This is part of the TFB Awards for Best In Class in Financial Services series.
The Vanguard Group wins the award in the category of Best Mutual Fund Company. It is truley second to none in the mutual fund industry.
Most other mutual fund companies are owned by private investors. They operate mutual funds for making a profit to the owners of the mutual fund company. The only way to do that is by charging the investors in the funds and giving the money to the investors in the company. For example, T. Rowe Price is a publicly traded company worth $12 billion (ticker TROW). It offers mutual funds to the general public. The owners of T. Rowe Price, the company, make a profit from the owners of the T. Rowe Price funds. In Q2 2006 alone, T. Rowe Price earned a profit of $135 million. Fidelity Investments is a privately held company. Its large owners, Edward Johnson III and his daughter Abigail Johnson are both on the Forbes “The World’s Richest People” list, worth $6.7 billion and $12.5 billion respectively. They made their money from the investors in Fidelity funds.
When John C. Bogle founded Vanguard, he turned the structure up side down. He made the funds own the management company. Investors in the Vanguard funds also own The Vanguard Group the company. While The Vanguard Group must also pay its expenses (employees, computer system, office lease, etc.), there are no separate owners sucking profit away. For this altruistic deed, I have the highest regard for John Bogle. Today The Vanguard Group manages assets as large as those at Fidelity or T. Rowe Price. There is no reason to believe that had John Bogle set up Vanguard as a for-profit venture, he would not also have personal networth of billions of dollars. Instead, he devoted his life career to the investing public and gave the billions of dollars that could be his to the fund investors.
When you have a choice between investing with a company that takes profit from you and with a company that does not, it’s a no brainer. Keep the money to yourself and invest with Vanguard.