Jack Bogle created Vanguard as a “penny-pinching” financial powerhouse that was owned by the shareholders of its funds. Vanguard pioneered the low-cost index funds revolution.
The Vanguard Effect
The cost of financial products is important, and Slack Investor does his best to minimise any fees that come with financial transactions. It is not often I get to talk about two of my favourite finance things in one blog. Vanguard, the low-cost fund trendsetter and superannuation.
Vanguard have long been a fund manager and ETF provider that have been at the forefront of lower fees in the finance sector. The term “Vanguard Effect” has been coined to explain the phenomena that when Vanguard competes in an area, the expense ratios from their competitors tend to decrease.
Vanguard Superannuation in Australia
This month, Vanguard launched into the Australian Superannuation space with a product that is transparent and amongst the lowest fees for an accumulation account. The beauty of their offering is the straight up bundling of all their fees into one simple number – 0.58% of your super balance. Of course, Slack Investor would like a lower management fee – but this is a good start.
0.35% (Administration) + 0.21% (Investment) + 0.02% (Transaction) = 0.58%
The Vanguard MySuper Lifecycle product fees depend on how much Super you have. For a $50,000 balance, the total annual fee would be $290, for a $500,000 balance, the total annual fee would be $2900. The transparency is good – Drag out your own Super annual statement and try to work out your own total fees.
Using the ATO’s comparison of MySuper products tool for a few of the popular industry funds for a $50K balance.
| UniSuper | AustralianSuper | HostPlus | Hesta | |
| 5-yr Net Return | 6.44% | 7.07% | 7.58% | 6.53% |
| Annual Fee | $316 | $452 | $619 | $510 |
Of course, fees are not the only consideration. Many of the Industry funds use some sort of stock picking, and may use private equity to enhance their performance. Vanguard Super is made up of a mixture of index funds. I do like the way that the Vanguard Lifecycle automatically adjusts your exposure to risk as you creep towards retirement. 90% growth assets till age 45, then tapering to below 50% when you reach 60. All this is done automatically by Vanguard.
Despite this juicy offering, there is often a lack of engagement of Australian workers with their superannuation. Vanguard will probably have a bit of trouble gaining traction in Australia due to the size and popularity of their industry super competitors. This product is currently only for accumulation accounts at this stage. It is a decent starting point by Vanguard and l0ok forward to details of their pension option (coming soon!). I also am hopeful of a bit of the “Vanguard Effect” to put a bit of pressure on existing superannuation fees – which are still too high.
A note that Slack Investor is not sponsored by Vanguard (or anyone else!), but I own a few of their ETF’s and their original founder, Jack Bogle, is one of the Slack Heroes.
November 2022 – End of Month Update
Slack Investor is now back IN for Australian index shares, UK Index shares and UK Index shares.
Last month’s update describes why I feel glad that my 20-yr index timing experiment is coming to an end in 2024. The frustrating moving out … then quickly back in to my Index funds is getting tiresome. I am likely to become just a “buy and hold” investor for my small portfolio of Index funds.
This month, all markets found there were “Reasons to be Cheerful”. There were positive movements all round. The ASX 200 +6.1%, the FTSE 100 +3.3% and the S&P 500 +5.4%.
All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).