Vanguard ETF & Mutual Fund Expense Ratio Changes (April 2017)

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Updated and revised. Here are the highlights from the April 2017 expense ratio update:

  • Vanguard Total Stock Market (VTI) is now 0.04%.
  • Vanguard 500 Index (VOO) is now 0.04%.
  • Vanguard Total Bond Market (BND) is now 0.04%. In April 2016, it was 0.05%. In April 2015, it was 0.07%.

Background. When you invest in a mutual fund or ETF, the fund company charges you a fee called the annual net expense ratio. If you hold a steady $10,000 in a hypothetical fund with a 1% expense ratio, that would result in an annual charge of $100. These expenses are actually deducted daily in tiny increments from the funds’ net asset value (NAV), and while the numbers can seem small they will compound quietly and relentlessly over time. Here is an illustration from the Vanguard website:

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Vanguard has a long history of lowering their expense ratios as their assets under management grow, whereas the industry average hasn’t changed very much.

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Recent announcement links and past highlights. Note that Vanguard chooses to delete their old announcements after 12 months. I started using ticker symbols for brevity.

  • April 2017. VTI, VOO, BND all down to 0.04%.
  • March 2017. VWENX down to 0.16%.
  • January 2017. VWIAX down to 0.15%. VTIP down to 0.07%. VTINX down to 0.13%.
  • December 2016.
  • April 2016. VTI, VOO, BND, VBR, all down.
  • February 2016. VTI, BNDX, VEU, VNQI all down.
  • January 2016. Target Retirement 2010-2060 Funds down to 0.14%-0.16%.
  • May 2015. VNQ up 0.12%.
  • April 2015. BND down to 0.07%.
  • February 2014. VXUS down to 0.14%. VWO down to 0.15%.
  • January 2013. Target Retirement 2010-2055 Funds down to 0.16%-0.18%.

The Vanguard Effect. In recent years as index funds have shot up in popularity, most of the major providers have introduced similar low-cost products (notably iShares, Fidelity, and Schwab). I think competition is great and even Vanguard needs to be kept on its toes. I have bought ETFs from other providers when they are the best available option.

However, you can’t ignore the fact that Vanguard is the true leader in the industry. The super-low-cost ETFs only exist where Vanguard has already established itself. If Vanguard hasn’t pushed the cost down in a specific area, their competitors know that and keep the costs high. Here’s a chart showing the “Vanguard Effect“.

Comments

  1. I wonder if the recent decline could force an increase in expense ratios.

  2. Are you buying ETFs directly or through a robo-advisor?

    The robo-advisor approach typically charges a flat percentage, but there are no transaction fees for buying and selling. Still pay the fund fees of course.

    I am in the process of migrating from actively managed funds to ETFs.

  3. BlackRock and Schwab have the lowest fees for the stock market index ETFs. It is just 0.03%. Hopefully Vanguard will follow and lower their VTI fee from 0.05% to 0.03%. I know it doesn’t sound like a lot. But running the numbers show that it will make $11000 difference for me if I retire after 30 years of professional career. And running the numbers for 60 years show an astounding difference of $168,000. That’s not small change.

    • Could not agree with you more, Nick. More people should look at expense ratios of funds they hold.

    • Many funds have temp lowered there fees to compete with Vanguard only to raise them later on. Vanguard is the only true non profit

  4. From what I can fathom, any expense ratio below 0.10% really is not going to make a big difference unless your balance is massive…and if it is, who cares if you pay a few hundredths of a percentage fee more? I know I wouldn’t much care if I paid an annual expense ratio of $3k or $5k on a $10 million portfolio. Let the kids cry over their meager inheritance 🙁

    And for someone with a $100k portfolio, paying .03% or .05% is a difference of $20/year. That’s less than the cost of a pizza. Yes, I know…that may be several pizzas over my remaining investment time horizon.

  5. Not reported are the expense ratio increases: VGSIX — Investor shares REIT Index went up .26

  6. Minnesota Saver says:

    Four years ago I consolidated all my employer 401(K)s from having been laid off mutiple times working in high tech into Vanguard ETFs. Reductions in the ETF expense ratios help reinforce this was the right move for me. Not only is it simpler to manage one account, it is proving to be more cost effective.

    Nice boring progress.

  7. That’s actually so good for the everyday consumer. Or mum and dad investors as we call them here. No need for silly fees that eat up your capital. Well done to Vanguard for cutting their fees and allowing people to create more wealth in the long run.

  8. Investor says:

    With index fund hold so much money, no one is worrying market inefficiency? Someone think recent bull market is due to index fund blindly buying stocks.

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