{"id":31954,"date":"2012-08-29T19:45:36","date_gmt":"2012-08-29T23:45:36","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/2012\/08\/vanguard-funds-proof-that-smart-investors-are-getting-smarter\/"},"modified":"2012-08-29T19:45:36","modified_gmt":"2012-08-29T23:45:36","slug":"vanguard-funds-proof-that-smart-investors-are-getting-smarter","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2012\/08\/29\/vanguard-funds-proof-that-smart-investors-are-getting-smarter\/","title":{"rendered":"Vanguard Funds: Proof That Smart Investors Are Getting Smarter"},"content":{"rendered":"

Article by Investment U<\/a> <\/p>\n

A recent article in the Wall Street Journal<\/em> reports that \u201cMany investors, rightly or wrongly, are simply fed up with stocks and are piling into bonds despite record-low interest rates.\u201d<\/p>\n

Let\u2019s face it.\u00a0 Savvy investors \u2013 the ones who understand how badly you can get burned in bonds when rates tick up \u2013 are not plowing their hard-earned capital into ultra-low-yielding bonds right now.\u00a0 Stocks, offering higher income and far superior long-term prospects, are a much more attractive alternative right now.\u00a0\u00a0 Intelligent investors \u2013 the ones who are thinking rationally and not emotionally \u2013 know this.\u00a0 How can we be sure?<\/p>\n

By looking at where the smart money is flowing right now.\u00a0 According to Morningstar, investors pulled a net $200 billion out of American Funds from January 2008 through June 2012.\u00a0 That fund company, which has both high costs and sub-par performance, has seen 36 consecutive months of outflows.<\/p>\n

Yet over the same period, investors pumped a net $452 billion into<\/em> the Vanguard Group.\u00a0 Why is this smart?\u00a0 Because Vanguard has a unique structure among mutual fund companies, one that is highly favorable to investors like you and me.<\/p>\n

Providing The Best Service at the Lowest Possible Cost<\/strong><\/h2>\n

Vanguard is the nation\u2019s largest mutual fund group with more than $1.7 trillion in assets under management.\u00a0\u00a0 Yet this is a not-for-profit corporation.\u00a0 The funds themselves \u2013 and by extension the fund shareholders \u2013 own all of the common stock of the Vanguard Group. That means there is never any incentive to do anything other than provide the best service at the lowest possible cost.<\/p>\n

The company\u2019s huge asset base allows it to enjoy enormous economies of scale.\u00a0 Vanguard\u2019s costs are the lowest in the mutual fund industry.\u00a0 And not by a little. The average mutual fund charges fees six times higher than Vanguard\u2019s.\u00a0 Six times!<\/em><\/p>\n

These costs have drastic effects on performance.\u00a0 Without fees, a $100,000 portfolio earning 10% a year grows to $1.08 million after 25 years.\u00a0 With a 1% annual fee, the final value shrinks to $842,000.\u00a0 If total fees reach 3%–as they do with some funds\u2014the final value is only $505,000.<\/p>\n

In short, fees matter.\u00a0 Especially in a low-return environment.\u00a0 If the stock market returns 5%, for instance, a 1% fee is equal to 20% of your return.<\/p>\n

And what is true of stock funds is doubly true of fixed-income funds.\u00a0 A stock manager can potentially earn high enough returns to justify his fees.\u00a0 (Although few do over the long haul.)\u00a0 But that\u2019s rarely possible with bond funds \u2013 and the reason Vanguard bond funds are regularly found in the top performance quartile of fixed-income funds.<\/p>\n

If you\u2019ve ever wondered why The Oxford Club\u2019s<\/em> Gone Fishin\u2019 Portfolio \u2013 a long-term asset allocation strategy that has beaten the market by a wide margin and with low risk for over a decade now \u2013 is made up entirely of low-cost Vanguard funds, \u00a0now you know.<\/p>\n

Vanguard wasn\u2019t built through clever advertising or ruthless business practices.\u00a0 Instead, several key innovations simply make it the best choice for the majority of individual investors.\u00a0 Word of mouth from happy customers \u2013 and satisfactory performance \u2013\u00a0 built this company.<\/p>\n

In short, the interests of Vanguard and its fund shareholders are completely aligned.\u00a0 That\u2019s something you simply can\u2019t say about any other fund company.<\/p>\n

Good Investing,<\/p>\n

Alex<\/p>\n

Editor\u2019s Note:<\/strong> The New York Times<\/em> recently caught up with Vanguard-founder John C. (Jack) Bogle. To view the article in its entirety, click here<\/a>. Bogle\u2019s advice to investors should sound very familiar to Investment U<\/em> readers…<\/p>\n

\n<\/a> <\/a> <\/a> <\/a> <\/a>\n<\/div>\n

<\/p>\n

Article by Investment U<\/a> <\/p>\n","protected":false},"excerpt":{"rendered":"

Article by Investment U A recent article in the Wall Street Journal reports that \u201cMany investors, rightly or wrongly, are simply fed up with stocks and are piling into bonds despite record-low interest rates.\u201d Let\u2019s face it.\u00a0 Savvy investors \u2013 the ones who understand how badly you can get burned in bonds when rates tick … <\/p>\n

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