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You are here: Home / Stock Investing Series / Stocks — Part X: What if Vanguard gets Nuked?

Stocks — Part X: What if Vanguard gets Nuked?

by jlcollinsnh 112 Comments

You don’t have to read very far into this blog to know I am a strong proponent of investing in Vanguard index funds.  Indeed, you’ll find this in the Manifesto:

Vanguard.  End of story.

Understandably, this raises some questions.  Today let’s look at the four most common:

1.  What makes Vanguard so special?

When Jack Bogle founded Vanguard in 1975 he did so with a structure that remains unique in the investment world:  Vanguard is client-owned and it is operated at-cost.

Sounds good, but what does it actually mean?

As an investor in Vanguard Funds, your interest and that of Vanguard are precisely the same.  The reason is simple.  The Vanguard Funds, and by extension the investors in those funds, are the owners of Vanguard.

By way of contrast, every other investment company has two masters to serve:  The company owners and the investors in their funds.  The needs of each are not always, or even commonly, aligned.

To understand the difference, let’s look at how other investment companies (most companies in fact) are structured.  Basically, there are two options:

1.  They can be owned privately, as in a family business.  Fidelity Investments is an example.

2.  They can be publicly traded and owned by shareholders.  T. Rowe Price is an example.

In both cases the owners understandably expect a return on their investment.  This return comes from the profits each company generates in operating its individual mutual funds.   The profits are what’s left over after the costs of operating the funds are accounted for — things like salaries, rent, supplies and the like.

Serving the shareholders in their funds is simply a means to generate this revenue to pay the bills and create the profit that pays the owners.  This revenue comes from the operating fees charged to shareholders in each of their individual funds.

When you own a mutual fund thru Fidelity or Price or any investment company other than Vanguard, you are paying for both the operational costs of your fund and for a profit that goes to the owners of your fund company.

If I am an owner of Fidelity or Price I want the fees, and resulting profits, to be as large as possible.  If I am a shareholder in one of their funds, I want those fees to be as modest as possible.  Guess what?  The fees are set as high as possible.

Now to be clear, there is nothing inherently wrong with this model.  In fact it is the way most companies operate.

When you buy an iPhone built into the price are all the costs of designing, manufacturing, shipping and retailing that phone to you.  Along with a profit for the shareholders of Apple.  Apple sets the iPhone price as high as possible, consistent with costs, profit expectations and the goal of selling as many as they can make.  So, too, with an investment company.

In this example I chose Fidelity and Price not to pick on them.  Both are excellent operations with some fine mutual funds on offer.  But because they must generate profit for their owners, both are at a distinct cost disadvantage to Vanguard.  As are all other investment companies.

Bogle’s brilliance, for us investors, was to shift ownership of his new company to the mutual funds it operates.  Since we investors own those funds, thru our ownership of shares in them, we in effect own Vanguard.

Any profits generated by the fees we pay would find their way back into our pockets.  Since this would be a somewhat silly and roundabout process and, more importantly, since it would potentially be a taxable event, Vanguard was structured to operate “at cost.”  That is, with the goal charging only the minimum fees needed to cover the costs of operating the funds.

What does this translate into in the real world?

Such fees are reported as “expense ratios.”  The average expense ratio at Vanguard is .20%.  The industry average is 1.12%.  Now this might not sound like much, but over time the difference is immense and it is one of the key reasons Vanguard enjoys a performance as well as a cost advantage.

With Vanguard, I own my mutual funds and thru them Vanguard itself.  My interests and those of Vanguard are precisely the same.  This is a rare and beautiful thing, unique in the world of investing.

Click on the quote below for more:

“No one, other than the funds and their shareholders, owns a piece of Vanguard. Nobody. Our CEO, Bill McNabb, and even our founder, Jack Bogle, are client-owners in exactly the way you are.”

2.  Why are you comfortable having all your assets with one company?  Isn’t this what tanked investors with Bernie Madoff?

Because my assets are not invested in Vanguard.  They are invested in the Vanguard Mutual Funds and, thru those, invested in the individual stocks, bonds and REITS those funds hold.  Even if Vanguard were to implode (a vanishingly small possibility), the underling investments would remain unaffected.  They are separate from the Vanguard company.  As with all investments, these carry risk, but none of that risk is directly tied to Vanguard.

Now this can start to get very complex and for the very few of you who care, there’s lots of further info you can easily Google.  For our purposes here, what’s important to know is:

1.  You are not investing in Vanguard, you are investing in one or more of the mutual funds it manages.

2.  The Vanguard mutual funds are held as separate entities.  Their assets are separate from Vanguard, they each carry their own fraud insurance bonds, each has its own board of directors charged with keeping an eye on things.  In a very real sense, each is a separate company operated independently but under the umbrella of Vanguard.

3.  No one at Vanguard has access to your money and therefore no one at Vanguard can make off with it.

4.  Vanguard is regulated by the SEC.

All of this, by the way, is also true of other mutual fund investment companies, like Fidelity and Price.  Those offered in your 401k are, in all likelihood, just fine too.  (If you have an employer sponsored retirement plan, like a 401k, that doesn’t offer Vanguard funds by all means invest in it anyway.  Especially if any company match contributions are offered.  Those are free money and an instant return on your investment.)

It is NOT true however for what are called Private Investment Funds.  Those are where you turn your money over directly to an individual or group of individuals to manage and invest.  That’s what Madoff was running.

3.  What if Vanguard gets nuked?

Ok, let’s be clear.  If the world ends on December 21, 2012 as evidently the Mayan Calendar suggests it might, everything you have invested in Vanguard (or elsewhere) will go up in smoke.  But that’s not gonna happen. (Come December 22nd, I’m putting “told you so” right here.) (Told you so.)

If a giant meteor slams into Earth setting the world on fire followed by a nuclear winter, your investments are toast.

If space aliens arrive and enslave us all, unless you bought human feedlot futures, it’s gonna mess up your portfolio.

If super volcanos or global warming or viruses or an ice age or the reversal of the magnetic poles or AI robots or nanobots or maybe Zombies take us out, investing with Vanguard will be of no help at all.

Relax.  It ain’t none of it gonna happen.

At least not on our watch.

But lesser disasters can and do happen.  Vanguard is based in Malvern, Pennsylvania.  What if, God forbid, Malvern is nuked in a terrorist attack?  What about a cyber attack?  Hurricane?  Pandemic? Power outage?

Every major company and institution is aware of these dangers and each has created a Disaster Recovery Plan.  Vanguard has one of the most comprehensive going.  The company is spread across multiple locations.  Its data is held in multiple and redundant systems.  You can check out their plan here:  Business Recovery Plan

But, if you are expecting a planet or even just a civilization ending event, Vanguard’s not for you.  But then, no investments really are.  You’re already stocking your underground shelter with canned goods.  Short of that, you can sleep just fine with your assets at Vanguard.  I do.

4.  Am I on the take?

This blog is such strong a proponent of Vanguard it is reasonable to ask….

“Am I on the take?”

Nope.  Vanguard doesn’t know I’m writing this and they are not an advertiser.  Nor do they pay me in any fashion whatsoever.

(However, this blog does participate in Google Adsense. It is possible that when they choose the ads that appear, Vanguard’s might be one of them.)

Addendum 1: For my International readers…

 With its client centered focus, Vanguard is growing rapidly and now is available in many countries outside the USA.  You can check the list out here:  Vanguard Global

Addendum 2: Vanguard 2022

Recently Vanguard has been subject to complaints of poor customer service and a clunky website. For my part, the service has always been fine. The website, not so much. 

Alan Roth describes my feelings on this exactly…

“I still wish Vanguard would concentrate its resources on fixing broken IT systems that I think are the root of customer service issues rather than launching newer, more expensive funds.”   

…and why, like him, I’m not leaving Vanguard

 

Related

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Filed Under: Stock Investing Series

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Comments

  1. Trisha Ray says

    September 7, 2012 at 10:32 am

    As always – nice and clear. Questions we hesitate to ask for fear of sounding stupid. Thanks!

