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Vanguard - Why so good?
Old 11-10-2010, 08:44 PM   #1
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Vanguard - Why so good?

From what I have read, vanguard is known for their low cost funds. Researching on their website, it seems to be comprised of mainly index funds that are passively managed. Am I missing something? Do they simply provide the cheapest index funds, or are we saying that their funds outperform or perform at the same level as my funds with a 5% front load?
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Old 11-10-2010, 08:54 PM   #2
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Originally Posted by JohnGalt View Post
From what I have read, vanguard is known for their low cost funds. Researching on their website, it seems to be comprised of mainly index funds that are passively managed. Am I missing something? Do they simply provide the cheapest index funds, or are we saying that their funds outperform or perform at the same level as my funds with a 5% front load?
A little of all of the above.
- They were among the first companies that offered index funds.
- Their costs are very low. Even their managed funds have low costs (though not as low as their index funds). The spread has narrowed somewhat, 20 years ago I believe most retail investors paid loads to get into funds, now it's much harder to talk people into this. And, costs have come down overall, in no small part due to pressure from Vanguard. Now you can find some lower cost funds (e.g. Fidelity's Spartan funds, etc) in some areas, but it is hard to go wrong with Vanguard.
- Their corprorate structure is different from most, and this encourages lower costs.

No one can say which funds will outperform your funds with a 5% load, but history says that %5 load is a very big disadvantage to overcome. But those who sell them like them a lot.
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Old 11-10-2010, 09:23 PM   #3
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Can i get into Vanguard funds through Ameriprise? Will that cost more than going directly through vanguard?
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Old 11-10-2010, 09:29 PM   #4
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I don't know what they charge people for their brokerage services. It certainly won't be cheaper than going to Vanguard directly.

The sooner you get your money out of the reach of the Ameriprise folks, the better off you'll be.
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Old 11-10-2010, 09:32 PM   #5
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Again, i still don't know why Ameriprise is bad. Is there evidence of them skimming money from accounts illegally? What are they doing wrong?
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Old 11-10-2010, 09:34 PM   #6
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Take some time to read this thread: Hi all...glad to find this site but now disgusted with myself!

with the posts about Ameriprise. Also do a search for Ameriprise on this board (and maybe on google, too) to find out why many people prefer not to do business with them.
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Old 11-10-2010, 09:43 PM   #7
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When I was an Ameriprise client, I got chewed out by my advisor for buying a T. Rowe Price fund (no load, low cost) in my Ameriprise IRA without consulting him first. True or not, he said he would get penalized by Corporate because of my action. He was pretty furious. I was under the impression it was my money, I guess they didn't see it that way at Ameriprise... I can't imagine they would happily let you invest your their money in cheap Vanguard funds.
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Old 11-10-2010, 09:47 PM   #8
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Again, i still don't know why Ameriprise is bad. Is there evidence of them skimming money from accounts illegally? What are they doing wrong?
As Bestwifever recommended, look at some of the past threads about this company.

Ultimately, you'll need to do your own research on investing. It doesn't take long, and it doesn't have to be hard. But I don't believe you'll be happy 5 years from now if you just go to Ameriprise and trust that they'll look out for your best interests.

Costs matter.

No one cares more about your money than you do.
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Old 11-10-2010, 09:54 PM   #9
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Take some time to read this thread: Hi all...glad to find this site but now disgusted with myself!

with the posts about Ameriprise. Also do a search for Ameriprise on this board (and maybe on google, too) to find out why many people prefer not to do business with them.
+1

Go directly to Vanguard. Samclem covered it well too. Most of their funds have a 3K minimum initial investment if that is an issue for a new investor they can go with the star fund (VGSTX) for an initial investment of 1K and then 100 dollar increments after that. Star has a 0.37 expense ratio and no load, along with a respectable track record over the last 25 years. Vanguard has been a pioneer in introducing low cost funds and has a track record of reducing fees as they gain efficiencies. It is the type of company you want to do business with. There are other reputable firms and then there are the ones to avoid.
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Old 11-11-2010, 10:40 AM   #10
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I have steered a couple of close friends to Vanguard. It is amazing how many people have never heard of them. Like me (before I had my eyes opened) my friends were paying loads and commissions and high annual fees for funds that routinely underperformed most of those offered by VG.
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Old 11-11-2010, 10:49 AM   #11
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I have steered a couple of close friends to Vanguard. It is amazing how many people have never heard of them.
Back in 2000, the Vanguard GNMA fund was one of the options in my 401K and I remember thinking "who the heck are those guys, never heard of them". Of course I knew the mutual fund companies that advertised heavily on TV like Oppenheimer. Until 2005, I had no idea Vanguard was one of the largest mutual fund companies in America...
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Old 11-11-2010, 11:17 AM   #12
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A little of all of the above.
- They were among the first companies that offered index funds.
- Their costs are very low. Even their managed funds have low costs (though not as low as their index funds). The spread has narrowed somewhat, 20 years ago I believe most retail investors paid loads to get into funds, now it's much harder to talk people into this. And, costs have come down overall, in no small part due to pressure from Vanguard. Now you can find some lower cost funds (e.g. Fidelity's Spartan funds, etc) in some areas, but it is hard to go wrong with Vanguard.
- Their corprorate structure is different from most, and this encourages lower costs.

