Vanguard rolls out funds with 0.01% expense ratio

For high rollers only: Minimum investment is $5 billion for the stock fund

Jan 29, 2016 @ 10:57 am

By John Waggoner

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Vanguard just squeezed its fees a little tighter — a move that could prompt further fee reductions by other fund companies.

The biggest eye-opener: A new share class of Vanguard Total Stock Market Index and Total Bond Market Index with operating expenses of 0.01%. But the minimum investment is $5 billion for the stock fund and $3 billion for the bond fund.

“Essentially, Vanguard wants to run institutional money for free,” said Dan Wiener, editor of The Independent Adviser for Vanguard Funds. “Pension funds will love this.”

Vanguard also lowered expenses on all of its target-date funds by 0.02 percentage points, and its Target Retirement 2035 fund by 0.03 percentage points. The $41.2 billion Vanguard Wellesley Income Fund's expense ratio dropped 0.02 percentage points to 0.23%, and its Admiral Shares fell 0.02 percentage points to 0.16%.

All told, Vanguard dropped expenses on 35 individual mutual fund shares.

“We strongly believe in setting our investors up for success, and one of the best ways to do that is to keep the cost of investing low, enabling them to keep more of what they earn,” said Vanguard CEO Bill McNabb. “The compounding effect of high costs is especially corrosive to the returns of retirement investors — those saving over 30 to 40 years in a 401(k) plan or through an IRA. As a result, low costs, along with high savings rates, are critical to the retirement readiness of millions of Americans.”

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