because they have $3 trillion in assets under management - which is $600m a year even at 2 basis points in fees, which not everyone pays. Economies of scale ramp up quickly.
    - pbhjpbhj 12y ago
      With that sort of weight of assets surely they can push the market around enough to gain no matter where prices move?
      - asr 12y ago
        The opposite, actually. With those sorts of assets you have to start getting worried about algorithms front-running your trades and things like that. Also, "the market" is big.
      - Lazare 12y ago
        I see you're getting downvoted, but no one is bothering to explain. First, the market in general works in the exact opposite way. You can invest a million dollars a lot of places; with enough luck and skill you'll earn a great return. Keep doing that and soon you'll have, say, 500 million. But 500 million is harder to invest; you might say "stock X is really undervalued; I'm going to go long!", but if stock X has a market cap of 10 billion, you'll struggle to find 500 million in shares to purchase on a whim, and in so doing, you'll push the price up, and now it's no longer undervalued. Many investments that work for the guy with 1m don't work for the guy with 500m. But if you keep going and keep being lucky (or skilled) you might end up with billions or hundreds of billions. Now you're basically fucked. Most possible investments don't have the liquidity or capacity to absorb the money you're trying to place. At this scale you aren't picking companies; you're picking industrial sectors or countries. You'll never make a great return like that. Plus you're being watched constantly; the merest rumour that you're about to invest will end prices soaring or crashing before you can move. You can "push the market around", but only in ways that benefit smaller, nimble players, not you. At that scale, your ability to be clever is basically nil. Which brings us to the second point: Vanguard is an index fund. They simply buy an even mix of the shares that make up an index. Their entire strategy/promise is that they won't "push the market around" (which is the reason they have $3t under management; people explicitly looking for people who won't try and be clever). So your question is "couldn't Vanguard do the one thing they don't do, because it can't work"? And the answer is no, it can't work, which is why Vanguard exists and has those assets.
        cmdkeen 12y ago
        However there are strategies available to active investors with billions - being an "activist investor". If you buy significant stakes in companies - which might be only a percentage point or two, but still putting you in the top individual shareholders, then you have the ability to change the strategy of the company. The step up from that is into Berkshire Hathaway / private equity territory where you just buy companies, or very significant stakes and run them as you want to.
        pbhjpbhj 12y ago
        Thanks for your comment. I didn't ask if an index fund could move the market, I asked if an investor with so much couldn't move the market. One guy bought 15% of the world's cocoa and now chocolate prices are high and manufacturers are trying to rip off consumers by filling thick plastic packages with more air and less chocolate bar. If you had control of that sort of money it just seems you could be invisible. The cost of the entire coffee production of the world is only billions, buy any significant percentage and there's going to be companies who'll either pay or collapse?
  - pktgen 12y ago
    Vanguard has an interesting ownership structure where the funds own the Vanguard company. They're basically (but not "officially" as far as I can tell) a non-profit, and that's why their fees tend to be the lowest.
dd36 12y ago
So New York pensioners would have saved $1.8 billion?
- zaroth 12y ago
  No, they would have earned a lower overall return, net of fees. That's the point of the rebuttal article, the original NYTimes piece was a hatchet job.
  - dd36 12y ago
    The article says 0.20% fees. This here says 0.02%. The article is based entirely on an assumption 10x higher than Vanguard's institutional fees. He declares it cheap relative to mutual funds, which is an absurd comparison. The lower bound of his fee comparison is 8 basis points, which is 4x higher.
    - _broody 12y ago
      Yes. The math in the article bothered me greatly. It seems that to the author, two fees will be "nearly the same" if they are within an order of magnitude of each other, which is ridiculous. Not to mention the condescension dripping from every word. This piece is a good example of how not to write an 'informative' rebuttal.

by jcdavis 12y ago

obstinate 12y ago

That's really interesting. So you could put $200M of assets into a Vanguard fund and only get charged $40k/y for that. It seems like a very small number when you put it that way.