No one can say which funds will outperform your funds with a 5% load, but history says that %5 load is a very big disadvantage to overcome. But those who sell them like them a lot.
+1.

There is considerable research that shows higher expense ratios have a significant negative on investment returns. This is in addition to plain old common sense.

One more thing about Vanguard is they discourage frequent buying and selling of their mutual funds.
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Old 11-11-2010, 11:22 AM   #13
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Their corprorate structure is different from most, and this encourages lower costs.
IMHO samclem's comment here is what really sets Vanguard apart. They are the only truly mutual mutual fund company: the company is owned by the funds, so unlike any other firm they don't have to generate a profit for a separate company. Vanguard's low costs are structural, whereas most of their competitors only lower costs for competitive reasons (e.g. Schwab - I'm with them now and like them, but if I were just doing mutual funds would stick with Vanguard).

The only hassle I've experienced is that the mutual fund side of Vanguard and their brokerage arm, Vanguard Brokerage Services, are entirely separate entities. This makes record-keeping a bit more complicated, and opening an account with them (or transferring out of Vanguard) a real PITA. Minor inconveniences in my book, and my admiration for their approach to investing grows with each passing year.
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Old 11-11-2010, 11:23 AM   #14
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We've been with VG for about 15 years for our mutual fund investments. Their representatives are professional, and seem to perceive each customer as an individual. One doesn't have to belong to their "Flagship" club to get such treatment, either. There was an IRA Rollover rep who seemed to take a personal interest in making sure that I really, really understood the potential tax consequences of converting to a Roth. She detected a little hesitation on my part, and wouldn't let me get away with it - explained the dangers, and somewhat sternly advised me to talk to a tax professional before going any further with the conversion.

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Old 11-11-2010, 11:45 AM   #15
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Again, i still don't know why Ameriprise is bad. Is there evidence of them skimming money from accounts illegally? What are they doing wrong?

Run away! Don't ask any more Qs as time is running out and Ameriprise is still figuring out how to siphon off more of your hard-earned money just because they can.
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Old 11-11-2010, 12:19 PM   #16
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When I was an Ameriprise client, I got chewed out by my advisor for buying a T. Rowe Price fund (no load, low cost) in my Ameriprise IRA without consulting him first. True or not, he said he would get penalized by Corporate because of my action. He was pretty furious. I was under the impression it was my money, I guess they didn't see it that way at Ameriprise... I can't imagine they would happily let you invest your their money in cheap Vanguard funds.
Vanguard does not have 12B-1 fees............so that's why he was miffed......
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Old 11-11-2010, 03:33 PM   #17
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Am I missing something? Do they simply provide the cheapest index funds, or are we saying that their funds outperform or perform at the same level as my funds with a 5% front load?
Yes. You're missing a 5% load plus the higher expense ratios and whatever other fees you've been paying to Ameriprise. Vanguard replicates the index and performs at the index or the margin of the expense ratio below it. Sometimes (rarely) above it.

Ameriprise will tell you that they can outperform an index. You want to put their fund tickers (or their top 25 holdings) into an analysis tool like Morningstar to see if Ameriprise is really selecting an appropriate benchmark.

You should also add in the "hidden expense" of about 1% APY for an actively-managed fund's trading costs & taxes on its turnover.

Most investors start out skeptical that Vanguard (or passive indexing in general) could ever outperform their favorite hot (and bloated) funds. But one way to look at the fees is this: someday you're gonna retire and start withdrawing 4% of your portfolio for your own living expenses. When that happens, how much are you willing to pay someone like Ameriprise? If they get a 1% expense ratio on a fund that replicates one of Vanguard's 0.1% index funds, then you're paying 0.9% to Ameriprise and raising your annual SWR to 4.9%. The withdrawal rate doesn't seem so "safe" in those terms.
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Old 11-11-2010, 04:14 PM   #18
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I wouldnt pay a high fee for any found today and would probably pick individual stock( mixed one so you actually get an index) or a cheap index fond. Most of the fonds will not beat the index anyway. More and more stock rise according to the index since more and more money are spent on indexes...so why pay high fees to a broker. Your most difficult choise is problably in what market to invest due to dollar variation. Do you believe in a strong dollar stay in US stocks otherwise go international
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Old 11-11-2010, 04:33 PM   #19
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I hope you're not buying bond funds with a 5% load. With fund yields at about 2.3%, less 100bp management expense, it would take you nearly 4 years to just break even on your initial investment . . . Ouch!
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