
Vanguard Is Growing Faster Than Everybody Else Combined - deegles
https://mobile.nytimes.com/2017/04/14/business/mutfund/vanguard-mutual-index-funds-growth.html
======
headmelted
As a Vanguard customer, I can understand why people are so enthusiastic about
their products, and have known for a while that passive investment, and
Vanguard in particular, was growing while active management was on the
decline.

At no point did I think the difference in inflows was anywhere close to 8.5x.
And it does worry me.

I'm familiar with the contention that even having some active players in the
market will arbitrage the prices back to fair value, but when they compose
such a small share of such a large market that's no longer a trustworthy
assumption to make.

There's no law that I know of that prevents active players from exploiting the
knowledge that passive money will go wherever the market tells it to. There
have got to be a lot of opportunities here for profiting, legally, at the
expense of those passive investors, that goes beyond simple margin arbitrage.

My point is, the less active money there is around, the less accurate our
concept of a correct value can be. This situation has the potential to de-
stabilise the economy sooner rather than later.

~~~
kolbe
> the less active money there is around, the less accurate our concept of a
> correct value can be

The problem is deeper than that. Active shareholders actually give a shit
about corporate governance. Collectively, they put honorable and competent
people on the board of directors, and make sensible decisions when other
issues are put to shareholder votes. Vanguard and other indexing funds could
barely care. Their incentive to care is so small, we may as well call it
nothing. Whereas the employees who control these voting blocks at Vanguard can
easily make decisions that cause 10,000x more financial impact than their
total compensation. And whenever someone is endowed with such power, human
behavior throughout our existence has shown most people will be corrupted by
it (e.g. see government employees).

~~~
KKKKkkkk1
Talking about honorable and competent people on the board of directors. I
recently realized that Apple's board of directors includes Al Gore. He's
certainly a honorable man, but what does he know about making and selling
iPhones? Why is he on Apple's board of directors?

~~~
fictioncircle
> Talking about honorable and competent people on the board of directors. I
> recently realized that Apple's board of directors includes Al Gore. He's
> certainly a honorable man, but what does he know about making and selling
> iPhones? Why is he on Apple's board of directors?

His job isn't to make and sell cell phones. His primary function is to make
the C-suite accountable to shareholders. The C-suite's job is to make and sell
cell phones.

Frankly, Boards function mostly on business metrics and people skills that are
generic to any business.

~~~
ralfd
Al Gores real job on the Apples board had been to have Steve Jobs back. Jobs
wanted a card blanche to lead Apple (and never be fired again) so he picked a
respectable board loyal/friendly to him.

------
Animats
With index funds so big, who determines prices? An index fund tied to the S&P
500 just buys stocks in the proportion that they're in the S&P 500. The price
of the stock plays no role in that decision. At some point, this has to create
problems, but so far it hasn't. It does mean the active traders, who are
basically moving the same money around all day, have an outsized influence on
prices.

Index funds are so successful because managed stock funds, as a class,
underperform the market indices. So do hedge funds, which are a net lose for
their investors. People are finally aware that Wall Street's stock pickers
mostly aren't very good.

~~~
loeg
> With index funds so big, who determines prices? ... At some point, this has
> to create problems, but so far it hasn't.

Any active trader remaining in the market. Fortunately, active traders still
make up a large part of the market. And the bigger indices grow, the larger
the opportunities for active traders to profit. It's not a real problem — it's
self-correcting.

~~~
ipsum2
> And the bigger indices grow, the larger the opportunities for active traders
> to profit.

I'm having trouble understanding why this is the case. Care to clarify?

~~~
bdonlan
Index funds buy or sell blindly, at whatever the prevailing best price is.
Naturally, if there were only index funds in the market, the price would vary
randomly.

That being said, consider what would happen if stock prices did start to vary
randomly - if you had actual research suggesting the price was too high or too
low, you could trade accordingly. This would net you a profit, and also help
push the price in the opposite direction, towards whatever a reasonable price
is.

The larger the deviation from the "correct" price, the larger the potential
profits are to be had. So if the problem ever starts to be significant (i.e. a
few cents of deviation caused by index funds), this means a very large
potential profit for any active funds or traders out there. And so we would
expect the system to reach an equilibrium - where there are just enough active
funds and traders to snatch up the profits that arise from tiny price errors
and distortions caused by index funds. In effect, the index funds are paying
those remaining active funds and traders a tiny "management fee" (in the form
of exploitable trading behavior) to figure out the appropriate price of stocks
for them!

~~~
gcb0
stock prices Do vary randomly.

~~~
hueving
Random walk depends on all participants acting rationally based on the same
information released at the same time. However, index funds are not rational,
they always buy in the same ratios regardless of news.

