Vanguard Marks 50 Years of Bringing Markets to Mom and Pop

The Vanguard Group’s 50 years of making markets accessible to millions of investors might be boiled down to two simple ideas: cutting costs and connecting with clients.

Taken a step further, those pursuits fostered culture and loyalty, helping the company, which celebrates 50 years today, become the world’s second-largest asset manager with $10 trillion in assets. The company is also the world’s second-largest ETF issuer, behind BlackRock Inc. (BLK), with $3.2 trillion in 260 exchange-traded funds worldwide.

Created by John Bogle, who delivered newspapers as a kid in New Jersey after his family lost everything in the Great Depression, Vanguard has attracted flocks of investors to its low-fee ETFs and mutual funds for more than a generation, in many cases permitting the building of nest eggs with the goal of a comfortable retirement.

For many, Vanguard is synonymous with the idea of democratizing investing, which means cutting fees as well as middlemen. 

For example, Vanguard has 27% of all fund assets in the U.S. while pulling in only 5% of the industry’s revenue, according to Eric Balchunas, Bloomberg’s senior ETF analyst and author of "The Bogle Effect: How John Bogle and Vanguard Turned Wall Street Inside Out and Saved Investors Trillions" (2022 Matt Holt Books). “Every time they got profits, they didn’t buy stadiums, they lowered fees” he said, noting that Bogle died with an $80 million fortune. “At the time, you had to pay a broker, so it was radical to not pay a load.” 

“He was basically able to get an investor to capture over 99% of the market return for themselves. He took out all the trading fees, removed the broker, the loads,” he added.

1975: Vanguard is Founded

Vanguard’s 1975 founding arrived as part of a settlement after Bogle was forced out at his employer Wellington Management. Doing things its own way was embedded in the company culture from the beginning: Vanguard is owned by the funds that, in turn, are owned by the funds’ shareholders. In short, it’s a company owned by the investor and for the investor. 

The company’s democratic approach to investing was apparent the following year with the creation of the First Index Investment Trust (now the Vanguard 500 Index Fund). The index strategy brought low costs and broad diversification to individual investors.    

It entered the ETF industry in 2001, eight years after the first ETF was launched. It did so with a patented, low-cost approach that created exchange-traded shares of Vanguard index funds. That patent only recently expired, and now other companies are seeking to use the structure as well.

Over the years, the company, now led by former BlackRock executive Salim Ramji, kept low costs as a central part of its DNA, even as it expanded its product offerings and customer base.

It’s grown to 50 million customers, 20,000 employees and 440 funds. The average management fee is 0.07% compared with the industry average of 0.44%, according to Vanguard-provided figures.

Related: Allan Roth: 50 Years of the Vanguard Experiment

“I credit the company’s growth to two things: first, the culture that Jack Bogle created in always putting the client first and keeping costs dirt low,” said Allan Roth, an etf.com columnist and founder of financial planning firm Wealth Logic.

“Second, creating the structure where the fund holders own the company, so it doesn’t have to serve two masters, shareholders and the client.”

Vanguard's Next 50 Years

What do the next 50 years hold? Experts, including Roth, expect Vanguard will take over as the biggest ETF issuer in the U.S., as investors have been putting more money into the company’s funds than those of larger rival BlackRock. Earlier this year, the $601 billion Vanguard S&P 500 ETF (VOO) overtook the $569.8 billion SPDR S&P 500 ETF Trust (SPY) to become the world’s largest ETF.

Vanguard ETFs have pulled in $153 billion so far this year through April 29, ahead of the $60 billion grabbed by BlackRock’s iShares.

Maintaining that momentum is not guaranteed. The company is dealing with challenges, such as complaints about unsatisfactory customer service, leadership under the first CEO who was not brought up through the company's ranks, the slow diminishment of its mutual fund business and technological challenges like those related to tokenization and crypto investing.

Still, as Vanguard and its appropriately named "Admiral" funds navigate the future, company leaders will lean on Bogle’s words. Three of his favorites they may follow: “Stay the course.”