alextgordon 12y ago
Which begs the question, how are they really making their money?
- cmdkeen 12y ago
  Because they have $3 trillion in assets under management - which is $600m a year even at 2 basis points in fees, which not everyone pays. Economies of scale ramp up quickly.
  - pbhjpbhj 12y ago
    With that sort of weight of assets surely they can push the market around enough to gain no matter where prices move?
    - asr 12y ago
      The opposite, actually. With those sorts of assets you have to start getting worried about algorithms front-running your trades and things like that. Also, "the market" is big.
    - Lazare 12y ago
      I see you're getting downvoted, but no one is bothering to explain. First, the market in general works in the exact opposite way. You can invest a million dollars a lot of places; with enough luck and skill you'll earn a great return. Keep doing that and soon you'll have, say, 500 million. But 500 million is harder to invest; you might say "stock X is really undervalued; I'm going to go long!", but if stock X has a market cap of 10 billion, you'll struggle to find 500 million in shares to purchase on a whim, and in so doing, you'll push the price up, and now it's no longer undervalued. Many investments that work for the guy with 1m don't work for the guy with 500m. But if you keep going and keep being lucky (or skilled) you might end up with billions or hundreds of billions. Now you're basically fucked. Most possible investments don't have the liquidity or capacity to absorb the money you're trying to place. At this scale you aren't picking companies; you're picking industrial sectors or countries. You'll never make a great return like that. Plus you're being watched constantly; the merest rumour that you're about to invest will end prices soaring or crashing before you can move. You can "push the market around", but only in ways that benefit smaller, nimble players, not you. At that scale, your ability to be clever is basically nil. Which brings us to the second point: Vanguard is an index fund. They simply buy an even mix of the shares that make up an index. Their entire strategy/promise is that they won't "push the market around" (which is the reason they have $3t under management; people explicitly looking for people who won't try and be clever). So your question is "couldn't Vanguard do the one thing they don't do, because it can't work"? And the answer is no, it can't work, which is why Vanguard exists and has those assets.
      - cmdkeen 12y ago
        However there are strategies available to active investors with billions - being an "activist investor". If you buy significant stakes in companies - which might be only a percentage point or two, but still putting you in the top individual shareholders, then you have the ability to change the strategy of the company. The step up from that is into Berkshire Hathaway / private equity territory where you just buy companies, or very significant stakes and run them as you want to.
      - pbhjpbhj 12y ago
        Thanks for your comment. I didn't ask if an index fund could move the market, I asked if an investor with so much couldn't move the market. One guy bought 15% of the world's cocoa and now chocolate prices are high and manufacturers are trying to rip off consumers by filling thick plastic packages with more air and less chocolate bar. If you had control of that sort of money it just seems you could be invisible. The cost of the entire coffee production of the world is only billions, buy any significant percentage and there's going to be companies who'll either pay or collapse?
- pktgen 12y ago
  Vanguard has an interesting ownership structure where the funds own the Vanguard company. They're basically (but not "officially" as far as I can tell) a non-profit, and that's why their fees tend to be the lowest.

dd36 12y ago

So New York pensioners would have saved $1.8 billion?

zaroth 12y ago
No, they would have earned a lower overall return, net of fees. That's the point of the rebuttal article, the original NYTimes piece was a hatchet job.
- dd36 12y ago
  The article says 0.20% fees. This here says 0.02%. The article is based entirely on an assumption 10x higher than Vanguard's institutional fees. He declares it cheap relative to mutual funds, which is an absurd comparison. The lower bound of his fee comparison is 8 basis points, which is 4x higher.
  - _broody 12y ago
    Yes. The math in the article bothered me greatly. It seems that to the author, two fees will be "nearly the same" if they are within an order of magnitude of each other, which is ridiculous. Not to mention the condescension dripping from every word. This piece is a good example of how not to write an 'informative' rebuttal.