- The Vanguard Group is like a car
that you can drive across the country.
It's not the flashiest one on the road,
but it still looks good
and is the most reliable one out there.
But there are a few things that
you need to know about the Vanguard ETF
and index fund investments
that not a lot of people are aware of
that will probably change how you view the company.
In this video,
I'm gonna take you behind the scenes to look under the hood
of what's really going on with Vanguard.
To understand why Vanguard is the way they are,
I first need to introduce you
to the man who founded the company, John Bogle,
also sometimes referred to as Jack Bogle.
He founded Vanguard in 1975,
and his top priority from the very beginning
was to put the investor first.
Jack had been a part of the professional investing business
for many years,
so he saw firsthand how much these money managers
were ripping off the average person like you and me.
To set some of this up
and to put it into perspective a little bit,
when Jack passed away in 2019,
it was reported that his net worth was around $80 million,
with half of it going to charity.
I know that's a lot of money because it is,
but if you take into account
the fact that Vanguard's assets under management
at that time was around $5 trillion with a T,
his net worth should have actually been
in the billions of dollars.
But there's an interesting reason he wasn't that rich,
which we'll cover in just a minute, so hang tight.
To get an idea of why Vanguard is so unique
we have to go all the way back to 1972
when the first index fund was created,
but it wasn't actually created by Vanguard.
In 1975, Jack Bogle launched the first
Vanguard S&P 500 index fund,
and even though he didn't come up with
the idea of index funds in general,
he made them one of the most popular investments
that we all know today.
It's obvious how successful they've become now,
but back then, index funds were a very, very unpopular idea.
People laughed at him because who in the world
would want to accept average stock market returns
every single year.
Professional stockbrokers and individuals
were only interested in beating the stock market, duh.
But that's kind of like today,
so I guess nothing has really changed.
To beat the market,
you and your professional advisor
need to be buying and selling stocks on your own
because, you know, big egos.
Now Vanguard does offer actively managed funds today,
but that's mainly because they wanna give
their investors options
if that's the way that they choose to invest.
So even though the company was built on index funds,
they still offer those actively managed funds as well.
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Remember how I said that Jack gave up
billions of dollars in net worth?
The main reason for that is because he has never been
the sole owner of Vanguard.
- You know, I'm doing fine, but I don't own Vanguard,
never owned a share of Vanguard.
But I've been paid a nice salary,
well, a decent salary,
a nice bonus when I was running the place.
So I'm not complaining,
but I just don't have and never will have
the kind of wealth that most people
in this business have gotten
because they charged their investors
too much for what they're worth.
- Usually when someone starts a business,
they own all, or at least the majority of the company.
Since that person is taking most of the risk,
they're usually and rightfully rewarded if it succeeds.
But from the very beginning,
Jack set up Vanguard to be owned by the actual investors,
meaning that when you own any shares of a Vanguard fund,
you are considered an owner and shareholder
of the Vanguard group.
- Here's your fund.
It's run by Vanguard and you own Vanguard.
And Vanguard also runs a whole bunch of other funds,
and we allocate the costs among those funds.
There are now probably 165 of them.
So the costs are allocated depending on the fund zone costs,
depending on competition,
depending on fairness,
things like that.
- If you wanna know where incentives lie
within the financial industry,
then all you have to do is follow the money
and find out who actually owns the company.
For Vanguard we are the owners of the company
so the incentives are aligned with
our best interest in mind.
And that's because Jack thought
that that was just the right thing to do.
On the other hand,
Fidelity, for example, is a private company
owned by the founder's families,
employees, and ex-employees.
Incentives are aligned with those three groups of people
and not someone who uses their funds.
Charles Schwab is a publicly traded company,
so the incentives lie with individuals who own that stock.
BlackRock who offers the popular iShares ETFs
is a publicly traded company
so their shareholders are their top priority and not you.
State Street who offers the most popular SPY ETF
is a publicly traded company,
so if you own their investment funds,
then sorry, they're not looking out for you.
And if you wanna know what highway robbery
really looks like,
then go check out the investments
that companies like T. Rowe Price, Edward Jones,
and other investment firms like that
are pushing to their investors.
- And it's gone.
- What's all gone?
- The money in your account.
It didn't do too well.
It's gone.