~~~
aangjie
I'd suspect all those HFT firms will have robot agents (trading based on some
ratios/logic) as simulations for their testing environment.

------
ilyagr
Vanguard seems to have gone a bit too far with cost-cutting in the customer
services department. One of my most frustrating recent experiences was dealing
with Vanguard's website and customer service. There were all kinds of issues,
some minor annoyances, others serious time sinks.

Here's an excerpt from a long and boring story:

... One day, I couldn't log in to their website. Attempting to go through
"forgot my password" had me fill out a long form with security question. I
filled it out, pressed submit, and was presented with the same form, but
blank. No error message, nothing else. I thought their website must be broken
that day, tried again the next day with the same result. After doing this a
few times, I called them. Turns out, my account got into some invalid state.
It took them more than a week after that to figure out what was wrong with the
account and fix it.

Then, my account fixed, I tired to buy some eft-s. Website replies: "Cannot
perform this transaction, call us for assistance". I think that's a temporary
outage, try again the next day. I called them again, waited a while to get an
agent, found out they needed some more documents from me. I sent them in, but
there was no way to find out if they were happy with the documents on their
website ...

~~~
SwellJoe
I don't understand how companies like that can thrive (but many do). If I have
to pick up the phone to solve a problem even once, I'm angry. If I have to
call them twice, I'm looking at alternatives. I may decide not to switch if
the alternatives are even worse...but, I'm looking to get out of the shitty
relationship I find myself in with that company. (This frustration is fresh in
my mind because Security Metrics just told me to call them about PCI
compliance...I refused, and will be going elsewhere for that service.)

Big finance seems particularly bad at user-facing technology. Which doesn't
really give me confidence in their back end tech.

~~~
Chaebixi
> If I have to pick up the phone to solve a problem even once, _I 'm angry_.

> If I have to call them twice....I'm looking to get out of the _shitty
> relationship I find myself in_ with that company. [emphasis mine]

You are _way_ too sensitive and demanding, IMHO. You're probably a developer:
is this how you want people thinking of you when you _inevitably_ push a bug?
I can understand looking elsewhere after a pattern of problems and repeated
frustration with no improvement, but getting pissed off just because you have
to talk to someone one or two times is just unreasonable. Have a little
empathy for the people on the other side.

~~~
SwellJoe
I wasn't saying anything about demanding perfection. I was saying that talking
to someone on the phone is the worst customer service experience in common
use.

It is because I have empathy for the person on the other side that I'm angry
at the corporation for making me have a conversation I really don't want to
have. I am always nice to the person I speak to, despite being angry at the
company they work for for wasting my time and making me interact with them in
a way I really don't want to.

My anger is over the fact that I've been given​ no option but a phone call.

~~~
Chaebixi
> I was saying that talking to someone on the phone is the worst customer
> service experience in common use.

I disagree with that pretty strongly. The phone is the second-best method for
communicating a complex or unusual problem, only behind a face-to-face
meeting.

Anyway, the worst customer service experience in common use is actually the
fixed-option support menu (that usually obscures how to contact a real
person).

The _real_ determiner of good customer service is how the process was designed
and how empowered the representatives are to fix your problem. Case in point:
Amazon's famous customer service. I had an unusual problem with an order
recently. Their chat support utterly failed to help me after several tries,
leaving me very frustrated. Their email support couldn't help me either, but
explained I needed to call. It turns out _only_ their phone support is
empowered to escalate things to someone who could help, plus the it was much
easier to relate my issue to them. None of that frustration had anything to do
with the phone vs. chat vs. email, but everything to do with Amazon's (poor)
support choices.

> My anger is over the fact that I've been given​ no option but a phone call.

I can understand feeling frustration at that, but not anger.

~~~
SwellJoe
I may have a more pained relationship with phones than average. I hate talking
on the phone.

------
cJ0th
The fact that Vanguard is growing faster than everybody else combined is
interesting indeed. The article itself, however, reads like one big ad for
Vanguard. The fact that the NYT is somewhat affiliated with them ("They number
well over 20 million and include New York Times employees: Vanguard runs the
company’s 401(k) retirement plans.") doesn't help either. What I miss is a
critical examination of the situation. They're just drinking the Kool-Aid.

Although negativity on HN is often too high I am glad it is here when it comes
to articles like this one!

