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Blog: Headline I Want to See: Is the Vanguard 403(b) getting too big to be healthy for the financial system?

January 17, 2020

The Los Angeles Times asked today if Vanguard is getting to be too big to be healthy for the financial system. The story lays out how the firm’s sheer size — $10 trillion in assets — and its recent expansion into China and Europe could be problematic.

Founded by the late John Bogle, and focused on low-cost index products, Vanguard now accounts for more than a quarter of the U.S. mutual fund market. According to Morningstar, Vanguard took in more money last year than its two biggest rivals, BlackRock and Fidelity, combined. 

I am not smart enough to know if that is truly problematic, but I will say that Vanguard’s success is due almost entirely to its low-cost, client-centered approach. In fact, client’s are the owners. If you invest in Vanguard funds, you are a partial owner of Vanguard.

Furthermore, the firm’s growing size and focus on costs has led to consist reduction in costs. In the same article, The Los Angeles Times points out that the firm charges investors less than 0.1% compared to the U.S. average of 0.58%. In the article, Tim Buckley, Vanguard’s chief executive, says: “The sheer size of Vanguard and the income that it generates allows us to invest more for our clients… while still lowering your costs to improve your returns.”

I have been fortunate enough to have visited Vanguard's Malvern, Pennsylvania campus twice. On the first ocassion I got to meet and chat with John Bogle. What an experience. I get that no matter how benevolent an organization, it can be dangerous if an entity gets too big. But I would like to see two things: 

  1. More financial firms adopting Vanguard’s client centered, client owned approach. 
  2. More school districts offering Vanguard’s 403(b) product.

Then maybe we can get a headline I would love to see: Is the Vanguard 403(b) getting too big to be healthy for the financial system?