    Reply
    • jlcollinsnh says

      September 7, 2012 at 11:04 am

      Good to hear it! I’m always concerned about the clarity of what I write.

      Actually, most of these questions came from some guy named Eric. No hesitation there. 🙂

      Reply
      • Sam says

        July 7, 2015 at 5:07 am

        A great teacher I was blessed to have told the class repeatedly, “If you have a question, odds are another student has the same question, so please don’t hesitate to ask it.”

        Thank you Eric for asking it, and for helping encourage jl to write it. Thank you jl for the direct answers to these questions, and for the many posts of your I’ve read (slowly working my way through them).

        Reply
  2. Kevin says

    September 7, 2012 at 10:40 am

    I was just trying to explain to my wife the benefits of Vanguard last night but I could not articulate it very well! Perfect timing with this article, thanks!

    Reply
    • jlcollinsnh says

      September 7, 2012 at 11:05 am

      Music to my ears! hope it helps.

      Reply
  3. Mr. Risky Startup says

    September 7, 2012 at 11:23 am

    Beautifly written as always, and very informative. I love Vanguard, but I am also one of those who does not invest ALL my money with them. I understand the risks (and much better now, thank you), but I while I am sure that majority of the money invested with them would be returned eventually, if they were to implode, I still worry about how much time and effort would that take.

    And yes, to illustrate how “management fees” impact the mutual funds and investments in general, I did a spreadsheet last year (because financial firms do not give you that information easily), and I found out the in the 10 years my company and I were contributing into Great West Life (Canadian Company) employer sponsored retirement fund, fund managers made more money on my money than me. They made about 2% return over 10 years, I made only 1.6% average return. I would love to dump them, but when company copays $1 for each $1 that I contribute (up to a certain level), and I get to defer taxes until retirement (RRSP), I am getting at least 100% return on my money instantly 🙂

    Reply
    • jlcollinsnh says

      September 7, 2012 at 2:00 pm

      Thank you sir! Always nice to see you here. You make a couple of very important points.

      I should have pointed out (and in fact will edit the post to add) that the odds of Vanguard imploding are vanishingly small. Certainly small enough not to be a factor in my choice of investments. Further, since only long-term money should be invested waiting a few months if the unthinkable should happen is not a problem. I keep cash on hand for immediate needs.

      Great illustration of the impact of fees on returns, but even more important is your excellent point about employer sponsored retirement funds; what we call 401k here in the USA.

      Unfortunately, few of these plans offer Vanguard funds as an option. When I was working mine didn’t. But, as much as I love Vanguard, if your company offers such a program with a contribution match, GO FOR IT!

      This is the reason in #2 in my post I have the line: “All of this, by the way, is also true of other mutual fund investment companies, like Fidelity and Price. Those offered in your 401k are, in all likelihood, just fine too.”

      I should have been clearer. Mmmm. Think I’ll edit and add this point too.

      Reply
  4. Julie says

    September 7, 2012 at 12:33 pm

    You write about the Vanguard Mutual Funds. Does the same apply to their ETF’s or are their further risks with these.

    Reply
    • jlcollinsnh says

      September 7, 2012 at 1:49 pm

      Great question, Julie. The short answer is: Yes, my comments about the mutual funds also apply to the ETFs. That said, given the choice, I prefer the funds.

      First, ETF stands for Exchange Traded Fund. Basically these are mutual funds that you can buy and sell just like individual stocks. Here’s why the people who like them like them:

      1. If you live outside the USA, the ETF versions may be the only way you can buy Vanguard funds. If this is the case, by all means go ETF.

      If you go to Vanguard’s site and look up a fund, say VTSAX, directly under the name of the fund you’ll see a line with links indicating it is available as an ETF.

      2. When you buy or sell a mutual fund your trade is executed at the end of the business day. With ETFs, like stocks, it is executed immediately. If you are a short term trader, this is important.

      Here’s why I don’t use them:

      1. If you are a long term investor #2 above is of no consequence. Since short term trading is an always dangerous and most often losing game, I avoid it.

      2. Buying or selling an ETF most often involves paying a brokerage commission. I don’t like extra expenses.

      3. Living in the USA I don’t need ETFs. I can easily buy the mutual fund versions.

      Reply
      • Beyond Barefoot says

        November 22, 2021 at 11:47 am

        JL – this is a point I believe is much overlooked and one that a few of us may have gone around on a couple of times (or perhaps that just says something about me!).

        In Australia (where I am investing for example), there is both a fund and an almost identical ETF. Confusingly, Vanguard calls these ‘managed funds’ rather than mutual funds.

        While you can buy the ETF on the ASX, the fund can only be bought direct through a personal Vanguard account. This is a bit different to the UK from where I have also invested with Vanguard – so different products in different places.

        It drove me crazy trying to work out what the hell was different between a fund and the corresponding ETF. It is further complicated by the fact the Vanguard only trades some of its available ETFs via a broker and not as part of the products available via a personal Vanguard account (at least, not without extra fees).

        This is a long reply to say – all in all, looking at average returns over 5 years (not all have been running for 10 in Australia), it seems that funds may do slightly better than EFTs in Australia but there’s not a lot in it.

        So your thesis holds true in 2021, if you are investing for the long term, unless you can avoid the brokerage, Funds are probably the better bet. Also, Australian brokers are yet to catch up to the UK, so at this stage they are all charging offensively high brokerage (e.g. not gratis like Freetrade), so it makes no sense to pay for an ETF when Vanguard will deal you in for free.

        Reply
  5. SavvyFinancialLatina says

    September 7, 2012 at 12:44 pm

    Really enjoyed the article! I’m thinking of investing one of our ROTH IRAs with them. Still trying to figure it out.

    Reply
    • jlcollinsnh says

      September 7, 2012 at 1:33 pm

      Thanks SFL….

      Good luck with your Roth decision, and just deciding to have a Roth is a great decision. 🙂

      Reply
      • SavvyFinancialLatina says

        September 7, 2012 at 3:16 pm

        Thanks 🙂 The pf atmosphere is how I got introduced to the ROTH IRA. Surprisingly, no one including my in laws who are well educated talk about choosing retirement funds.

        Reply
        • jlcollinsnh says

          September 7, 2012 at 3:46 pm

          Sadly, I’m not surprised.

          Investing was never a part of my formal education either. My daughter had one class in high school and nothing, so far, in college.

          the world is filled with highly educated folks lost in the financial wilderness….

          Reply
          • SavvyFinancialLatina says

            September 7, 2012 at 4:29 pm

            Personal finance is not a priority in formal education. Hah, even WSJ and Bloomberg have a crappy personal finance section. The best advice comes from reading lots of pf bloggers.
            I took lots of classes in finance, and only a couple professors mentioned stocks, but never really talked about how to get started, the advantages, etc.

  6. Eric says

    September 7, 2012 at 2:23 pm

    Sir,

    In fact, Vanguard is based in Malvern, Pennsylvania
    https://en.wikipedia.org/wiki/The_Vanguard_Group

    Reply
    • jlcollinsnh says

      September 7, 2012 at 2:39 pm

      Doh!

      I stand corrected. You are absolutely right. Man, I need a fact checker.

      Although, in my defense, they do have an operation in Baltimore.

      T. Rowe Price is the one in Baltimore. And Fidelity is in Boston.

      Reply
  7. Shilpan says

    September 7, 2012 at 2:38 pm

    Awesome thoughts, Jim! John Bogle is on a noble mission to save the world from insanity. I encourage your readers to read this article about this great man and his priceless advice.

    http://www.nytimes.com/2012/08/12/business/john-bogle-vanguards-founder-is-too-worried-to-rest.html?_r=1&pagewanted=1&hpw

    Reply
    • jlcollinsnh says

      September 7, 2012 at 3:03 pm

      Thank you, my friend.

      Mr. Bogle has done more for the individual investor than anyone else in history. He is my personal hero and I only wish I’d found Vanguard and Indexing sooner.

