Financial Planning Blog

There are many things to like about Vanguard. First it has the best line-up of very low cost index mutual funds and exchange traded funds (ETFs) available to individual investors. For those of us who don't want to spend our energy (and our money) chasing the elusive promise of active fund management, Vanguard is a favorite partner. The company has excellent customer service and a good website for the do-it-yourself investor.

Next, you have to love John Bogle, the man who created Vanguard. The more you learn about Bogle and the more you listen to his insight into the mutual fund business, not to mention his common sense wisdom on investing, you begin to realize this man is different. Bogle is truly a leader, and arguably the best friend the individual investor has on Wall Street. You've probably already figured out that most of the financial services industry is not really on your side, but it's frightening to think what the industry would look like without Bogle blazing a different trail.

What you may not realize is that Vanguard is truly unique among mutual funds companies in regards to its corporate structure. The typical fund company is either privately or publicly owned, with its shareholders looking to earn a profit from their investment. There is nothing wrong with that, however the profit objective of the mutual fund company owners generally leads to higher management expenses which, of course, are deducted from the investment returns of the mutual funds. Vanguard is different, however.

Vanguard is actually owned by each of its mutual funds, which are in turn are owned by the mutual fund shareholders (i.e. you and I). This makes Vanguard's organization similar to a mutual insurance company, where the corporation is owned by its policy holders. The profits of the company are distributed back to the mutual funds, lowering their overall cost structure. This is why Vanguard is a true cost leader, allowing investors to reap a larger share of market returns. This structure certainly aligns the interests of the fund shareholders and Vanguard, but unfortunately this mutual mutual fund approach has not been emulated by other fund companies.

Vanguard may seem a bit boring, with its conservative style and all those index funds. (They do have actively managed funds, also.) But, the company has been a true pioneer, leading the move away from broker sold, commission-based (load) funds to low cost, no-load, direct investor-purchased mutual funds. Next time you're complaining about Wall Street, remember there is at least one company there which is truly different.