Updated May 2022. Vanguard regularly announces expense ratio cuts to their mutual funds and ETFs. This post serves to keep track of these updates, as Vanguard usually removes the press releases after a certain amount of time. Most changes will be minor, it is always good to see continuing progress.
April 29, 2022 press release. Highlights:
- Vanguard Total US Bond Market ETF (BND) lowered to 0.03%.
- Vanguard Short-Term Bond ETF (BSV) lowered to 0.04%.
- Vanguard Intermediate-Term Bond ETF (BIV) lowered to 0.04%.
- Vanguard Long-Term Bond ETF (BLV) lowered to 0.04%.
- Vanguard Total International Stock Market (VXUS) lowered to 0.07%.
- Vanguard Total World Stock ETF (VT) lowered to 0.07%.
- Vanguard FTSE Emerging Markets ETF (VWO) lowered to 0.08%.
- Vanguard Total International Bond ETF (BNDX) lowered to 0.07%.
- Vanguard FTSE All-World ex-US ETF (VEU) lowered to 0.07%.
- Vanguard FTSE All-World ex-US Small-Cap ETF (VSS) lowered to 0.07%.
Vanguard Select ETFs. These 13 Vanguard Select ETFs are what Vanguard thinks should be the building blocks of your portfolio due to their diversification, low costs, and liquidity. Here are the current expense ratios on the four broadest ones + their classic S&P 500 ETF:
- Vanguard Total US Stock Market (VTI) at 0.03%.
- Vanguard Total International Stock Market (VXUS) at 0.07%.
- Vanguard Total US Bond Market (BND) at 0.03%.
- Vanguard Total International Bond (BNDX) at 0.07%.
- Vanguard 500 Index (VOO) at 0.03%.
Background. When you invest in a mutual fund or ETF, the fund company charges you a fee called the annual net expense ratio. If you hold a steady $10,000 in a hypothetical fund with a 1% expense ratio, that would result in an annual charge of $100. These expenses are actually deducted daily in tiny increments from the funds’ net asset value (NAV), and while the numbers can seem small initially they will compound quietly and relentlessly over time. Here is an illustration from the Vanguard website comparing the Vanguard average expense ratio vs. the industry average over different time periods (source):
Vanguard has a long history of lowering their expense ratios as their assets under management grow, whereas the industry average hasn’t changed nearly as much (source).
The Vanguard Effect. In recent years as index funds have shot up in popularity, most of the major providers have introduced similar low-cost products (notably iShares, Fidelity, and Schwab). Every subsequent “price drop” is less newsworthy or impactful to my portfolio. However, I think competition is great and even Vanguard needs to be kept on its toes. I have bought ETFs from other providers when they are the best available option.
However, you can’t ignore the fact that Vanguard has been the leader in the industry. The super-low-cost ETFs only exist where Vanguard has already established itself. If Vanguard hasn’t pushed the cost down in a specific area, their competitors know that and keep the costs high. Here’s a chart showing the “Vanguard Effect“.
Due to the combination of Vanguard’s excellent ETFs and their not-as-excellent customer service recently, you may want to consider buying Vanguard ETFs for free at your preferred brokerage firm including Fidelity, Schwab, TD Ameritrade, and E-Trade.
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I wonder if the recent decline could force an increase in expense ratios.
Are you buying ETFs directly or through a robo-advisor?
The robo-advisor approach typically charges a flat percentage, but there are no transaction fees for buying and selling. Still pay the fund fees of course.
I am in the process of migrating from actively managed funds to ETFs.
BlackRock and Schwab have the lowest fees for the stock market index ETFs. It is just 0.03%. Hopefully Vanguard will follow and lower their VTI fee from 0.05% to 0.03%. I know it doesn’t sound like a lot. But running the numbers show that it will make $11000 difference for me if I retire after 30 years of professional career. And running the numbers for 60 years show an astounding difference of $168,000. That’s not small change.
Could not agree with you more, Nick. More people should look at expense ratios of funds they hold.
Many funds have temp lowered there fees to compete with Vanguard only to raise them later on. Vanguard is the only true non profit
From what I can fathom, any expense ratio below 0.10% really is not going to make a big difference unless your balance is massive…and if it is, who cares if you pay a few hundredths of a percentage fee more? I know I wouldn’t much care if I paid an annual expense ratio of $3k or $5k on a $10 million portfolio. Let the kids cry over their meager inheritance 🙁
And for someone with a $100k portfolio, paying .03% or .05% is a difference of $20/year. That’s less than the cost of a pizza. Yes, I know…that may be several pizzas over my remaining investment time horizon.
Not reported are the expense ratio increases: VGSIX — Investor shares REIT Index went up .26
Four years ago I consolidated all my employer 401(K)s from having been laid off mutiple times working in high tech into Vanguard ETFs. Reductions in the ETF expense ratios help reinforce this was the right move for me. Not only is it simpler to manage one account, it is proving to be more cost effective.
Nice boring progress.
That’s actually so good for the everyday consumer. Or mum and dad investors as we call them here. No need for silly fees that eat up your capital. Well done to Vanguard for cutting their fees and allowing people to create more wealth in the long run.
With index fund hold so much money, no one is worrying market inefficiency? Someone think recent bull market is due to index fund blindly buying stocks.
I hope this race to the bottom does not have some unintended consequence. Though all these firms have ways to make money on funds whether there is a fee or not….at some point we will start to get what we pay for and I think the net effect will not be positive.
Soooooo, ETF customers now get lower expense ratios than their Admiral customers?
Emerging Markets Index Admiral Fund (VEMAX) – 0.14%
Emerging Markets ETF (VWO) – 0.12%
And here I thought that Admiral was “special”…silly me.
Here are my thoughts on that:
https://www.mymoneyblog.com/vanguard-etfs-now-permanently-cheaper-than-admiral-shares.html
Thanks for the response. I emailed Vanguard asking the same question and the bigger questions of, “Going forward, will your ETFs be the preferred products for your resources? And should I allocate my investments (move them out of Admiral and into ETFs) with Vanguard accordingly?”
Suffice to say, after multiple back and forths where they evaded (both our ETFs and Admiral products are great) my direct questions I gave up.
Thank you for your post. I like index funds because of similar reasons to what you said. However, lower ETF fees might make me reconsider or at least try it out. Betterment and Wealthfront also invest in ETFs. Shame that they’re still charging 0.25% fee now that the expense ratios for many underlying ETFs are going down!