Archives for September 7, 2016

Vanguard Complacency Check

vanguard_logo_snoozeVanguard recently celebrated the 40th anniversary of the Vanguard 500 Index Fund, the first index fund available to individual investors. If you are like me and have a significant portion of your net worth in Vanguard products and services, you should read this Morningstar article No Signs of Complacency at Vanguard which includes excerpts from interviews with Vanguard executives. Here are highly-condensed highlights:

  • Vanguard is huge and getting bigger.
  • Vanguard is still the only place where the firm is owned by the fundholders.
  • Vanguard costs are low, but it will be hard to get much lower.
  • Competitors can sell their products at a loss. Vanguard can’t, so they may not be the cheapest.
  • So far, there are no signs of complacency, wasted money, or ego-driven moves.
  • Vanguard’s next move will be focusing on better service for clients.

My thoughts. Vanguard has focused primarily on asset growth. This was okay, as bigger assets meant lower costs for fundholders. Now that costs really can’t go that much lower, I agree their next move should be to focus on customer service, both in terms of human interactions and online user experience.

Compared to Fidelity and Schwab, it has been in my experience more difficult to get specific, custom requests accomplished with Vanguard. This includes estate paperwork and large transactions. That means it is harder to get someone on the phone, the person on the phone is less responsive and/or knowledgeable, and overall it takes longer for the action to get done (if it is even allowed). These limitations are probably reflective of their focus on cost savings, but hopefully they can find a better balance. (I’d rather they spend money on this, than more advertising.) I do feel that Vanguard has been improving their technology, so I hope they keep that up.

Jack Bogle WSJ Interview Highlights (September 2016)

wsj_bogleWhen Jack Bogle grants an interview, I sit down and take notes in case he drops something significant. Here is a link to his WSJ interview dated 9/2/2016 (paywall, use Google redirection if needed).

  • Bogle estimates 2% annualized returns over the next decade (he does not forecast past that).
  • Stay invested in a diversified portfolio of stocks and bonds at very low cost.
  • Don’t reach for yield. You just have to save more.
  • Don’t go to cash.
  • He’s fine with 5% of your portfolio in gold, if you like that.
  • He’s still sees no need for international stocks.
  • He’s not worried about too much money flowing into index funds.
  • Bogle predicts that in five years, Fidelity will be sold.

The interview is rather vague in a few areas. I am assuming that the 2% annual returns forecast applies to after-inflation returns of a 50% stock and 50% bond portfolio. This is based on Bogle’s October 2015 presentation which predicted 3% after-inflation returns for a 50/50 portfolio. Since then, stock markets are up and bond yields are down, so future expected returns are now even lower.

Another little nugget is a link to a previous WSJ interview from exactly 10 years ago – 9/2/2006. It provides some additional background to the initial creation of the first index fund for individual investors.