~~~
subroutine
Pardon my ignorance, but how would NYT directly benefit from a boost in
Vanguard popularity? Say this article somehow elicits a bevy of
people/companies to invest in Vanguard, raising their mutual fund from $4.2 to
a $4.5 trillion. Given that NYT stake in this fund remains constant, it's not
clear to me how this helps NYT employees - unless $4.5 trillion is the
tipping-point for market manipulation (but isn't this fund simply tracking
major indexes?). Or would the biggest benefit come in the form of even lower
fund fees (<0.1%)?

~~~
psyc
It wouldn't. It's utterly insignificant that Vanguard hosts their 401Ks.
That's like saying, "Full Disclosure: Many NYT employees have accounts at
BOA!"

------
warcher
I'm fascinated at how Vanguard's essential idea plays out over the long term.

The basic value proposition seems to be that Wall Street is extracting more
value in fees than they're making in smart stock picks. Which thus far has
been pretty accurate, but is the contribution of stock pickers _actually_
zero? Is it _negative_? Where do we reach a fixpoint, and how? Do the stock
pickers, clever scamps that they are, figure out a way to take advantage of
the Bogleheads and their naivete? Are they already doing so? _Is_ this going
to turn the stock market into just one big house of cards?

I mean, don't get me wrong, I absolutely buy that Wall Street is a bunch of
crooks-- it's a hell of a lot easier to extract fees from your customers than
it is to beat a market full of highly motivated Ivy Leauge MBAs. But where
does it stop? If I've seen any trends in the financial markets, it's that
every good idea will eventually be flogged to death, usually with catastrophic
results.

~~~
mikekchar
This may sound snarky, but it's not meant to be. When I've worked in large
corporations I was astounded by the amount of... shall we say "irregular"
stock activity. For a while I've been struck with the thought that you could
probably make a pretty good living simply buying long stock the day before
executive stock options are issued and then selling them again when executives
are selling theirs (either through planned trades or when blackouts are
lifted).

Interestingly (for me, anyway) the very large places I've worked at often let
the peons listen to the analysts meetings over the phone system. Again, I was
shocked by the complete lack of knowledge that analysts at big investment
houses have in the companies they were analysing. They would be completely
unaware of large acquisitions, law suits and any number of things that even
the casual observer would know about. I really got the impression that their
job was literally to attend the meeting and report the company's projections.
The company's could get away with murder because _nobody_ was paying attention
to what they were doing.

Not sure if things have tightened up since that time in my life. I haven't
worked for a big company since the early 2000's, but somehow I get the
impression that there are probably plenty of ways to ride on the coattails of
less than scrupulous executive compensation.

~~~
Frqy3
I have an engineering background and worked with a major telco for several
years before moving to work as a financial analyst for a while.

Few of the other analysts had an industry background in the companies they
covered. Mostly they had an accounting/commerce/economics background. They
were good at pulling together financial models from the data and information
provided to them in briefings, but they largely missed the implications that
even someone with a year or two of industry experience would understand.

I am reminded of the story of Max Planck and the chauffeur and the two types
of knowledge [0].

[0] [https://www.farnamstreetblog.com/2015/09/two-types-of-
knowle...](https://www.farnamstreetblog.com/2015/09/two-types-of-knowledge/)

------
nugget
Anyone who wants to learn more about passive index investing should check out
Bogleheads (bogleheads.org). My second favorite forum after HN.

~~~
mandlar
You may also want to check out /r/financialindependence on reddit.

------
atemerev
Of course. There wasn't a significant recession since 2009. It is
psychologically very easy to buy into a rising market.

When the next (inevitable) correction happens, the tide will change and stock
pickers will return to the spotlight.

(It might be not rational, of course. But markets are never rational. They are
efficient — efficient in projection of our hopes and fears).

~~~
dlubarov
I don't think market conditions have much to do with it. Whether to invest in
the market, or in a certain asset class, is a separate decision from whether
to pick stocks or buy a passively managed fund.

Passively managed money has been increasing because there are more low-cost
funds available, and lots of education about stock picking versus passively
managed funds (e.g. Warren Buffet, A Random Walk).

~~~
atemerev
Well, the question is scientifically valid.

My theory predicts that when the next major recession happens, Vanguard and
other passively managed funds will become dramatically less popular (which
will amplify the fall), and actively managed funds will come back.

Your theory predicts that none of this will happen when recession strikes.

So, I propose we wait and see. :)

------
NTDF9
Here's a question for someone more savvy than me. What happens if the vast
majority of stock investments end up in vanguard funds?

