News & Ideas

Vanguard Funds

A Look at Vanguard Group, the Company Behind the Vanguard Funds

By: Robert F. Abbott, freelance writer and author

The Vanguard funds company is among the top three in the United States (and operates subsidiaries in other countries, as well).

While best known for its low-priced index funds, the company also has created and manages active funds (index funds are generally passive) and ETFs. It also manages funds for institutional investors (such as big pension plans and smaller mutual fund companies).

From a consumer’s perspective, Vanguard brings something different to the table. You’ll find those differences outlined well in the first two minutes of this YouTube video from MoneyHop (stop the video at the two-minute mark unless you want to learn about funds from Merrill Lynch):

As you heard on the video, one of the reasons Vanguard can offer low fees (officially called Management Expense Ratios, or MERs) is because it does little advertising.

One of the other big, or perhaps biggest, reason involves the ownership structure of the group. That structure makes it something like a credit union. The funds own the company, and clients own the funds. So, as they say at Vanguard, the firm does not have to make profits for the shareholders (since shareholders do not exist for this company). A bit complex, and interesting, but really of little consequence for most fund investors.

Keeping costs low has become a mantra for the people who run Vanguard, and that has generally worked out well for people who have invested in Vanguard mutual funds.

Note that I wrote, generally, in the preceding paragraph. Costs—and returns—constitute just one element of successful investing. As I wrote in Top Mutual Funds: As Defined by You, several issues need attention as you go through the process of finding and buying them.

Nevertheless, Vanguard funds do deserve attention if they come up on your short list. The company has delivered good returns on many of its funds over the past 40 years and if nothing else, will keep your investing costs down in the future.

Robert Abbott

Robert F. Abbott has been investing his family’s accounts since 1995, and in 2010 added options, mainly covered calls and collars with long stocks.In his other writing, Abbott explores how the middle class has come to own much of big business through pension funds and mutual funds, what management guru Peter Drucker called the Unseen Revolution. In Big Macs & Our Pensions: Who Gets McDonald's Profits?, the first of a series of booklets on this subject, he looks at the ownership of McDonald’s and what that means for middle class retirement income.In an eclectic career, Robert Abbott was a radio news writer and announcer, a newsletter writer and publisher, a farmer, a telephone operator, and a construction worker. When not working, he has been a busy volunteer, which includes more than a decade of leadership roles at the Airdrie Festival of Lights, one of North America’s leading holiday light displays. He lives in Airdrie, Alberta, Canada.