Vanguard – Brands we love!

A recent article pointed out that when it comes to mutual funds, big banks have been under performing quite a bit over the short term (1 year) as well as long term (10 years).

There is a wide body of research showing how hard it is for actively managed mutual funds — like the ones run by the banks — to outperform low-cost funds like the ones that invest in a benchmarked index of stocks and bonds.

Vanguard has been performing the best both in terms of meeting the benchmark (46%) as well as in having the lowest fees of 0.17%

Introducing something such as a low-cost index fund which would mirror the market as opposed to the then popular market beating funds, Vanguard generated quite a bit of resistance when it launched in 1975. By sheer performance over the years, it has showed that it was right and now funds are trying to emulate the low cost model.

For example, Goldman Sachs mutual funds met only 12% of their benchmark over a 10 year period when charging a fees of 1.2% brings to light the fault in their mutual funds management. The fact that banks are charging high fees and even then are under performing, makes me respect Vanguard even more.

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