In an economic crises, will everyone try to sell the same set of funds and
will crash the funds themselves?

~~~
candiodari
Here's how it works.

An ETF or Fund like vanguard is a company that issues "coupons" and then buys
and sells them (and various related administrative things, e.g. forwarding
dividends while combining them).

So when you buy an ETF "share", what happens is that you buy a newly issued
coupon from this company. This company gets notified, and as a result will put
in market orders for these shares (while combining them in smart ways), and
once it has bought the shares, issue the "share". (needless to say there's
aggregation happening)

When you sell the reverse happens. You essentially request the company destroy
the coupon. In response the company will sell shares. Once the shares are
sold, the company will transfer that money (ie. whatever they got) to you.

So to answer your questions, in a flash crash scenario as an ETF owner you'll
experience more lag in both cases. Ie. whether you're buying or selling the
lag will add to your disadvantage compared to the rest of the market. So
simplifying things, if a flash crash happens and you own an ETF or a fund
you'll only be "allowed" to sell once the drop is over. If you try to buy at
the bottom your order won't be filled for a while. Mind you this will be in
the seconds range, or in particularly bad cases a few minutes.

In the US, there is also regulation that allows funds to pause redemptions. So
if you own a fund that fears it may be significantly affected by a market
drop, it can then block your money (regardless of what a contract you have
with them says) for a period of up to months. Given what has historically
happened, for small funds this means if there is a large drop, they will block
your money making things worse (but somewhat avoiding feedback in the market
that would cause individual share crashes). You will lose something like
20-80% of your capital if this happens. The smaller a fund the more likely
this is to happen.

So an ETF should only be used for amounts of money that are truly too small to
buy individual shares, something under maybe $10k. For everything else you
should put in the work to buy the individual shares. If you don't do this, yes
there are costs that will be imposed upon you in adverse scenarios.

~~~
krit_dms
Almost.

When you buy an ETF, you don't buy a newly issued cupon. You buy it from
another market participant on an exchange - hence Exchange traded fund. What
you're describing is closer to classic mutual fund. Each ETF will have
"Authorized Participants" who make sure that the ETF mirrors the underlying
assets.

~~~
candiodari
I'm leaving that part out, because it obfuscates things. In one interpretation
"Authorized Participants" on the exchanges keep the number of available
"coupons"/shares at a fixed number.

So the market depth for any ETF should be constant, regardless of the value of
the underlying assets (assuming non-extreme values and outside of crashes or
rapid movements).

And yes, to be more exact, the market depth for an ETF should be a function of
the amount of trading occuring in that ETF, not so much a constant. In any
reasonable timeframe it should be constant.

------
konschubert
I wouldn't be surprised if most of the money was coming from people's savings
books. With zero interest rates, the next best thing to store one's savings is
an ETF.

I feel like the increase in stock prices in the recent years is caused by this
demand, not by an increase in productivity. The sinking ROI of dividend-driven
stocks is an indicator for that.

~~~
virmundi
It's not just the proletariat's savings. It's eveyone's. Some places have
negative rates. You pay the bank. This means that money had to go some where.
We have it in the market. As a result smart people and dumb people like me
have waited for the market to adjust down 25% or more. I lost 2k on a market
short ETN.

Given the amount of money just looking for a home the market has no where else
to go but up until that money stops.

------
yalogin
Vanguard is the reason why Betterment and wealth front never made any sense to
me. There is no way they can be better than just putting in vanguard funds
myself. I still do t understand what their value proposition is.

~~~
silverpikezero
Tax Loss Harvesting. This is the sole reason why Betterment(/Wealthfront) is
superior to Vanguard. The benefits of this technique more than offset any fees
they charge.

~~~
zeroer
That's _really_ debatable. After 10~15 years of investment in Betterment or
Wealthfront, in all likelihood all of your investments will be in the black,
and there will be no opportunities for loss harvesting. But you're still stuck
paying the 25 basis points per year unless you sell (and thus incur the
capital gains, anyways).

~~~
hesdeadjim
I've got a fair bit of money in Wealthfront and tax loss harvesting has
directly saved me quite a bit of money over the last couple years. For
instance, the beginning of last year was tumultuous and their tax loss
harvesting let me realize around ~55k in losses. The market then shot back up
and my investments were right back where they were barely a month later.
Because I had a source of capital gains in 2016, I basically earned free
money.

So even if my investments were in the black in the macro scale, with tax loss
harvesting I can realize additional gains from the inevitable dips that happen
on the more micro scale.

~~~
zeroer
I'm really talking about what happens after you've been invested with them for
over a decade. Wealthfront has not yet existed for 10 years, so I know you
haven't had your money invested with them for that long. The fact that tax
loss harvesting can be beneficial is not in question.

Once you tax loss harvest once, you lower your cost basis on the investment to
less than you originally paid. You can only subsequently tax loss harvest on
the same security to the extent that the value of the investment is lower than
your new lower cost basis. This will become harder as time goes on and you
have previously tax loss harvested many securities.

