Make a difference to client outcomes with low-cost investments
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Make a difference to client outcomes with low-cost investments

Vanguard Perspective

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July 5, 2023

Markets are unpredictable. Costs are forever. The lower the costs of investing, the greater share of an investment’s return your clients can enjoy. It’s a simple and effective strategy. The less your clients pay in fees, the more they have invested, which gives them more opportunity for growth. At Vanguard, you’ll find the average mutual fund and ETF (exchange-traded fund) expense ratio is 82% less than the industry average.1 That’s a significant cost difference that can make a notable impact on a client’s portfolio. Figure 1 compares Vanguard’s asset-weighted average to the industry.

Figure 1

This chart compares the historical average U.S. expense ratios for Vanguard and the industry from 1975 to 2022. Vanguard’s expense ratio has been significantly lower that the industry average. In 2022 Vanguard’s expense ratio was 0.08% while the industry average was 0.47%.

Sources: Vanguard and Morningstar, Inc. U.S. only. Updated mid-February/March for the previous year. As-of December 31, 2022.

See the difference in real dollars

Clients don't get a bill explaining how much they’ve paid in fund expenses since those costs are paid directly out of each fund's returns. However, in figure 2, you can see how the difference in basis points potentially translates into dollars and cents for clients. For example, with an initial investment of $250,000, a client could save almost $150,000 over 30 years, an amount of money that could be a game changer in retirement.

 

 

Figure 2: Amount you can save at Vanguard

This chart shows the potential impact Vanguard's low-cost funds can have on client savings over time compared with the industry average expense ratio. This example assumes an initial investment of $250,000 earning 6% each year. At Vanguard you could save $16,092 over 10 years based on Vanguard's average expense ratio of 0.08%, which results in a cost of $3,368 in this scenario, compared with the industry average expense ratio of 0.47%, which results in a cost of $19,460. Over 20 years, you could save $56,169 based on costs of $12,016 at Vanguard compared with $68,185 at the industry average. Stay invested for 30 years and you could save $147,055 based on costs of $32,127 at Vanguard compared with $179,212 at the industry average.

This hypothetical illustration assumes a 6% return for all examples. Rate is not guaranteed. If the rate of return were altered, results would vary from those shown. The final balance shown is after costs. This example doesn't represent any particular investment and doesn't account for inflation. There may be other material differences between investment products that must be considered prior to investing. All averages are asset-weighted. Industry averages exclude Vanguard. Sources: Vanguard and Morningstar, Inc., as of December 31, 2022.

You work hard every day to help your clients successfully reach their goals. That's why we're committed to helping you, your clients, and your practice succeed over the long term. It's how our mission is aligned with yours. As part of our commitment to you and your clients, Vanguard was built to make sure we stay focused on keeping costs low.

Please don't hesitate to contact your Vanguard Financial Advisor Services™ sales team at 800-997-2798.

1 Sources: Vanguard and Morningstar, Inc., as of December 31, 2022.

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