Vanguard ETFs - dummies

By Russell Wild

In 2001, Vanguard launched its first ETF. It goes without saying that the people at Vanguard know something about index investing. In 1976, Vanguard launched the first index-based mutual fund for the retail investor, the Vanguard Index Trust 500 Portfolio. (Wells Fargo already had an index fund, but it was available only to endowments and other institutions.)

Why Vanguard wasn’t exactly in the ETF vanguard is anyone’s guess, but by the time Vanguard ETFs were introduced to the market, iShares (then under Barclays) had already taken a solid lead. But Vanguard ETFs, due largely to their incredibly low costs, are quickly moving up.

Recently, 65 Vanguard ETFs held $165 billion in assets, making Vanguard the third-largest ETF provider. And in 2010, Vanguard claimed 50 cents of every dollar that flowed into ETFs. Indeed, Vanguard is winning the growth battle.

How low is low cost? The lowest-cost Vanguard ETFs — the Vanguard S&P 500 ETF (VOO) and the Vanguard Total Stock Market ETF (VTI) — will set you back 0.06 and 0.07 percent in total management expenses per year, respectively. (That’s 60 to 70 cents per $1,000 invested.)

The Vanguard S&P 500 ETF and the Total Stock Market ETF be the lowest cost noninstitutional investment vehicles anywhere in the world, except for two FocusShares ETFs that charge 10 cents less per $1,000 per year. The average expense ratio for Vanguard ETFs is 0.18 percent, making them the cheapest to own in the major leagues.

Vanguard’s low costs are a great advantage for an investor. (Although two newcomers to the industry, Schwab and FocusShares, are coming to market with fees just a bit lower.)

Vanguard’s lineup of ETFs, in line with Vanguard’s corporate personality, is sensible and direct. The company uses reasonable indexes, tracks them well, and takes the utmost care to avoid capital gains taxes and make certain that all dividends paid are “qualified” dividends subject to a lower tax rate.

For more information, call 877-662-7447 or visit Vanguard’s website.