Their white papers all use a timeframe of 10 years to show that Wealthfront is
cost effective. I'm pretty sure they don't want customers thinking through all
the implications of longer investment time horizons.

~~~
hesdeadjim
Oh gotcha with the cost basis raising over time. I wonder what strategies you
could use to mitigate that. Perhaps buying a similar asset, holding that
instead of the other, wait for the original to go down, and then re-purchase.
Seems fragile and risky of course...

~~~
zeroer
> Perhaps buying a similar asset, holding that instead of the other, wait for
> the original to go down

If you're presupposing the assets are similar, this is unlikely to happen to
any significant degree.

The standard way to increase your odds of being able to tax loss harvest is to
own as many different uncorrelated securities as possible. You can take this
to mean a fund per industry (as Betterment and Wealthfront do) or even to the
extreme of only owning individual companies. That way, some are up and some
are down, and you can TLH. The more slices you divide your portfolio up into,
the longer you'll be able to do it. But I think realistically (especially
factoring in inflation), this strategy will stop giving results before 15
years.

~~~
hesdeadjim
What about the effect of a (let's be honest, inevitable) market crash? You'd
be able to realize quite a bit of loss as that is happening by selling assets.
Then as the market recovers and assuming those assets are actually worth more
than the crash-adjusted value, you would be able to harvest losses again on
that asset.

~~~
zeroer
Take a look at this chart of the SP500 over time:
[http://www.macrotrends.net/2324/sp-500-historical-chart-
data](http://www.macrotrends.net/2324/sp-500-historical-chart-data)

(Make sure to turn off inflation-adjusted)

I think you'll see that in the last 90 years, even the worst market crashes
don't take the index down to a level lower than what it was 15 years prior. To
put it another way, pick any time in the past 90 years, the S&P 500 is always
higher 15 years later than that date and every day afterwards. Maybe slicing
up your investments into finer-grained categories than the entire S&P 500 will
help ... but I'm very skeptical that anyone can TLH for long periods
successfully.

If you want to pay a perpetual 25 basis points per year for Wealthfront or
Betterment, go ahead, but it seems unlikely to me you'll come out ahead of a
simple index fund if you are investing long term.

~~~
hesdeadjim
I suppose there is no harm then in milking the tax loss harvesting for as long
as it is profitable and then reevaluating performance in ten or fifteen years
to see if it makes sense to switch to a lower cost provider like Vanguard.

Like I said though, I have seen very significant returns from my loss
harvesting. Even without a yearly source of capital gains, it definitely does
not hurt to collect the losses and use them later in life (for instance if you
sell an investment property).

~~~
zeroer
There is a harm. In 15 years, if you decide you don't like Wealthfront, in
order to move, you will have to sell all your assets and incur the capital
gains.

~~~
grzm
This is true any time you move brokerages, is it not? If, at some time in the
future, you chose to move from Vanguard to Wealthfront to take advantage of
tax loss harvesting, you'd pay capital gains tax as well.

~~~
matwood
> This is true any time you move brokerages, is it not?

No. If you own the assets directly, and they are traded on the exchange (like
the ETFs WF/Betterment use) they can be transferred around without triggering
a sale event. Target date funds and the like would probably have to be sold.

I have my tax advantage at VG and my taxable has been all over the place
finally settling with CS for now.

~~~
grzm
Okay, you have me a little confused now :) I read my parent as saying that in
order to move investments out of Wealthfront, you'll need to sell and pay
capital gains. I read your comment saying this isn't necessarily the case.
There seems to be some disagreement here. What am I misunderstanding? The ins
and outs of investments and tax ramifications can sometimes seem very opaque
to me, so I appreciate any education on this front.

~~~
zeroer
I stand corrected. I thought they had their own mutual funds that they charge
an expense ratio on, but I took a closer look at their site and it looks like
they put you in third-party mutual funds from e.g. Vanguard and iShares. Since
this is the case, you can just do a transfer-in-kind to another brokerage if
you want to leave, and this is not a taxable event. (Sorry for my mistake!)

~~~
sf_rob
Looking further, they don't support outgoing ACATS (what most brokerages do),
but do support DTC which I'm not at all familiar with[1]. So hopefully you
could do Betterment until the TLH stopped being worthwhile and do a direct
security transfer to another brokerage.

Although Betterment offers fractional shares, which is confusing, not sure if
they're actually ETNs representing fractional ownership of ETFs. I don't know
how that works legally.

[1]
[http://support.bettermentforadvisors.com/customer/portal/art...](http://support.bettermentforadvisors.com/customer/portal/articles/1996300-do-
you-support-acats-)

------
sytelus
Total market cap of S&P 500 have increased from $13T to $21T from 2012 to 2017
without having corresponding underlying financial growth in companies. This
$8T difference feels tantalizingly close to new investment money flowed in via
ETFs. I am wondering if current rise in S&P 500 can almost entirely attributed
to new money flowing in to ETFs. If this thesis is correct then we can
continue to expect more bull market for next few years as we are very likely
not even half way through this cycle of money flowing from active strategies
to passive strategies. In other words rise of S&P 500 indexes would become
self full filling prophecy for at least next few years.