      Reply
  8. Steve says

    September 7, 2012 at 6:59 pm

    Nice to see you back off your holidays JLC, I like your clear explanation of all things financial and quit often link them on my facebook page but unfortunately most people don’t have my interest in finance and shares.
    But getting to your article and Vanguard (of which I am a fan) and the company structure seems to be very similar to a mutual society or Cooperative here in the UK.
    Now I had the pleasure of working for an old Cooperative http://www.co-operative.coop/corporate/aboutus/ourhistory/
    and actually its a very different atmosphere to any other company that I have worked for and it’s true that ethics and honesty was more important there than any other company.

    But I must worn that in a old mutual or cooperative where the original company creator has gone, sometimes they can get over bloated and inefficient (Vanguard is in it’s infancy compared to The Coop) and the guys at the top can sometimes become overpaid, old and less interested in the company and more interested in retiring.
    Now the Coop is making a comeback and is more efficient and has got some of it’s spark back but this has taken more than 10 years to do.
    When they made me redundant they informed us and said the depot was to be closed quickly and it took 3 years (and that is fast for the Coop).
    I am not saying this will ever happen to Vanguard but you have to keep your eyes open.

    Reply
    • jlcollinsnh says

      September 8, 2012 at 12:40 am

      Thanks Steve, and thanks for linking some of this stuff on your facebook page. I always appreciate readers passing the blog along to their pals.

      wow. that’s some history in the link you provided.

      your concern about mission and value drift in organizations once a founder leaves is well worth consideration.

      When Jack Bogle stepped down as Vanguard’s CEO in 1996 it gave me pause and focused my attention. Since then there have been two more CEOs and the course and values remain rock solid. To a great extent the organizational structure locks them in and the core beliefs are deeply engrained. I’m not much worried.

      That said, were I to notice any drift I’d shift into high alert. For now and the foreseeable future, while I’ll always keep an eye open, I sleep well at night.

      Reply
  9. Jan says

    September 8, 2012 at 1:39 am

    Excellent! This is your best ever, Jim. Thank you. I will sleep a little bit better tonight.

    Reply
    • jlcollinsnh says

      September 8, 2012 at 12:54 pm

      Thanks, Jan….

      ..nothing like a good night’s sleep!

      Reply
  10. RW says

    September 8, 2012 at 11:25 am

    While I do have Vanguard in some of my 401k holdings. When I tried to roll over a Roth IRA into a Vanguard fund, I found that some of the funds are closed to new investors. In fact, some of your favorites you mention in earlier posts.
    Jack Bogle is certainly a pioneer in the investing world, I found the Bogleheads guide to investing to be a good read for the Jr. investor like myself. Wish I would have done this much early in life…
    Vanguard certainly has lower fees, more of your money working for you vs fees taking a cut of your cash. How do you feel about Reits? Also would like to hear your take on dividend investing? Seems to be an easy way to reap cash quarterly based on what I have read so far…
    From prior posts seems you are not a big fan.

    Reply
    • jlcollinsnh says

      September 8, 2012 at 12:53 pm

      Hi RW….

      There are four funds that meet all our investing needs and I describe them here: https://jlcollinsnh.com/2011/06/14/what-we-own-and-why-we-own-it/

      Just did a quick check and all are still open to new investors. Which have you found closed?

      I do use, and link to, the Admiral version of these funds which have a lower expense ratio but a 10k investment minimum. However each also has an “Investor Shares” version and Vanguard provides links to those at the top of the page.

      One of the four funds I use is a REIT. Combined with the equity in my house it comprises 25% of my portfolio. Real Estate held this way in my inflation hedge.

      My concern with dividend investing is:

      1. It requires selecting individual stocks, a complex endeavor that almost always underperforms the Index.

      2. It focuses on only one of the ways companies produce value and return to shareholders.

      3. Dividends paid, outside a tax advantaged account, are taxable.

      That said a well executed dividend investment program will get you to FI. It’s just more work and less powerful than VTSAX. Here’s more: https://jlcollinsnh.com/2011/12/27/dividend-growth-investing/

      Reply
      • RW says

        September 8, 2012 at 2:33 pm

        Thanks, I have not made the move to dividend investing. I am more of a set it and forget it kind of person. So the Index funds do meet my style. I will look again at the Admiral versions offered. Thanks again!

        Reply
  11. PFgal says

    September 9, 2012 at 9:41 am

    You and others have convinced me to switch to Vanguard. Now I just have to figure out the logistics, since I already have everything at Schwab. I think a phone call to Vanguard is in order….

    Reply
    • jlcollinsnh says

      September 9, 2012 at 2:08 pm

      Hi PFgal….

      you’ll find the folks there very helpful when you call. Of course you are also going to have to get Schwab to release your funds.

      I have no experience with them, but I do have a friend who recently switch from Merrill Lynch. Seems the folks at ML did everything they could to drag their feet and block the process.

      Any doubts she had about leaving them were dispelled by their behavior.

      hope your experience with Schwab is smooth and professional. please let us know.

      Reply
  12. 101 Centavos says

    September 9, 2012 at 10:21 am

    Good writeup on Vanguard, Jim. Index investing is the safest way for most, although I feel people should also know how to do some basic valuation and understand the principles behind income statements and balance sheets.

    Reply
    • jlcollinsnh says

      September 9, 2012 at 2:18 pm

      Thanks 101….

      and you bring up an interesting point.

      Investing knowledge is something that interests you and me. I certainly agree that anyone planing to actively invest by picking individual stocks had better be able to do some basic valuation and understand the principles behind income statements and balance sheets.

      But even then, with vanishingly rare exception, they will underperform an index fund like VTSAX. Their effort and knowledge will actually end up costing them money.

      The second thing I’ve come to understand is the vast majority of people have zero interest in investing and certainly none in income statements and balance sheets. Yet these folks also want/need to be financially secure.

      The good news is that very successful investing can be had with very simple tools.

      This is the message and purpose of this blog.

      Reply
  13. ChetBodet says

    September 9, 2012 at 10:23 pm

    So question for you,

    I am a young guy, 24, looking to start saving more towards financial independence. What is the best option to buy Vanguard funds if I want to have access to them before the minimum withdrawal age set on IRAs? I already have a Roth IRA and am currently at a company that does not offer a 401K plan. Any advice would be incredibly appreciated.

    Reply
    • jlcollinsnh says

      September 9, 2012 at 11:44 pm

      Hi Chet….

      If I understand your question correctly, it’s pretty simple:

      Just open a regular (non IRA) account. You can buy any fund outside an IRA and have penalty free access anytime.

      Of course, assuming you are here in the USA, you will owe taxes on any capital gains and/or dividend the fund pays and, if you sell shares at a profit, you will owe a tax on capital gain.

      Funding your Roth first is a good move.

      congrats on getting an early start!

      Reply
      • ChetBodet says

        September 10, 2012 at 8:48 am

        As far as tax implications go would it be better just to open the regular account or would it be worth it to consider opening an IRA and risk the early withdrawl penalties?

        Reply
        • jlcollinsnh says

          September 10, 2012 at 9:26 am

          That depends on two things:

          1. How likely are you to withdraw this money early and incur the penalties. If you are planning, say, to buy a house and this is your downpayment money you want to avoid IRAs. If you are just thinking, OMG what if I get in trouble and need this cash, that’s something else.

          2. Are you in a high enough tax bracket to make the deduction worthwhile? Most 24-year-olds are not. Remember, IRAs (except ROTH) don’t eliminate your tax payments they only delay them until you pull the money out. I, for example, am now in a higher tax bracket retired than I was in my 20s.

          Reply
  14. Malaika says

    September 13, 2012 at 2:38 pm

    Jim, Great writing and an interesting article. Thank you for taking the time to share this information especially for “dummies like me”. Very much appreciated and a very easy read .