- The good news is that with Vanguard ETFs,
you are able to invest in them
on any of the investment platforms out there,
so even if you prefer the Fidelity, Charles Schwab,
or TD Ameritrade platforms,
you still have access to those Vanguard investments,
which means that you can be an owner.
For me, I love Vanguard investments,
but I'm not a huge fan of the Vanguard investing platform.
I personally prefer M1 Finance
because it's a lot more user-friendly.
I'll have a link to check them out down in the description
where you can also get a free $30 for signing up.
Jack said, "My ideas are simple.
In investing, you get what you don't pay for."
Since Vanguard investors own the actual company,
the benefits of that ownership comes in the form of
some of the lowest fees in the industry.
Other mutual fund companies are trying to turn a profit
so that the owners can benefit.
Vanguard is taking that would be profit
and returning it to their shareholders
in the form of lower fees.
Vanguard has 130 mutual funds and 76 ETFs
with an average expense ratio of 0.09%,
while the industry has an average expense ratio of 0.54%.
That's a cost of 90 cents versus $5.40 per $1,000 invested.
I'll tell you what, I'll make you a deal.
If you like to pay six times more for something,
then I just drew a picture of this elephant
that I'm willing to sell you,
and to top it off,
I'll even turn it into an NFT
that you can eventually take in the Metaverse if you like.
I know it looks like a dog,
but there's proof on the blockchain that it's an elephant.
I swear.
Not only are Vanguard expenses very low today,
they recently came out and said
how they plan to cut costs on their investment funds
by $1 billion over the next four years.
It's a race to the bottom,
and Vanguard is able to be at the forefront
since their main goal is to return value back to you
as their shareholder.
ETFs are my personal preferred investment vehicle right now,
but Vanguard was late to the party
with offering their first one.
It wasn't because they were sitting on their thumbs
waiting around though.
They held off on purpose.
State Street launched the first ETF SPY,
which tracks the S&P 500 in 1993.
This headstart is one of the big reasons that
they currently have the largest assets
under management of $449 billion,
while Vanguard's total stock market ETF
is sitting in third at $296 billion
in assets under management.
Vanguard launched its first exchange traded fund in 2001,
eight years after the first ETF started trading.
The main reason for holding off on this investment vehicle
is because they were looked at
as a way to trade for the short term.
With ETF you can buy and sell them at any point in time
when the stock market is open,
just like you can in an individual stock.
On the surface this might not seem like a big deal,
but it is when you realize that so many investors
are more likely to panic sell
when stocks are down in the short term.
On the other hand with index funds,
what Vanguard is known for,
trading is actually done at the end of each day.
If you place a trade for an index fund
in the middle of the day,
then the shares won't actually be bought or sold
until the market has closed that day.
As time went on and Vanguard realized
their investors wanted access to this type of investment,
they started creating ones that mirror their index funds.
This is why they offer something like
the Total Stock Market Index Fund VTSAX,
and the ETF version of the Total Market Index Fund,
which is VTI.
To be honest with you,
it's a really good thing that
they eventually got into the ETF space when they did,
because money flowing into ETFs
has been off the charts over the past few years,
ETFs at Vanguard accounted for only 24%
of their total assets in 2021.
But in that same year,
92% of their net flows went into ETFs.
I'm gonna make a prediction here.
Eventually the ETF business at Vanguard
is going to be equal to or bigger than
their mutual fund business.
ETFs are just becoming too popular,
so wait for it.
Vanguard was hesitant to add ETFs early on
because the company's values stem from
their founder, Jack Bogle.
He's a firm believer in buying and holding your investments
to avoid the short-term turmoil
that we all see in the stock market on a day-to-day basis.
In John's eyes,
true wealth is better created over the long-term
as opposed to a fly by night strategy
that most people are hoping for.
We've all heard the stories about people
who win the lottery, then eventually go broke.
Those people never worked for it,
and didn't learn how to slowly manage
a larger and larger amounts of money over time.
There's a ton of lessons to be learned
along the way of the wealth building journey
that get easily overlooked.
It's not something that can necessarily be taught.
It has to actually be experienced.
Check out this video to your left
on my top five Vanguard ETFs to buy and hold forever.
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on the path to financial independence.
I'll see you in the next one, friends.
Done.