~~~
udev
New money into ETFs does not necessarily mean new money into the market. A big
part of that is money just switching from actively managed mutual funds to
passive index funds, e.g. recently pension funds in some states.

~~~
sytelus
Active strategy may be investing in small/mid caps, currency, commodities,
bonds, emerging markets and so on. Lot of that money would be pulled in to
biggest popular indexes now such as S&P 500.

------
clubm8
There's been something I've been thinking about: with so many people
purchasing index funds, what happens when there is a major downturn in the
market?

What happens when millions of people sell off their shares in say, VASGX
(basically an 80/20 stock/bond index fund)?

Would that effectively tank the _entire_ market rather than sectors doing
poorly.

~~~
mason55
Really depends on what indexing implies. If you're talking about a world where
everyone trades actively but instead of trading individual companies they only
trade broad index funds then, yes, swings in the market would be amplified.
Although in that world you would imagine that there would be a lot of alpha to
be picked off by smart traders and so that should counteract the "dumb money"
actively trading indexers.

If indexing _also_ implies passive/"set and forget"-style trading then you
would actually dampen market swings. You'd have fewer people selling as the
market tanked and fewer people buying the big rallies.

------
jalopy
Ultimately this is a good thing for the stock pickers that remain - fewer
dollars spent actively discovering the true value of companies means longer
stretches and wider swings of mispricings.

------
southphillyman
I was a contractor at Vanguard around 2007-2008. IIRC, pay wasn't that good
but rank and file FTE recieved 30k+ bonuses (allegedly). With this recent
growth I wonder if compensation there has grown at a similar rate. I rarely
hear people mention it as a good place to work or as having highly competitive
compensation.

~~~
mfb2
The compensation structure has been significantly revamped since then.
Partnership isn't what it used to be, so people don't get the big payments
like they used to.

------
jordanthoms
How does control/governance for Vanguard actually work? It's apparently owned
by the investors in the funds, but I own some ETFs through Vanguard and I've
never seen a proxy form.

Very happy with the service, just curious about that aspect.

~~~
ajdlinux
My understanding is that individual fund investors will never see a proxy form
- the fund's decisions on how it will vote are determined by the managers.

Also, take a look at [https://about.vanguard.com/vanguard-proxy-
voting/](https://about.vanguard.com/vanguard-proxy-voting/)

~~~
jordanthoms
I was referring more to control of Vanguard itself - i.e. choosing the Board
of directors for Vanguard.

I did a bit of digging though, and it seems they are actually elected by the
shareholders of Vanguard funds - but they are appointed for lifetime terms,
and up to 1/3 of the directors may be appointed by the other directors. So
they only need to go to a vote of shareholders occasionally - looks like the
last was in 2009.

The proxy form from that meeting:
[http://www.vanguard.com/jumppage/proxy/PROXYA.pdf](http://www.vanguard.com/jumppage/proxy/PROXYA.pdf)

~~~
thisisit
That is one of the major concerns regarding indexing and Vanguard in general.
The process for selecting directors in Vanguard indirectly affects the proxy
voting for corporate governance in stocks owned by the fund. Many people think
it will lead to lower competition because of the objective of the fund is to
keep in line with the market and not beat it.

~~~
ajdlinux
FWIW I can't say I'm terribly happy with Vanguard's environmental proxy voting
record...

------
ivoras
It makes me a bit sad that such index funds are not available in my part of
the world - even though this is one of the shittiest countries in the EU,
services like these are needed precisely because all the other services are so
bad.

~~~
mertens
which country is that? because there are many options available here in
Western Europe (alternatives to Vanguard are iShares, SPDRs Europe, Amundi,
...).

------
xwvvvvwx
If all vanguard does is buy (not pick) stocks for you, why wouldn't you just
skip the fee and buy the stocks yourself?

~~~
nabaraz
1\. Most of the people just want to set their allocation and no think about it
more than a few times a year.

2\. Without Vanguard(and other index funds), you do not quality for admiral
shares.

3\. Vanguard's fees are among the lowest(last time i checked it was between
0.1-0.5%). There is no charge for buying and selling Vanguard funds.

4\. Vanguard is non-profit.

~I am no way affiliated with Vanguard.