    Reply
  15. jpartin56 says

    March 9, 2013 at 7:54 pm

    I opened a Vanguard account yesterday and qualified for concierge service for my retirement rollover to a Vanguard IRA. I must say that the fellow that I talked to would be a mirror of what you have said repeatedly in your blog. He could’ve steered me to any number of funds for a retirement portfolio and patiently answered my ‘what if’ questions pertaining to different mixes of funds. The choice that I ended up with was the Target 2020 fund, I may add a REIT fund as a small percentage if I feel that I can tolerate the added risk. I can’t say enough good things about my experience with Vanguard. I have some real peace of mind now thanks in large part to you and your blog. Thanks!

    Reply
    • jlcollinsnh says

      March 9, 2013 at 8:01 pm

      Welcome Jim!

      Glad, but not surprised, you had such a good Vanguard experience.

      Reply
  16. Joe says

    March 11, 2013 at 1:45 pm

    Don’t forget to put “told you so” about the Dec 21st Mayan Apocalypse comment!

    Reply
    • jlcollinsnh says

      March 12, 2013 at 12:40 am

      Ha!

      You’re right. The world didn’t end.

      But you just said it for me!

      Reply
  17. TwoThing says

    May 30, 2013 at 1:55 pm

    Hi Jim,

    First off, I love your blog. Quite addicted to reading your posts. 😀

    Just a question though, that may or may not be related to this. I live outside the US and I currently invest in Vanguard ETFs through Standard Chartered brokerage. They have a bit of commission and currency spread but those are expenses I cannot avoid and I am willing to shoulder. Vanguard individual investor services are not available where I am from and SC is one of the few that allow us to trade in the US stock market.

    My question now is, if it’s Standard Chartered that gets nuked, will my investments disappear with it even if I bought Vanguard ETFs shares (Standard Chartered acts as the custodian)?

    I’m not sure if you would know the answer to this but just like to hear your thoughts if ever.

    Thanks a lot!

    Reply
    • jlcollinsnh says

      May 30, 2013 at 3:05 pm

      Welcome, TT…

      Glad to have you here!

      Unfortunately, I am not at all familiar with Standard Chartered. But, if it is like most brokerages and mutual fund companies, your ETFs should be fine. They are separate things from SC and so you are not invested in SC, but rather just thru them as your broker.

      But because there is much at stake here, I would continue your research beyond my opinion.

      If you haven’t already, you might read: https://jlcollinsnh.com/2013/05/02/stocks-part-xvii-what-if-you-cant-buy-vtsax-or-even-vanguard/

      and especially the comments. You might even ask your question there. My international readers have begun sharing info there beyond what I can offer.

      Good luck and, as you learn more, please tell us in a comment over on that post.

      Thanks!

      Reply
  18. T-bone says

    May 31, 2013 at 11:49 pm

    I am a small businessman who offers a 401K to his employees. Our current 401K administrator doesn’t offer much advice or value, and my staff is unhappy with him/them. Is there a way I can set up a 401K through Vanguard?

    Reply
    • jlcollinsnh says

      June 1, 2013 at 5:41 am

      Hi T-bone…

      and welcome. I wish my employers had been as forward thinking as you.

      While I’m not a Vanguard rep, I did pop on their site and found this page:

      https://personal.vanguard.com/us/whatweoffer/smallbusiness/403b7

      It should get you started.

      Tell ’em I sent you!

      Reply
  19. Jam Dough says

    December 30, 2013 at 10:17 pm

    Great article, thanks !

    One point though I would like to raise. Because Vanguard appoints fund managers to allocate the investing parties capital accordingly (via computer analysis), what assurance do we have that such managers are allocating said funds as described within the stated fund structure?

    cheers,

    Jam Dough

    Reply
    • jlcollinsnh says

      January 3, 2014 at 8:25 am

      Hi Jam…

      Interesting question.

      To check you could simply go on line and look to see the holdings match the fund’s stated objectives. Or look at the Prospectus for the same, if a bit more dated, info.

      Perhaps more to the point, any fund manager who strayed from the fund’s goals would be quickly terminated. Plus, they’d really have no motivation to do so.

      Hope this helps!

      Reply
  20. AML says

    August 5, 2014 at 7:54 pm

    Great Series!!! I am on board with the Vanguard philosophy but unfortunately have a large amount in funds at Merrill Lynch from my younger days blindly listening to family advice (parent has a friend who is my financial adviser at ML). I just realized one of the funds has a 3.68% expense ratio with a 1.0 load!!! I’m wondering if you have any advice on the best way to sell and transfer funds while minimizing taxes and penalties on a non-retirement/taxable account. I am in a high tax bracket and would prefer not to get hit on all angles by this mistake.

    Thanks in advance for the advice and for the great articles!!!

    Reply
    • jlcollinsnh says

      August 6, 2014 at 1:09 am

      Thanks AML…

      Glad you like it!

      Over these past few years writing this blog, I’ve begun to learn that many are faced with this same situation: High fee funds bought years before that the robust market has given large capital gains now waiting to be taxed.

      Obviously, in tax-advantaged accounts these can be moved instantly with no tax consequence. But it taxable accounts there is no easy answer.

      A lot depends on how big a gain we are talking about.

      Second, there are no government penalties in selling out of these funds, just the tax due. But some of the fund companies levy their own exit fees, a despicable practice.

      Third, capital gains taxes are fairly modest.

      For 2014:
      
Under the 25% tax bracket the tax is zero

      For the 25%, 28%, 33% and 35% brackets it is 15%

      Once in the top bracket of 39.6% it is 20%

      With those points in mind, here are a few approaches to consider:

      1. If you can see a year coming when you’ll drop below the 25% bracket, sell and move your funds then and you escape tax free. Or if you are in the top bracket and see a time coming when you’ll drop to 35% or less and can take the cap gain hit at 15% instead of 20%.

      2. Sell and transfer the funds over a period of several years, starting with the ugliest, highest fee ones first.

      3. If while pursuing the strategy in #2 the market takes one of its periodic major dives, use that opportunity to then move all your funds while prices are depressed and the cap gain hit will be less.

      4. Rip the bandaid off all at once — sell/pay the tax and be done with it — lick your wounds and move on.

      5. Of course if any of your taxable investment have losses in them, you can sell those to offset some of your gains.

      Sorry I don’t have any magic bullets to offer here. But as problems go, this one isn’t the worst:

      You do have capital gains and that’s always something to celebrate.
      Once you sell and start anew at Vanguard your cost basis will be reset.

      As taxes go, capital gains get favorable treatment.

      Good luck and let us know what you decide!

      Reply
  21. Serena P. says

    August 12, 2014 at 8:40 am

    Hi Jim!

    Thank you for your super informative blog. My husband and I have really learned a lot. I have a mutual fund issue that I’m hoping you can help me out with. My 401k only offers Fidelity funds. I checked out the expense ratios and management fees of the 2 funds that I’m currently investing in and they were indeed higher than I liked. I transferred everything to the only index fund that they offered which mirrors the S&P 500, which is called “BlackRock Equity Index Fund M”. The thing that caught my eye was that they said, “This investment is not a mutual fund.” This got me worried. Are they one of those Private Investment Funds that you warned us about? This is what they say on their page:

    “The Fund is a collective investment trust maintained and managed by BlackRock Institutional Trust Company, N.A. (“BTC”). The Fund shall be invested and reinvested in a portfolio of equity securities with the objective of approximating as closely as practicable the capitalization weighted total rate of return of that segment of the United States market for publicly traded equity securities represented by the larger capitalized companies. The criterion for selection of investments shall be the S&P 500 ® Index.
    The Fund may invest through one or a series of collective investment trusts managed and trusteed by BTC.

    When deemed appropriate by BTC and unless otherwise provided in the Fund’s investment strategies, BTC may invest all or any portion of the Fund in one or more futures contracts, forward contracts or other similar assets for the purpose of acting as a temporary substitute for investment in securities.

    In the event of a conflict between this summary description of the Fund’s investment objective and principal investment strategies and the Trust Document under which the Fund was established, the Trust Document will govern. For more information related to the Fund, please see the Fund’s Trust Document, Profile and most recent audited financial statements.”

    I’d appreciate your input. I just transferred my entire life’s 401k over to them and I want to know if I need to frantically undo it.

