Chat with TSC'sDagen McDowell and Joe Bousquin about mutual fund investing on Yahoo! Thursday at 5 p.m. EDT. Register for Yahoo! Chat at: chat.yahoo.com. It's free!
Management at Vanguard Group
You can keep my money.
But I will be watching it with much more care than I have in the past.
Wait a minute, don't throw this letter in your "Ignore: Diehard" pile. I don't fit that category. Yes, I find last week's unceremonious slap in the face to your Senior Chairman
more than offensive. Despite his obvious willingness to continue serving, you force him to leave the board of directors? Just because he turned 70? C'mon. In Bogle years, that's far from retirement age.
But the fact that you didn't extend basic courtesy to one of the industry's most legendary pioneers isn't my main issue as a shareholder. I understand the business world doesn't always traffic in respect and that attention to the bottom line can sometimes transcend good manners. That isn't why I considered letting go of the Vanguard funds that form the core of my portfolio.
Here's why you make me question my commitment to your fund firm: This was a bad business move. One of your biggest assets is walking -- rather, being pushed -- out the door.
For decades now, it has made sense (not to mention money) to follow Bogle's advice. Without his vision, investors might not have the option of low-cost index funds. He created those investments, as we know them, two decades ago (to much ridicule in the industry).
But who's laughing now? Investors have poured tens of billions of dollars into index funds. And largely under Bogle's watch, Vanguard, with about $500 billion in assets, has grown to be the second-biggest mutual fund company in the world, second only to
I put my money with you. My retirement and my kids' education depends, in part, on the performance of the
Vanguard 500 Index fund and the
Total Stock Market Index.
With Bogle playing a key role in the company, I have come to expect a certain level of accountability to investors. He set up the company so that it is owned by shareholders and made the motto "cost counts" a cornerstone of Vanguard's philosophy. The firm's rock-bottom expenses are way below competitors' and have declined steadily over the past 10 years. According to
, the average expense ratio last year of all other U.S. diversified funds was four times higher than Vanguard's. And not only is Vanguard the cheapest place to put your money, it is often the best place, with index and active funds alike consistently performing near the top of their categories.
Plus, when Vanguard's ship is not sailing so smoothly, Bogle is not afraid to speak up. Remember when the well-known large-value favorite
Windsor hit tough times in 1998? Bogle was quick to let manager Charles Freeman know that performance was under his watchful eye. And when it didn't improve, he acted quickly behind the scenes to pare Freeman's responsibilities.
Quite simply, he calls 'em as he sees 'em. And even since he handed over the reins to his successor, Chairman Jack Brennan, Bogle has been incredibly active, constantly traveling the country to trumpet his crusades.
No wonder he's not all that popular with you and that his nickname, often not used fondly, is "St. Jack." It seems he hasn't been preaching to the choir lately. I can imagine you were embarrassed when he criticized your efforts to expand into the discount-brokerage business. And as you increased your foreign fund offerings, it couldn't have been easy to hear him decry international investing as essentially useless.
By no means do I give Bogle all the credit for building Vanguard into the fund company that it is. Your wildly popular index funds are clear beneficiaries of a bull market that favored a select group of large-cap stocks. Investors chased performance, not price.
But your ouster of him from the board sends a clear message. And you're going to have to work to make me feel comfortable as a shareholder again. Don't just rest on your reputation -- largely built by Bogle.
Here's a thought: Why don't you take his commitment to low cost to the next level? Let's start seeing lower costs for trading funds online. Our stock-trading buddies get a break when they go online; so should we. (For more on this topic, see
Internet Cost Savings Have Yet to Reach Mutual Fund Industry.)
That's your challenge. Movement on that front could easily convince me that I need not worry.
So my money stays.
But the burden is now on you. You'd better show me why I should keep my money with you.
Brenda Buttner's column, Under the Hood, appears Thursdays. At time of publication, Buttner owned shares of the Vanguard 500 Index and Total Stock Market Index funds, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks or funds. While she cannot provide investment advice or recommendations, Buttner appreciates your feedback at