~~~
bdonlan
Admiral shares are a function of the Vanguard mutual funds themselves; if
you're buying the underlying companies directly, "admiral shares" don't
matter, since you're not paying management expenses at all.

------
quantumhobbit
I seems like there should be an opportunity for active investors to make money
off of all the passively managed money.

All I can think of would be to take advantage of the margin of the index. For
example buy stock #501 and a discount and sell when it crosses into the sp 500
since vanguard will prop up the price by buying it for tge index fund.
Similarly shorting #499.

I'm sure that the market has gotten more sophisticated than this though. So
how does it work in practice?

~~~
tanderson92
Look here:
[https://personal.vanguard.com/us/funds/snapshot?FundIntExt=I...](https://personal.vanguard.com/us/funds/snapshot?FundIntExt=INT&FundId=0040#tab=2)

The Vanguard S&P500 index fund currently contains 511 stocks. Even the S&P500
index itself holds 505 stocks.

------
debatem1
This feels like an article that will be shown for irony points in a
documentary about Vanguard's collapse a few years from now.

~~~
kevindong
Why do you say Vanguard will collapse?

~~~
debatem1
Post hoc ergo propter hoc. Articles like this showed up for Enron and
MCI/WorldCom and all the others, extolling one virtue or another and
showcasing their success. Now we have one for Vanguard, ergo it will fail.

I'm not serious, of course. But pride does seem to come before the fall, and
just out of an excess of caution I might move some money out of my vanguard
funds next week.

~~~
tim333
You've got to take in to account that Vanguard doesn't actually do much - just
buy stocks on your behalf and charge 0.12% for doing so. If it stopped doing
that because some other operator was doing it for 0.08% it wouldn't be a big
deal.

The bigger deal would be if the general market collapsed for some reason but
that would affect everyone, not just Vanguard.

~~~
debatem1
Ok. I'm curious why you're telling me this. What's your motivation?

There's certainly no point in arguing with me, since I'm both reasonably
poorly informed and aware of it; I have made no bones about the fact that my
post was unserious. Yet you leap to the defense of what should, after all, be
a very unexciting thing. And you aren't alone in doing so.

That, like this breathless article, is mildly troubling to me. These
institutions should engender no loyalty, embody no attributes; only then does
the market actually work. Evidence of those tendencies suggests the distorting
effect of human psychology. And in tone it is too much like what we saw before
the collapse for my liking.

~~~
tim333
Well I've known Vanguard for about 30 years and am a fan as it's saved the
investing public many billions over that time, certainly if you compare them
to normal fund management companies even if just buying and holding shares
directly is probably cheaper still.

But I was just pointing out they offer a rather dull, value for money service
and are not going to collapse Enron style. They could decline Sears style
however.

------
dragontamer
> The scale of that inflow becomes clear when it is compared with the rest of
> the mutual fund industry — more than 4,000 firms in total.

No mentions of ETFs? SPDR is not a mutual fund company.

> Already, six out of the 10 largest mutual funds by asset size belong to
> Vanguard, with the largest, Vanguard Total Stock Market Index, now weighing
> in at $465 billion, according to Morningstar.

The elephant in the room is ETFs like SPDR. SPY (SPDR's largest fund) has $230
Billion in assets. It isn't quite as big as Vanguard, but clearly SPY needs to
be mentioned.

The silence is deafening. "Classic" active mutual fund companies may be dying,
but a new breed of investing has already begun... and its competing against
Vanguard quite gloriously. Low cost, quickly traded, with large numbers of
derivatives: ETFs.

------
cmurf
I imagine they must have some kind of stop loss strategy; there's a bunch of
research comparing various strategies to buy and hold, and buy and hold is
pretty much 2nd worst, with the worst being an overly aggressive stop loss
(like sell everything at a 5% drop).

------
StavrosK
I would very much like to invest in index funds, but Vanguard need a social
security number, which I don't have. Does anyone know of an alternative that
doesn't require an SSN, or something comparable to Vanguard in the EU?

~~~
aembleton
Vanguard exists in the UK:
[https://www.vanguard.co.uk/uk/portal/home.jsp](https://www.vanguard.co.uk/uk/portal/home.jsp)

~~~
StavrosK
Ah, fantastic, I was just looking for that, thank you. It's odd how little a
search turns up, "Vanguard Europe" wasn't very informative.

~~~
phaemon
More than just the UK. See:
[https://global.vanguard.com/portal/site/home](https://global.vanguard.com/portal/site/home)
for a list of countries.

------
q-base
Think I may need to dig deeper into this. But a few questions that one of you
may be able to answer. Seems like you won't get super large returns but on the
other hand you won't risk super large losses either.

But sounds like instead of having cash on a bank account, earning no interest,
it may be worth putting them into EFT's? Or have I totally misunderstood? Is
it only possible to tie your money up for longer periods for instance?

Any caveats as Dane looking at Vanguard? Fee's, cross rates or other I may
have missed in this?