    Thanks!
    Serena

    Reply
    • AB says

      August 19, 2014 at 1:30 pm

      Serena,

      You have nothing to worry about with this fund (as far as structure goes). It is not a private investment fund of the Madoff or hedge fund kind. A collective investment trust leverages the economies of scale available to fund sponsors and qualified plans, such as 401k plans. This translates to lower expense ratios in many cases. The trust is an entity legally separate from BTC. It essentially operates similarly to a mutual fund, but it’s not publicly traded due to the nature of how it is established. Since the fund is within your 401(k), it is subject to the provisions of ERISA.

      Vanguard offers such funds to its clients, my employer being one of them. We have the Trust version of their Target Retirement Funds in our plan lineup, as the trusts carry lower ERs than the mutual funds. Also, the stable value option in our plan is technically a collective trust.

      I’m happy to provide more information if you need it, but hopefully this puts your fear to rest.

      Reply
    • jlcollinsnh says

      August 19, 2014 at 6:09 pm

      Hi Serena…

      I’m afraid this is out of my area of expertise. That said, what AB offers makes sense to me.

      Thanks AB!

      Reply
  22. Derek says

    April 8, 2015 at 12:23 pm

    Hi Jim!

    I stumbled upon your Stocks series yesterday (after clicking through several articles about how to achieve FI) and have found the information very useful.

    I have a question about trading platforms. It’s clear to me that Vanguard is an exceptional choice, however I already have a roll-over IRA and brokerage account at Scottrade. On the site, it looks like I have access to VTSAX Admiral Shares, with a gross expense ratio of 0.05% and max management fee of 0.03%. So far so good… Would I be correct in assuming that I could enjoy the benefits of Vanguard even if I purchased the funds through Scottrade accounts, instead of moving them to Vanguard accounts? Or are there other financial or qualitative benefits to switching to Vanguard? TBH switching sounds like a pain, and I do like the no-frills and cheap trades at Scottrade, but I want to be sure this is the right choice.

    Any advice would be greatly appreciated!

    Cheers,
    Derek

    Reply
    • jlcollinsnh says

      April 8, 2015 at 1:42 pm

      Welcome Derek…

      Glad you found your way here.

      Personally, I would make the switch to Vanguard and be done with it. For a little effort now you’ll be in the best place forever. Plus you’ll get rid of that “max management fee of 0.03%.” Why pay Scottrade an annual fee for the privilege of holding VTSAX?

      Vanguard also offers cheap trades and if your balance is high enough they are even free.

      Reply
  23. Jakcorb says

    May 12, 2015 at 12:58 am

    Hi Jim,

    I just finished the whole stock series. Jeej me. You really did a superb job, and I will definitely buy a couple copies of your book once it’s published. That will make some great gifts for my younger cousins. Heck, I wish somebody had given me such book when I was 15.

    The reason for posting though is that I was wondering whether you have a certain routine to follow up on news related to Vanguard. I mean if I am going to invest all my capital with this one company, which I likely will, I want to know all the ins and outs of it.

    Ow and btw, you really look like one of my former supervisors. That guy really taught me a lot about life. And so did your blog. Maybe it’s a special gene?

    Reply
    • jlcollinsnh says

      May 12, 2015 at 10:52 am

      Hi Jakcorb…

      Glad you liked it and thanks for the advanced book sales. 🙂

      If all goes well, today I should have the major rewrites completed. From there another, lighter, review and rewrite followed by fine tuning and then the layout, design and publishing. Should be out this summer. Fingers crossed. It will be the book I wish I’d had at 15 too. Or 20. or 30. or 60 for that matter.

      Since I’m a customer of Vanguard I get a stream of email updates from them, most of which I ignore. I guess I’ve been with them long enough and have done enough due diligence that I just don’t worry about it anymore.

      I suppose if I were concerned or more interested, I’d look for articles on them in the on-line financial outlets like Yahoo Finance. Or maybe just Google them once in a while.

      Please give your former supervisor my condolences. It’s not easy going thru life looking like this. 😉

      Reply
  24. Pedro says

    September 19, 2015 at 5:56 am

    Hi Jim,

    Is Vanguard in Europe exacly the same that is in US? Is there any differences?

    Cheers

    Reply
    • jlcollinsnh says

      September 21, 2015 at 10:35 am

      Hi Pedro…

      It is the same company, but the funds offered are different in some cases.

      You might ask my European readers about it in the comments on this post: https://jlcollinsnh.com/2014/01/27/stocks-part-xxi-investing-with-vanguard-for-europeans/

      Reply
  25. tenhenjenn says

    December 22, 2015 at 4:35 am

    I just looked at the rules for SIPC coverage, and it seems that a person’s account with an institution is covered for $500,000 if the brokerage goes into liquidation.

    That makes me feel more comfortable about having a larger account worth with Vanguard, and I suppose one could always buy Vanguard funds through a regular broker like Ameritrade when one reaches the $500k per “separate capacity”.

    Thanks for this series, soaking it all up!

    from http://www.sipc.org/for-investors/investors-with-multiple-accounts :

    SIPC protection of customers with multiple accounts is determined by “separate capacity.” Each separate capacity is protected up to $500,000 for securities and cash (including a $250,000 limit for cash only). Accounts held in the same capacity are combined for purposes of the SIPC protection limits.

    Examples of separate capacities are:

    individual account;
    joint account;
    an account for a corporation;
    an account for a trust created under state law;
    an individual retirement account;
    a Roth individual retirement account;
    an account held by an executor for an estate; and
    an account held by a guardian for a ward or minor.
    Additional information on separate accounts may be found in SIPC’s Series 100 Rules.

    The following are examples of separate accounts:

    Mary has an account in her name at her brokerage firm. Mary is protected by SIPC up to $500,000.
    Joe has two brokerage accounts, each in his own name. For purposes of SIPC protection, Joe’s accounts are combined, and Joe is protected by SIPC only up to a total of $500,000.
    Joe and Mary are married and they have a joint brokerage account which is separate from the individual accounts that they each have at the firm. An additional maximum of $500,000 of SIPC protection is available for the joint account.
    Joe has a Roth account and an IRA account, at the same brokerage. Joe is protected up to $500,000 for the Roth account and up to $500,000 for his IRA account.

    Reply
  26. The Escape Artist says

    March 21, 2016 at 2:12 pm

    Hi Jim

    This is a fantastically useful post. It answers lots of questions I often get asked as a fellow blogger and Vanguard fan.

    Its so good and so useful that I would love to re-post it on my blog (rather than write an inferior version myself). It would of course be credited to you with a link to the original article on your site.

    I can show you previous examples on my blog where other bloggers (eg Raptitude, Free to Pursue) have kindly allowed me to do the same thing:

    http://theescapeartist.me/2015/08/11/an-interview-with-the-man/

    http://theescapeartist.me/2015/01/29/are-diamonds-really-a-girls-best-friend/

    I couldn’t see an email address on your site so please accept my apologies for posting this as a comment…I won’t be offended if you delete it!

    Keep up the great work

    The Escape Artist

    Reply
    • jlcollinsnh says

      March 21, 2016 at 2:37 pm

      Hi EA…

      Sent you a PM, but…

      Yes, absolutely. You’ve got a wonderful site and I’m honored you’d ask.

      Keep up the great work yourself!

      Reply
  27. Daan says

    March 31, 2016 at 6:21 pm

    Hey there,

    First of I would like to thank you for writing this blog. It has been very informative. And has me changing my mind about how to invest as well.
    All the breadcrumbs you leave behind kinda lead back to vanguard though. And being from Belgium, sadly, the people from my country aren’t lucky enough to have Vanguard present (yet?) out here.
    Would you recommend Vanguard EFTs? Or would I be better of with another low cost index fund I can buy out here?

    Thanks

    Reply
    • jlcollinsnh says

      March 31, 2016 at 7:34 pm

      Hi Daan…

      Since I know almost nothing about investing outside the US, awhile back I invited my pal Mrs. EconoWiser from the Netherlands to write this guest post: https://jlcollinsnh.com/2014/01/27/stocks-part-xxi-investing-with-vanguard-for-europeans/

      Be sure to also read thru the comments as well.

