Why have clients trusted Vanguard with USD 4.2 trillion?
Vanguard's mission is to take a stand for all investors, to treat them fairly and to give them the best chance for investment success. But what sets us apart and lets us deliver on that promise?
Vanguard's unique ownership structure aligns our interests with the interests of our clients. The Vanguard Group, Inc. in the US was founded on the simple but revolutionary idea that we should manage the funds we offer in the sole interests of our clients. Unlike other investment management companies, we don't have public shareholders or private owners expecting dividends. We are owned by our US-domiciled funds, which in turn are owned by their investors.
Since Vanguard has no third-party owners, we either reinvest profits into our business or pass them to our fund investors in the form of lower fund costs. We have no conflicting interests and can stay focused on doing what's best for our clients. The most tangible benefit to our clients is low costs.
Offering low-cost investments is not a pricing strategy for us – it's how we do business. It's why our clients trust us and are among the most loyal in the industry. In the US, our long-term redemption rate has been less than half the US industry average.1 That means that a typical dollar stays invested in a Vanguard fund for about 10 years, while a typical dollar invested in a fund outside of Vanguard stays for about 4 years. As the accompanying chart shows, our clients' loyalty has helped us to grow our assets under management. This has allowed us to achieve scale and further reduce costs for our clients.
The magic of client loyalty
Loyal clients have been key to Vanguard's growth1
The redemption rate for Vanguard's US-domiciled mutual funds was about 10% from 1992 to 2013. The top line shows the actual growth of Vanguard's US-domiciled assets over that period. The bottom line shows the hypothetical growth of our US-domiciled assets over the same period if our redemption rate had been 25% (the long-term US fund industry average from 1992 to 2013).
1 Vanguard calculations using internal data and Investment Company Institute data as at 31 December 2013. Yearly redemption rates were calculated as the sum of redemptions for 12 months divided by average of total net assets for 13 months, excluding money market funds. Redemption rate data is for Vanguard's US-domiciled mutual funds and US mutual fund industry only.