what is "at-cost investing" ?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
User avatar
Topic Author
RustyShackleford
Posts: 1682
Joined: Thu Sep 13, 2007 12:32 pm
Location: NC

what is "at-cost investing" ?

Post by RustyShackleford »

I keep getting emails from Vanguard about "at-cost investing". What the heck is it ? The emails reference a "live video webcast" but I was hoping to not have to tune in just to get a definition. Anyone that can help, thanks.
User avatar
mhc
Posts: 5257
Joined: Mon Apr 04, 2011 10:18 pm
Location: NoCo

Re: what is "at-cost investing" ?

Post by mhc »

Here is a short video that may explain it to you:

http://www.youtube.com/watch?v=uNemEshTtfE
52% TSM, 23% TISM, 24.5% TBM, 0.5% cash
User avatar
Topic Author
RustyShackleford
Posts: 1682
Joined: Thu Sep 13, 2007 12:32 pm
Location: NC

Re: what is "at-cost investing" ?

Post by RustyShackleford »

Ok, thanks.

As I suspected, it's simply a marketing-gimmick way of saying "low expense ratio".
crake
Posts: 275
Joined: Thu Mar 14, 2013 2:12 pm

Re: what is "at-cost investing" ?

Post by crake »

RustyShackleford wrote:Ok, thanks.

As I suspected, it's simply a marketing-gimmick way of saying "low expense ratio".
It is actually a little bit different than just a low expense ratio. Fidelity and Schwab have low expense ratios but they do not have "at-cost investing". What makes Vanguard different is that the mutual funds are owned by the share holders. This aligns the goals of the people who run the mutual fund with the share holders. The goal of fidelity, schwab, etc is to make as much money as possible for fidelity, schwab, etc. The goal of Vanguard is to make sure the share holders profit as much as possible.

This is a very good reason for investing with Vanguard.
vesalius
Posts: 794
Joined: Tue Jul 13, 2010 7:00 pm
Location: Texas

Re: what is "at-cost investing" ?

Post by vesalius »

It means that Vanguard will and have both lowered and raised expense ratios on existing funds as the cost to run the fund dictate.

Other providers may use certain ETFs and mutual funds as loss leaders or lower expense ratios below thier cost simply to undercut Vanguard. Vanguard doesn't do that. Although, in general Vanguard's expense ratios are so low that even when undercut the difference is real world $$ out of our pockets is minimal.
Calm Man
Posts: 2917
Joined: Wed Sep 19, 2012 9:35 am

Re: what is "at-cost investing" ?

Post by Calm Man »

I swear by Vanguard. That said I also swear by certain charities. Vanguard is a non-profit, like a charity. Vanguard therefore, like a charity, does not accrue profits to distribute to shareholders, as the mutual fund shareholders are in essence the shareholders. So this helps to contribute to a low expense ratio. Understand however, that a nonprofit can pay its employees, staff and executives whatever it so chooses as long as approved by the board of directors. Also understand that Vanguard is notoriously non-transparent about executive compensation. I do believe however that Vanguard does not "overcompensate" executives but we don't know. So theoretically, having Vanguard's "unique cost structure" does not in and of itself mean that is MUST be less expensive than Fidelity or Schwab for example. It is though. And despite what I say above, I have literally everything I own except a checking account at Vanguard.
User avatar
Rob5TCP
Posts: 3812
Joined: Tue Jun 05, 2007 7:34 pm
Location: New York, NY

Re: what is "at-cost investing" ?

Post by Rob5TCP »

While I respect the Johnson family of Fidelity, the Schwab family of Charles Schwab, and most of all, John Bogle of Vanguard; only one of them is not a multi billionaire. Guess which one. Vanguard does pay it's top people well, but none are billionaires. That money comes from somewhere - and generally that is from owning the shares of the company they head. As profits from these companies (and nothing at all wrong about profits), they are at the added expense of people owning their mutual funds.

Whatever Vanguard pays, it is a fraction of what investor owned (rather than mutual fund owner) pays. Less for them translates, generally, into more for me. Unless they can make it up with superior performance. Most of my funds are either Wellington or Index funds. I intend to keep it that way.

So, at cost to me, means charging the least necessary, while providing the services needed by their clients.
placeholder
Posts: 8421
Joined: Tue Aug 06, 2013 12:43 pm

Re: what is "at-cost investing" ?

Post by placeholder »

That's why ETFs are great because I can invest in products with the lowest retail ERs at any custodian I choose.
an_asker
Posts: 4903
Joined: Thu Jun 27, 2013 2:15 pm

Re: what is "at-cost investing" ?

Post by an_asker »

Rob5TCP wrote:While I respect the Johnson family of Fidelity, the Schwab family of Charles Schwab, and most of all, John Bogle of Vanguard; only one of them is not a multi billionaire. Guess which one. Vanguard does pay it's top people well, but none are billionaires. That money comes from somewhere - and generally that is from owning the shares of the company they head. As profits from these companies (and nothing at all wrong about profits), they are at the added expense of people owning their mutual funds.

Whatever Vanguard pays, it is a fraction of what investor owned (rather than mutual fund owner) pays. Less for them translates, generally, into more for me. Unless they can make it up with superior performance. Most of my funds are either Wellington or Index funds. I intend to keep it that way.

So, at cost to me, means charging the least necessary, while providing the services needed by their clients.
I am assuming that Schwab and Fidelity have 'higher end' mutual funds that have higher expenses associated with them. The customers who own these are more likely to generate Schwab and Fidelity's profits. Those who go with the 'low end' index funds, especially those that are at or below Vanguard's expense ratios, would likely benefit from going with Schwab and Fidelity too.

But yes, the key difference is that Vanguard does not generate a "profit" because it is owned by the account holders, whereas the profits earned by the other firms are distributed among the shareholders. Besides, though they are likely to be correlated, there is no one-to-one correspondence between the profit earned and the share value, i.e., a profit per share of $1.00 does not equate to a $1.00 gain in the share price (more likely more). So it is easier to become a billionaire if one owned X number of shares in Schwab and Fidelity than in Vanguard.
Post Reply