Vanguard ETF & Mutual Fund Expense Ratio Changes (March 2019)

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vglogoUpdated March 2019. Vanguard recently announced a few updated expense ratios on some popular ETFs. Here are a few highlights:

  • Vanguard Total International Bond ETF (BNDX) is now 0.09%.
  • Vanguard FTSE All-World ex-US ETF (VEU) is now 0.09%.
  • Vanguard Tax-Exempt Bond ETF (VTEB) is now 0.08%.
  • Vanguard FTSE Emerging Markets ETF (VWO) is now 0.12%.
  • Vanguard FTSE All-World ex-US Small-Cap ETF (VSS) is now 0.12%.
  • Vanguard High Dividend Yield ETF (VYM) is now 0.06%.
  • Vanguard Total World Stock ETF (VT) is ow 0.09%.

In addition, the following mutual funds will now have lower-cost Admiral Shares:

  • Vanguard FTSE Social Index Fund (VFTAX)
  • Vanguard FTSE All-World ex-US Small-Cap Index Fund (VFSAX)
  • Vanguard High Dividend Yield Index Fund (VHYAX)
  • Vanguard Long-Term Bond Index Fund (VBLAX)
  • Vanguard Total World Stock Index Fund (VTWAX)

Vanguard Select ETFs. These 13 ETFs are what Vanguard thinks should be the building blocks of your portfolio. Here are expense ratios on the four broadest ones + their classic S&P 500 ETF:

  • Vanguard Total US Stock Market (VTI) at 0.04%.
  • Vanguard Total International Stock Market (VXUS) at 0.09%.
  • Vanguard Total US Bond Market (BND) at 0.04%.
  • Vanguard Total International Bond (BNDX) at 0.09%.
  • Vanguard 500 Index (VOO) at 0.04%.

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:

vger

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.

vger_er_allfunds

vger_er_assets

Past announcements. Vanguard deletes 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 to 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). Every subsequent “price drop” is less newsworthy or impactful to my portfolio. However, 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 has been the 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“.

As of July 2018, Vanguard brokerage accounts allow commission-free trading of Vanguard ETFs as well as all major competitor ETFs, for example from Blackrock iShares and Schwab. Fidelity and Schwab have been expanding their line-up of commission-free ETFs, but none of them include Vanguard ETFs in their lists.

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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.

  9. I hope this race to the bottom does not have some unintended consequence. Though all these firms have ways to make money on funds whether there is a fee or not….at some point we will start to get what we pay for and I think the net effect will not be positive.

  10. Soooooo, ETF customers now get lower expense ratios than their Admiral customers?

    Emerging Markets Index Admiral Fund (VEMAX) – 0.14%
    Emerging Markets ETF (VWO) – 0.12%

    And here I thought that Admiral was “special”…silly me.

  11. Thank you for your post. I like index funds because of similar reasons to what you said. However, lower ETF fees might make me reconsider or at least try it out. Betterment and Wealthfront also invest in ETFs. Shame that they’re still charging 0.25% fee now that the expense ratios for many underlying ETFs are going down!

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