Costs Matter: Vanguard Long-Term Performance Update 2015

February 12, 2015 By Jonathan Ping 2 Comments
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costsmatterThe purpose of Vanguard’s commitment to low-cost investing is not just to be cheap, it is to give their clients higher performance. Whenever a money manager charges higher fees for themselves, they will have to compensate by creating that much higher returns through whatever combination of skill or luck.

Over long periods of time, the luck tends to shake out and the higher expense ratios usually become a very hard hurdle to continually overcome. (In turn, this pressure also leads some managers to take increasingly risky bets and have luck either save their butts or lose all their client’s money!)

Taken from a recent Vanguard article, the chart below confirms this tendency. It shows the percentage of Vanguard funds in each major asset category that exceeded the average returns of their competing fund peer groups (as determined by industry-standard Lipper) over the 1-, 3-, 5-, and 10-year periods ended December 31, 2014.

vglipper_small2

Every single number on that 10-year return column is 90% or higher. Every asset class. Is that something I could interest you in?

Filed Under: Investing
Last updated: February 12, 2015
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Comments

  1. simplesimon says
    February 15, 2015 at 12:48 pm

    I think it’s worth pointing out that the number of funds in the peer group shrink the longer the period is. It could be that there are more mutual funds today than ever before but my feeling is that many mutual funds that existed 10 years ago have since closed. Vanguard funds stand the test of time.

    Reply
    • JPC says
      February 16, 2015 at 12:08 pm

      Probably a combination of both. But definitely many funds have been closed over the years, take for instance the number of US stock funds that remain after 20 yrs:

      “Morningstar shows 1,105 choices available as of Jan. 1, 1995 (counting each share class separately). From this crowd 491 survive, and 151 of the survivors have beaten the S&P index fund.
      Your chance of hitting a win with an active fund over a very short period might be 50-50. Over two decades it’s a 1-in-7 long shot.”

      From this Forbes’ article.
      http://www.forbes.com/sites/baldwin/2015/01/21/is-vanguard-too-successful/3/

      Reply

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