      If after that you still have specific questions, post them their and let’s see if my European readers can help.

      Good luck!

      Reply
      • Daan says

        April 2, 2016 at 9:17 am

        Thanks, I’ll be sure to give that a read and hopefully it contains the answers I’m looking for!

        Reply
  28. Syed says

    April 9, 2016 at 2:46 pm

    Great article. Clear and concise. Very interesting reading their disaster contingency plans. Makes me believe that the government does indeed have giant indestructible bunkers hidden somewhere in the desert.

    Reply
  29. PadAdventure says

    April 11, 2016 at 9:02 am

    Great article, and very timely, just getting ready myself to dump a bit more into my Vanguard portfolio. Thanks for the write up!

    Reply
  30. jlcollinsnh says

    April 11, 2016 at 11:25 am

    Hi Syed, PadA…

    Thanks for the kind words!

    Glad you both found it useful and the timing worked. 🙂

    Reply
  31. Go4itusa says

    April 11, 2016 at 1:23 pm

    As a matter of fact I just did a rollover to a Vanguard Roth IRA – VFIAX is the landing spot. I am glad that you wrote this piece Jim – as Buffett says, “It’s Armaghedden here every day.” I just left a career where it was my job to think of worst-case scenarios and by nature I’m wired to think what could go wrong with my thesis. The nuke or cyber assault on my investment houses is something I’ve thought about and I use two that I trust implicitly – USAA (where I hold Berkshire Hathaway) and Vanguard. The only risk that makes me truly “uncomfortable” is regulatory risk.

    Reply
    • jlcollinsnh says

      April 11, 2016 at 2:42 pm

      Thanks Go4itusa!

      And thanks for adding your perspective as someone used to analyzing worst case scenarios.

      Reply
  32. Mihou says

    May 7, 2017 at 2:00 am

    Hi Jim
    I am new on your blog and a huge fan of Vanguard for more 19 years.
    The latest New York Times article about Vanguard confirms it totally
    Vanguard Is Growing Faster Than Everybody Else Combined
    http://tinyurl.com/n8o28ak

    Thank again for all the relevant infos and advices found on your blog.

    Reply
  33. Mike says

    July 17, 2017 at 5:20 am

    I’m a huge fan of Vanguard and especially Jack Bogle. I was lucky enough to have access to their funds in my Fidelity managed 401K. My personal accounts have been spread across Merrill Edge as my primary and then Scwab and Fidelity. I decided to move some funds to Vanguard. I’ve been a satisfied customer of theirs for two years when all of a sudden they created a major problem and I still don’t know why. They restricted my accounts and never notified me. I found out when I sold a position and tried to reinvest in another position. They told me I was restricted and per the compliance department must supply them with a recent pay check stub, utility bill, and credit card statement. Eight months ago I sold my house and moved to my daughters house in Florida when I was laid off. I don’t have a Utility bill, pay stub or credit card any longer. I use my Scwab debit card for everything. Their compliance department wouldn’t budge so I had to transfer all my Vanguard assets out. I’m certainly very glad I wasn’t relying on Vanguard alone.

    Reply
    • jlcollinsnh says

      July 18, 2017 at 12:00 pm

      Hi Mike…

      I don’t know what to make of your story and I’ve not heard anything like it before.

      I am inclined to think it is a hoax.

      However, if I am wrong, please provide additional details:

      If they never notified you, how did you learn your accounts were restricted?

      What reason for this was given?

      Since you didn’t have the documentation they requested, how was the restriction finally lifted?

      If it wasn’t lifted, how did you transfer your assets?

      The only reason I can think of for such a restriction is that they suspected fraud and were trying to protect you.

      Reply
  34. Lauren says

    December 4, 2017 at 4:06 pm

    Hi Jim,
    Thanks for this amazing series. I’m new to all this, and likely about to ask an eyeroll-inducing question.

    I recently started a new company and am eligible to start up my 401Ks contributions this week (I have a few from past employers I need to figure out what to do as well and am interested in opening a Vanguard account and rolling those in). I was happy to see they do offer many Vanguard funds (specifically VFIAX, VIMSX, NAESX, VGTSX and one or two others).

    In looking at “since-inception” returns, I’m noting that, for example, VFIAX (ER 0.04%) has a 5.93% return, whereas something like American Funds Growth Funds of America (AGTHX, ER 0.66%) has a much-higher “since-inception (1973) return at 13.68%.

    Of course the ER% is much higher, too, and I’ve played around a bit with the expense ratio calculator you recommend as well as the investment calculator. And see the additional fees over time (yikes!) but is there an easier way to see both that along with differing return rates?

    Reply
    • Lauren says

      December 4, 2017 at 4:26 pm

      Oh, and I should mentioned that a total market fund from Vanguard isn’t offered. Boo.

      Reply
    • jlcollinsnh says

      December 4, 2017 at 9:07 pm

      Glad you like it Lauren.

      It is always tricky and often misleading to compare returns, and it is certainly so when you compare returns over different time frames as you have done by looking at the “since-inception” numbers. VFIAX came in to existence in late 2000. AGTHX in 1971.

      If you compare both funds from the date VFIAX launched, Nov. 13, 2000, until today you see:

      VFIAX — +100.68%
      AGTHX — + 91.29%

      However, if you look at the chart, you can also see periods of time where AGTHX outperforms:

      https://finance.yahoo.com/quote/VFIAX/chart?p=VFIAX#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%3D%3D

      But, as Jack Bogle says: performance comes and goes, costs are always there.

      If a total market fund isn’t offered, VFIAX is a fine choice.

      Reply
  35. Jeff says

    December 21, 2017 at 4:22 pm

    I’m curious your thoughts regarding individual 401ks. Currently all my money is in Vanguard in VTAX/VBTLX and a couple others but I am about to start an independent contractor job for the next several years and setup an i401k. Vanguard has this option but they don’t give access to their admiral funds. Only the investor class. Would you invest in Vanguard with higher investor class share or invest in Schwab or Fidelity version of the total market index fund except with the lower ER per share (advantage shares for instance).

    Reply
    • jlcollinsnh says

      December 21, 2017 at 7:15 pm

      Given the option, I would always chose the Vanguard fund for the reasons given in the post above.

      Reply
    • Patrick says

      August 1, 2018 at 12:57 pm

      Jeff,
      I had the same question about the i401k. I think I finally decided to go with SWTSX with an ER of 0.03 compared to the ER of 0.14 in VTSMX. The funds have been very similar in performance despite a few differences such as indices tracked, total funds included, etc.
      Also, Schwab will allow ETFs in their i401k if that is an interest of yours. There are critics of Schwab that predict the ER will creep back up after the low ER battle with Vanguard draws enough people (who knows). I still have multiple investments with Vanguard, but the bottom line (for me) concerning the i401k is that with just 18.5K per year invested (without adding the PSP) the difference is over $31K in 30 years just from the ER difference.
      I included the calculator below if you want to play around with adding a PSP match and your particular retirement date.
      http://www.begintoinvest.com/expense-ratio-calculator/

      Reply
  36. Pat says

    February 15, 2018 at 1:54 pm

    Hi,

    I have just found your blog and I am really devouring your articles. Really usuful and informative stuff!

    I live in Ireland, and I have invested in US-based Vanguard ETFs through TD and Degiro, which is the only way to get Vanguard products from here.
    If any of those two brokers disappeared, would the Vanguard stock be protected?

    I guess the only thing to be concerned about would be the money that you are holding in the broker accounts? i.e: dividend payments

    thanks

    Reply
    • jlcollinsnh says

      February 16, 2018 at 11:49 am

      Welcome Pat!

      Any Vanguard funds you hold in a brokerage should be separate from the brokerage’s finances, including any cash from dividend paymenst. So if they go under it shouldn’t matter. At least that is the way it is here in the US. Outside the US I am clueless.

