Vanguard Slashes Fees across 87 Funds, Lowering Average Expense Ratio to 0.07%

Vanguard's recent fee cuts, affecting 168 mutual fund and ETF share classes, have resulted in an average expense ratio reduction of 20%. This marks the largest annual expense ratio reduction in Vanguard's nearly 50-year history.

Vanguard's average asset-weighted expense ratio now stands at 0.07%, significantly below the industry average of 0.44%. Daniel Sotiroff, a senior research analyst at Morningstar, emphasizes the positive impact of these fee cuts on Vanguard investors, despite their already low fees.

Some notable funds on Vanguard's fee reduction list include:

* Russell 1000 Value ETF (VONV): decreased from 0.08% to 0.07%
* International High Dividend Yield ETF (VYMI): reduced from 0.22% to 0.17%
* Total Bond Market Index Fund (VBTLX): lowered from 0.05% to 0.04%
* Emerging Markets Government Bond ETF (VWOB): dropped from 0.20% to 0.15%
* Vanguard Dividend Appreciation ETF (VYM): reduced from 0.06% to 0.05%

Importance of Low Expense Ratios:

Low expense ratios are crucial because they preserve more invested funds for compounding over time. Abdullah Durmaz, via Getty Images, highlights this benefit.

Vanguard's Commitment to Value:

Salim Ramji, Vanguard's CEO, emphasizes the company's mission of maximizing investor value. The recent fee cuts demonstrate this commitment, despite the estimated revenue loss of around $350 million this year.

Potential Fee Competition:

Sotiroff suggests that these fee cuts may spark fee competition among industry leaders like BlackRock, State Street, and Charles Schwab.

Understanding Expense Ratios:

Expense ratios encompass various costs, including management advisory fees, marketing and selling expenses, transfer agent costs, and legal and accounting fees. They are expressed as a percentage of net average assets.

Impact on Investment Returns:

Small expense ratios can have a substantial impact on long-term investment returns. A 1% reduction in fees can increase retirement savings by 28% over 35 years.

Vanguard's Advisory Services:

As Vanguard competes to attract clients, it is expected to offer additional advisory services. Recently, Vanguard announced a range of advisory services, including robo-advisors and personalized advice from financial planners. Fees for these services range from $15 to $30 per $10,000 invested.