Vanguard on Monday announced reductions to the management fees for 87 investment funds, reportedly the largest such cuts in company history.
By reducing the expense ratios on dozens of mutual funds and exchange-traded funds, or ETFs, Vanguard pledged to save investors more than $350 million in 2025.
The announcement comes in an era when many investment firms are reducing the annual costs of owning funds, much to the benefit of individual investors.
“At Vanguard, we’re focused on creating value for our investors, not extracting value from them,” said Salim Ramji, Vanguard CEO, in a statement. “Lower costs enable investors to keep more of their returns, and those savings compound over time.”
Vanguard is the nation’s second-largest financial advisory firm, after BlackRock, with $10.1 trillion in global assets under management.
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The firm said the lower expense ratios were effective immediately.
What is an expense ratio?
The expense ratio is the annual cost of owning a mutual fund or ETF. It is essentially a management fee, paid by the investor to the firm.
The fee is expressed as a percentage of your investment: An expense ratio of 1% means you will pay $1 per year for every $100 you have invested.
Expense ratios “have been declining for years,” according to a report from the personal finance site Bankrate. Fees on stock mutual funds have declined from 0.99% in 2000 to 0.42% in 2023 on an asset-weighted basis, a calculation that favors larger funds.
Periodically, Vanguard, BlackRock and other large investment firms announce cuts to expense ratios on groups of funds, a trend some observers have termed a “race to the bottom” as fees plummet toward zero.
“Investors are doing well for themselves when it comes to fees,” wrote Zachary Evens of Morningstar in a 2024 report.
Many passive funds, such as index funds, now have expense ratios below 0.1%.
Actively managed funds, with generally higher fees, have managers who might take a more hands-on approach to buying and selling.
But any fee higher than 1% “should be avoided,” Bankrate instructs.
Fees are retreating amid a shift to no-load funds
The gradual decline in expense ratios reflects a shift toward no-load funds, which typically do not charge a fee or commission when you buy or sell shares, according to a report from the nonprofit Investment Company Institute.
Vanguard is an industry leader in offering low-cost investment funds, as of 2024, according to Morningstar. Vanguard’s overall asset-weighted expense ratio dropped from 0.09% in 2018 to 0.08% in 2023.
And now, some of those fees will get lower. For customers who hold “admiral shares” of the Vanguard Windsor Fund, for example, the expense ratio will fall from 0.32% to 0.26%. For those with institutional shares of the S&P 500 Value Index Fund, the fee will drop from 0.08% to 0.05%.
Morningstar listed three other low-cost investment firms:
- State Street Global Advisors, with an expense ratio of 0.14%
- iShares, part of BlackRock, with an expense ratio of 0.16%
- Dimensional Fund Advisors, with an expense ratio of 0.24%
Vanguard is owned by the funds it manages, company officials said, a structure that enables it to return value to investors.
“Our funds, particularly our U.S. funds, tend to be run at cost,” said Daniel Reyes, head of portfolio review at Vanguard. “They can be run at cost because of that ownership structure.”