      Great question for the comments section on this post:
      https://jlcollinsnh.com/2014/01/27/stocks-part-xxi-investing-with-vanguard-for-europeans/

      Reply
      • Dean Sanchez says

        April 19, 2018 at 9:11 am

        Jim,

        I realize this is a comment on an old thread, but a recent action I have taken has raised a question on a related subject.

        I’ve been a long-time US investor in Vanguard funds and recently converted to a Vanguard Brokerage account because I needed to rollover some IRA’s. I missed the small print in the VBS agreement that stated that they can rehypothecate my shares. As you know rehypothecation allows brokers to lend out client shares.

        My question is this: once converted to VBS, are my mutual fund holding now in the street name of VBS and potentially at risk if VBS goes bankrupt? So is it no longer the same situation as being the direct owner of the mutual fund shares as your article describes? Or am I only affected if I were to open a margin account and am not at risk if I don’t?

        I spoke with a Vanguard representative, but his answer was not clear on the subject. I have searched the bogelhead forums and not found a definitive answer.

        While the probability that VBS goes bankrupt isn’t something I will lose sleep over, it still a little nagging voice in the back of my mind.

        I am thinking you may have a better chance to getting clarification on the subject. Looking forward to your insight on the issue.

        By the way, your site and book are great. I have provided links to your site and copies of your book to my collage age daughters and am trying to get my high school daughter interested.

        Thanks,
        Dean

        Reply
        • jlcollinsnh says

          April 19, 2018 at 5:54 pm

          Great question Dean…

          …and an important one.

          I reached out to my Vanguard contact and this is his reply:

          “The Vanguard funds that are held in a brokerage account are still owned by
          the client, in the client’s name and can always be redeemed at any point.

          “They can certainly be co-mingled with other funds, but the client still
          remains the owner. Plus, each Vanguard fund can stand on it’s own, and is
          still backed by the assets held in the fund. If Vanguard Brokerage Services
          was to go bankrupt, the Vanguard funds would have the ability to find a new
          broker / dealer to administer the assets.

          “Other securities, such as individual stocks held in the brokerage account
          are held in street name by the client.

          “For accounts other than a retirement account, clients have the right at any
          time to request delivery to the client of any such securities or other
          property that are fully paid for or are in excess of margin requirements.”

          Reply
  37. Barry says

    May 7, 2018 at 1:41 pm

    Very informative blog, and I understand that each Vanguard fund is a separate business entity and Vanguard itself doesn’t have the money you invest in its mutual funds, so if Vanguard itself goes bankrupt your money isn’t affected. But doesn’t Vanguard keep the records of who owns what in each fund so that if Vanguard is subject to some catastrophic computer system meltdown, it could adversely affect our investments in the mutual funds?

    Reply
    • jlcollinsnh says

      May 8, 2018 at 6:51 am

      See #3 in the post above

      Reply
  38. Hien Mai says

    August 10, 2018 at 5:43 pm

    How do you guys feel About fidelity is new – zero expense ratio fund
    https://www.bloomberg.com/news/articles/2018-08-09/fidelity-bets-on-zero-fee-index-funds

    Reply
    • jlcollinsnh says

      August 10, 2018 at 8:33 pm

      https://jlcollinsnh.com/2012/05/09/stocks-part-v-keeping-it-simple-considerations-and-tools/#comment-4220505

      Reply
  39. Sherri says

    September 9, 2018 at 5:26 pm

    What if I have a Vanguard Prime Money Market mutual fund that is held by the 3rd party of Chase. What happens to that cash if Chase goes bankrupt?

    Reply
    • jlcollinsnh says

      September 10, 2018 at 9:48 am

      My guess is, and it is only a guess, is that it should be fine. But it might take a while to access.

      Personally, I’d move it to Vanguard or ask Chase a lot of questions.

      Reply
  40. Racing Hamster says

    December 12, 2018 at 10:28 am

    Thank you so much for the stock series Mr. Collins, it really opened my eyes! I’m now investing on Vanguard S&P 500 index funds (we don´t have VTSAX available in Spain).

    However, I do fear Mr Boogles words about index funds getting too big:
    http://time.com/money/5468239/jack-bogle-index-funds-problem/

    Index funds represented 4,5% of total U.S. market value in 2002, and it is expected to be more than 50% by 2021-20024.

    I can’t help to wonder if we are forming the next giant economic bubble… how will the market look like if index funds continue to grow that fast? How can an index fund exist if no one (or too few) buys individual stocks?

    Thank you again for your excellent blog and book!

    Reply
  41. Chelsea says

    March 5, 2019 at 6:53 am

    This is a bit of a tangent, but why do you use “thru” instead “through”? It’s driving me nuts.

    Reply
    • jlcollinsnh says

      March 5, 2019 at 9:08 am

      Otherwise I would be perfect?

      To conserve letters?

      A desperate attempt to entice you into commenting?

      Nothing else seemed to be getting thru, er, through?

      Reply
      • Chelsea says

        March 6, 2019 at 7:29 am

        Hahaha, attempt to connect with the millennial generation?

        You’ve been an inspiration–thanks for the blog posts, you’ve created a convert!

        Reply
  42. Lance says

    March 18, 2019 at 3:47 pm

    Great article! Loved your book “The Simple Path to Wealth”! Your book actually pushed me to invest in Vanguard a little more than I already was. I enjoy “passive” investing, but I still like to trade every now and then. Anyway, keep up the great work! I look forward to future books if you decide to write more.

    Reply
  43. mRiddle says

    June 29, 2019 at 2:30 am

    Non US citizens can’t buy Vanguard, thus need brokers to buy ETF such as VTI.

    I wonder – unlike Vanguard, how safe are those broker companies (i.e Interactive Brokers) and what happens to the invested stocks were these brokers to implode ?

    Reply
    • jlcollinsnh says

      June 29, 2019 at 9:41 am

      Thanks for your comment!

      Mr. Collins is currently traveling and unable to respond just now.

      We find for most questions, he has already covered the topic. Using the Search button might very well provide your answer. If not, please post your question again after October 15, 2019.

      Reply
  44. Drew says

    August 10, 2019 at 5:41 pm

    I still prefer Charles Schwab for my banking and investments. They have a better user interface and the lowest expense ratios and fees. Best of all, I can still buy the ETFs/Funds mentioned.

    Reply
  45. Jim says

    September 6, 2019 at 12:05 am

    Do you happen to know anything about Vanguard’s plan to “upgrade its platform”? I’m a Vanguard investor and my money manager has set up an appointment with me to discuss this.

    Thank you.

    Reply
  46. Kali-G says

    October 13, 2019 at 6:53 pm

    Hi Mr. Collins,

    How do you feel about Vanguard’s investment in fossil fuels?

    https://www.theguardian.com/environment/2019/oct/12/top-three-asset-managers-fossil-fuel-investments

    “The world’s three largest money managers have built a combined $300bn fossil fuel investment portfolio using money from people’s private savings and pension contributions, the Guardian can reveal.”

    As a new & young investor, I was really onboard with Vanguard from doing extensive research (you and thrifty gal make quite a swaying argument for VTSAX). But seeing this recently published article from the Guardian, I’m unsure how to feel now.

    Thanks!!

    Reply
  47. Andreas says

    March 16, 2020 at 2:15 pm

    See above:

    “If super volcanos or global warming or viruses or an ice age or the reversal of the magnetic poles or AI robots or nanobots or maybe Zombies take us out, investing with Vanguard will be of no help at all.

    Relax. It ain’t none of it gonna happen.”

    Viruses? Where does COVID-19 fit into all this? Hate to say but this post, unfortunately, may need an addendum now. Do all these principal’s still apply?

    Reply
    • jlcollinsnh says

      March 16, 2020 at 10:26 pm

      Yep, they still apply.

      It this virus the next Black Death? Possibly, but probably not.

      https://www.madfientist.com/coronavirus-market-crash/?ck_subscriber_id=12754413

      I discuss this about 4 minutes in.