~~~
snotrockets
There is a risk, but it is averaged over hundreds of equities instead of just
a few, as with directly buying shares (unless you can afford to spread a lot;
if you do, you can afford a wealth manager).

If just a few equities are decreasing in value, it'll balance out. But if they
all loose, like on October 19th, 1987, when the S&P 500 lost 20.47%, you'd be
much poorer.

~~~
q-base
Thanks a lot. I need to read up on investing in index funds and Vanguard
sounds like a good bet if I decide to go that way.

------
seahonky
Bogle, Graham & Buffett are the proletariat's guardian angels.

~~~
powera
Paul Graham or Benjamin Graham?

~~~
aangjie
Sounds easy.. Based on context I'd say it's Benjamin.

------
olleromam91
Lot of posts in here about the inherent problems ahead being "self
correcting".

Anyone have thoughts on when getting back into active funds would be smart?

------
uiri
Original article (and not behind a paywall):
[http://news.morningstar.com/articlenet/article.aspx?id=80267...](http://news.morningstar.com/articlenet/article.aspx?id=802679)

------
code4tee
Glad to see people finally waking up to the fact that most active money
managers are actually terrible at managing your money.

------
cylinder
Well, now's the time to leave equities or go active. I've never heard of
anyone getting rich by following the herd.

~~~
dsacco
If your goal is to get rich, sure. But going with the herd isn't necessarily
unsafe. The goal of "getting rich" is generally incongruous with passive
investing either way.

The risk/reward profile of active investing and index fund investing are
completely different, so that will be more than a decision of upside you want
to pursue.

~~~
cylinder
It remains to be seen how risky passive index investing is now that so much
money is in it.

------
foobiekr
... vanguard being the only brokerage not to offer two factor is a little
frustrating.

~~~
antongribok
They _do_ support Yubikey, the feature is called "Security Key", not to be
confused with SMS Auth called "Security Code".

[https://www.bogleheads.org/forum/viewtopic.php?t=205031](https://www.bogleheads.org/forum/viewtopic.php?t=205031)

------
hackeraccount
someone explain "reversion to the mean" I don't understand it.

~~~
haltingthoughts
If an average is unusually high/low it will tend to go back to the mean after
time.

In the stock market this means that looking over a short timespan one will see
large variance in the returns but over a long timespan (30+ years) the returns
will be more consistent and nearly all positive.

------
sjeanpierre
Charles Ponzi would be proud

~~~
TDL
How is Vanguard a ponzi scheme?

~~~
nimchimpsky
its not.

------
watertorock
Could vanguard become too big too fail? Is that a legitimate risk?

~~~
lingben
no, they are an asset manager, not bank or other credit/lending inst

~~~
tanderson92
And they don't actually hold the stocks in their fund; they are held in trust
at JPM depository trust.

------
Applejinx
If this is not an Enron-like foreshadowing, it says something rather dark. It
certainly looks like a 'bubble is about to pop' indicator, though it's
generalized to the whole financial sector (to the extent that a blind index
fund represents it, at least).

If it does pop, it suggests that an industry that is on average not as good as
its own average, is itself overvalued (as numerous other comments strongly
imply).

If it does NOT pop, it's speaking a deeper truth. It speaks to a collective,
society-wide agreement: those with power should automatically get more power.
Those with money should automatically get more money. The mechanism doesn't
matter: it's like a moral duty to reverse Robin Hood and fill in the reasons
later. If a dumb blind index beats everything and never fails, that means
we've gone all-in on redistribution of wealth to 'the winner', defined as
whoever has all the wealth.

And the only way to break that loop is pitchforks and guillotines. Some might
say in the age of automation, AI and robotics, such disruptive things are
impossible. But the original pitchforks and guillotines were in the age of
early industrialization, and I'm sure nobody thought machinery and tools could
end up turned against the rich and powerful. Everything's a tool eventually.

Vanguard popping is the SOFT option.

~~~
lolc
They don't own the assets hey manage, so they can't overvalue and go pop like
Enron did.

Ways to pop Vanguard:

\- Pop the stock market

\- Game their indexes

\- Insider trading

You notice how a lot of people are already trying to do all three so it's not
easy to pop Vanguard.