      Reply
      • Andreas says

        March 16, 2020 at 10:35 pm

        This is a wonderful and timely response. Thank you!

        Reply
      • Brian says

        April 5, 2020 at 9:15 pm

        Thanks jlcollinsnh,

        I just started reading The Stock Series, and I’ve been looking for this comment / response the entire time. I appreciate the link, love the interview with Brandon, and will now continue reading your excellent material!

        Reply
  48. PATRICK MURPHY says

    April 12, 2020 at 12:32 pm

    Hi Mr Collins,
    I have been an investor in Vanguard since I purchased Windsor before it became part of Vanguard so I feel stupid in asking this question bu here goes. In Vanguard is it safer to invest $1,000,000.00 in a regular Fund Account or a Brokerage Account? I have been told by a Vanguard Rep. recently that a Brokerage Account carried a higher rate of insurance because of SPIC than a regular Fund Account which was not insured by SPIC. Is this true or was he just trying to get me to switch to a Brokerage Account.
    Thank you in advance for your response,
    Pat

    Reply
    • jlcollinsnh says

      April 12, 2020 at 5:12 pm

      Hi Pat…

      Not stupid at all.

      A brokerage account is insured by the SIPC for up to 500k. In addition, Vanguard has insurance with Lloyd’s of London for more, as described here:

      https://investor.vanguard.com/investing/account-protection

      Of course, with trillions in assets, one could argue even this is not enough. But that will be true anywhere. 😉

      Understand, too, that the SIPC doesn’t cover market losses such as those we’ve seen with this recent bear. It only covers your ownership of the shares and cash you have in the brokerage.

      In any event, Vanguard seems to be on the path of converting everyone to brokerage accounts so in the not too distant future you may not have a choice. While I am still on the old fund system and content with that, the prospect of converting doesn’t concern me.

      Reply
  49. treston marshall says

    April 25, 2020 at 11:00 pm

    Hi JL,
    I just recently started investing. I am all in on the buy and hold approach you describe in your blog. My current investments reside in fidelity zero funds. Funds created specifically to compete with Vanguard! I only have 500 in the market now, but I am adding as go. Do believe that switching to Vanguard is a good idea or is Fidelity in a position to compete with the new index funds?

    Thanks,
    Treston Marshall

    Reply
    • Christos says

      August 6, 2022 at 8:12 am

      Hey might be a bit late but this might interest you – https://www.financial-planning.com/opinion/vanguard-vs-fidelitys-zero-funds-on-fees-expense-ratios-and-tax-efficiency

      Haven’t double checked the figures but Fidelity’s tax efficiency should definitely be looked into

      Reply
  50. Aidan says

    January 22, 2021 at 1:57 am

    Quick question: can the fund itself disappear or go defunct? Like if the company Vanguard or a particular dissolved for some odd reason would I still retain the value of the portions of companies held? Or would the value disappear? Or for instance if people just didn’t buy shares of the ETF would the ETF price go down? Or is the price of the ETF and mutual fund simply determined by the value of the company shares the fund holds (eg the VTI determined by the index and not how many people buy or trade VTI or VOO the value of S&P500? Same for VTSAX?)

    Reply

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    • ► January (5)
      • Social Security: How secure and when to take it
      • Fighting giraffes, surreal landscapes, dancing with unicorns and restoring a Vanagon
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      • See you next year....until then: The Origin of Life, Life on Other Worlds, Mechanical Graveyards, Great Art, Alternative Lifestyles and Finding Freedom
      • Stocks -- Part XV: Target Retirement Funds, the simplest path to wealth of all
      • Stocks -- Part XIV: Deflation, the ugly escort of Depressions.
      • Stocks Part XIV: Deflation, the ugly escort of Depressions.
      • Stocks -- Part XIII: The 4% rule, withdrawal rates and how much can I spend anyway?
      • How I learned to stop worrying about the Fiscal Cliff and you can too.
    • ► November (2)
      • Rent v. owning: A couple of case studies in Ecuador
      • So, what does a month in Ecuador cost anyway?
    • ► October (4)
      • See you in December....
      • Meet me in Ecuador?
      • The Podcast: You can hear me now.
      • Stocks -- Part XII: Bonds
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      • Stocks -- Part XI: International Funds
      • The Smoother Path to Wealth
      • Case Study #I: Putting the Simple Path to Wealth into Action
      • Tales of Bolivia: Calle de las Brujas
      • Stocks -- Part X: What if Vanguard gets Nuked?
      • Travels in South America: It was the best of times....
    • ► August (1)
      • Home again
    • ► June (4)
      • Yellow Fever, closing up shop for the summer and heading to Peru y Bolivia
      • I could not have said it better myself...
      • Stocks -- Part IX: Why I don't like investment advisors
      • Happy Birthday, jlcollinsnh; and thanks for the gift Mr. MM!
    • ► May (6)
      • Stocks -- Part VIII: The 401K, 403b, TSP, IRA & Roth Buckets
      • Mr. Money Mustache
      • The College Conundrum
      • Stocks -- Part VII: Can everyone really retire a millionaire?
      • Stocks -- Part VI: Portfolio ideas to build and keep your wealth
      • Stocks -- Part V: Keeping it simple, considerations and tools
    • ► April (6)
      • Stocks -- Part IV: The Big Ugly Event, Deflation and a bit on Inflation
      • Stocks -- Part III: Most people lose money in the market.
      • Stocks -- Part II: The Market Always Goes Up
      • Stocks -- Part 1: There's a major market crash coming!!!! and Dr. Lo can't save you.
      • You can eat my Vindaloo, mega lottery, Blondie, Noa, Israel Kamakawiwo 'Ole, art, film and a ride on the Space Shuttle
      • Where in the world are you?
    • ► March (7)
      • How I lost money in real estate before it was fashionable, Part V: Sold! and the taxman cometh.
      • How I lost money in real estate before it was fashionable, Part IV: I become a Landlord.
      • How I lost money in real estate before it was fashionable, Part III: The Battle is Joined.
      • How I lost money in real estate before it was fashionable, Part II: The Limits of the Law.
      • How I lost money in real estate before it was fashionable, Part I: Impossibly Naive.
      • You, too, can be conned
      • Armageddon and the value of practical skills
    • ► February (6)
      • Rent v. Owning Your Home, opportunity cost and running some numbers
      • The Casanova Kid, a Shit Knife, a Good Book, Having No Regrets, Dark Matter and a bit of Magic
      • What Poker, Basketball and Mike Whitaker taught me about Luck
      • How to Give like a Billionaire
      • Go ahead, make my day
      • Muk Finds Success in Tahiti
    • ► January (5)
      • Travels with "Esperando un Camino"
      • Beanie Babies, Naked Barbie, American Pickers and Old Coots
      • Selling the House and Adventures in Staging
      • The bashing of Index Funds, Jack Bogle and a Jedi dog trick
      • Magic Beans
  • ► 2011 (22)
    • ► December (1)
      • Dividend Growth Investing
    • ► November (2)
      • The Mummy's head, Particle Physics and "Knocking on Heaven's Door"
      • "It's Better in the Wind" or why I ride a motorcycle
    • ► October (1)
      • Lazy Days and School Days
    • ► July (2)
      • The road to Zanzibar sometimes goes thru Ecuador...
      • Johnny wins the lotto and heads to Paris
    • ► June (16)
      • Chainsaws, Elm Trees and paying for College
      • Stuff I’ve failed at: the early years
      • Snatching Victory from the Jaws of Defeat
      • The. Worst. Used. Car. Ever.
      • Top Ten reasons your future is so bright it hurts my eyes to look at it
      • The Most Dangerous Words Your Customer Can Say
      • How not to drown in The Sea of Assholes
      • What we own and why we own it
      • The Ten Sales Commandments
      • My ever so formal and oh so dry CV
      • How I failed my daughter and a simple path to wealth
      • The Myth of Motivation
      • Why you need F-you money
      • My short attention span
      • Why I can’t pick winning stocks, and you can’t either
      • The Monk and the Minister

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