What? I'm a Vanguard Owner?

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Mr Winston
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What? I'm a Vanguard Owner?

Post by Mr Winston » Sat Nov 10, 2018 9:54 pm

I don't understand. Could someone kindly explain in a simple way, how I am a part owner of Vanguard just because I have opened a Vanguard account and purchased one or more of their products? And, what difference it makes for me?

Here is a quote from the internet: "The company is owned by its funds. The company's different funds are then owned by the shareholders. Thus, the shareholders are the true owners of Vanguard. The company has no outside investors other than its shareholders"

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MNGopher
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Re: What? I'm a Vanguard Owner?

Post by MNGopher » Sat Nov 10, 2018 10:11 pm

Just like the quote said, the people that buy the Vanguard funds are the only shareholders. Helps keep costs low. I like to think of it kind of like the "coop" stores found in some rural areas.
https://about.vanguard.com/what-sets-va ... p-matters/

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bengal22
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Re: What? I'm a Vanguard Owner?

Post by bengal22 » Sat Nov 10, 2018 10:24 pm

For me the ownership structure of Vanguard means absolutely nothing. I am part owner of General Motors but I still make my vehicle purchase decisions based on quality,value, and service of the product. I do the same thing for my investment decision.
"Earn All You Can; Give All You Can; Save All You Can." .... John Wesley

02nz
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Re: What? I'm a Vanguard Owner?

Post by 02nz » Sat Nov 10, 2018 10:29 pm

What it means is that, unlike most companies that serve customers but ultimately answer to shareholders, for Vanguard the two are the same. In theory this better aligns the company's priorities with your interests. This is also the case with companies like USAA and mutual insurance companies (true mutual companies, not ones that have de-mutualized but kept the word "mutual"). Whether that actually leads to better customer service, YMMV, e.g.: viewtopic.php?t=261539.

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JoMoney
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Re: What? I'm a Vanguard Owner?

Post by JoMoney » Sat Nov 10, 2018 10:31 pm

When you buy shares in a company, you are a part/fractional owner of the company. Your "ownership" is proportional to the number of shares you own, you get to vote for board members, and certain measures regarding how the company operates. If you owned a majority of the shares you could essentially dictate how much of the company is run, if you own all the shares it would essentially become a private company owned by you.

Shares in a mutual fund is similar to shares in other public companies, there are differences, but the big one is that a mutual fund is a company that's incorporated as a "Registered Investment Company" that gives them special tax treatment for passing dividends through to share holders. There are other special rules a RIC is required to follow as well... but my point is, that ownership of the "fund" are those that own the shares on a proportional basis.

Vanguard is owned by the mutual funds it sells, and the mutual funds are owned by it's share holders, if you own a share of a Vanguard mutual fund you are a fractional owner.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

UpperNwGuy
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Re: What? I'm a Vanguard Owner?

Post by UpperNwGuy » Sat Nov 10, 2018 10:39 pm

Yes, you are an owner, but only in a theoretical sense. You have no more voice in Vanguard's decision-making process than you do in the decision-making processes of Schwab or Fidelity where you are not an owner.

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JoMoney
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Re: What? I'm a Vanguard Owner?

Post by JoMoney » Sat Nov 10, 2018 10:49 pm

UpperNwGuy wrote:
Sat Nov 10, 2018 10:39 pm
Yes, you are an owner, but only in a theoretical sense. You have no more voice in Vanguard's decision-making process than you do in the decision-making processes of Schwab or Fidelity where you are not an owner.
Schwab (Ticker: SCHW ) is a publicly traded company, if you owned enough shares, as with Vanguard, you could have considerable voice with how the company operates... but it is proportional to the amount you own. Most individuals don't own a large enough of a fraction for their "voice" to rise above a squeak... but there are measures where you do get a vote...
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

sport
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Re: What? I'm a Vanguard Owner?

Post by sport » Sat Nov 10, 2018 11:04 pm

The most meaningful difference is that as an "owner" of Vanguard, you get their services at cost. At other investment companies, there are stockholders that make a profit from your business. Sometime you can escape that profit situation by buying loss leader products, just like at the grocery store. However, overall, they make a profit from their customers. In fact, that is the reason for their existence. The reason for Vanguard's existence was stated by its founder John Bogle: "to give average investors a fair shake".

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Earl Lemongrab
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Re: What? I'm a Vanguard Owner?

Post by Earl Lemongrab » Sun Nov 11, 2018 6:09 pm

It's not really accurate. The funds own the company, and you own shares in the fund. You have no shares in the company. Nor any meaningful input. Certainly not like a mutual insurance company. I think the numerous posts we've seen indicate that you don't get better customer service.

The non-profit nature sounds great, and in general over the years Vanguard has been a leader in cost reductions. However, the non-profit structure doesn't guarantee the lowest or the best of anything. If that were the case, then all segments of the economy would be dominated by non-profits. Those, while they don't need to make a profit, also don't suffer as much if they don't. As long as they can cover expenses there's no motive to increase efficiency.

Vanguard got where they are mainly through some early innovations. They (or Bogle really) guessed right on the index fund idea and when the interest of the public turned that way they had a good selection of low-cost products. The others are playing catch-up, but they are catching up and in some cases passing.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

alex_686
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Re: What? I'm a Vanguard Owner?

Post by alex_686 » Sun Nov 11, 2018 7:57 pm

Earl Lemongrab wrote:
Sun Nov 11, 2018 6:09 pm
The non-profit nature sounds great, and in general over the years Vanguard has been a leader in cost reductions.
I don't think Vanguard is a non-profit, or even a not-for-profit. If it were they would have to publish certain reports that they make to the IRS - like how much the managers are paid. They don't. I am pretty sure that they are a for-profit enterprise. The fact that they own themselves mean that they can more or less disappear from most required disclosures.

I like lots of things about Vanguard, but their corporate governance and reporting is, at best, opaque.

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JoMoney
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Re: What? I'm a Vanguard Owner?

Post by JoMoney » Sun Nov 11, 2018 8:04 pm

alex_686 wrote:
Sun Nov 11, 2018 7:57 pm
Earl Lemongrab wrote:
Sun Nov 11, 2018 6:09 pm
The non-profit nature sounds great, and in general over the years Vanguard has been a leader in cost reductions.
I don't think Vanguard is a non-profit, or even a not-for-profit. If it were they would have to publish certain reports that they make to the IRS - like how much the managers are paid. They don't. I am pretty sure that they are a for-profit enterprise. The fact that they own themselves mean that they can more or less disappear from most required disclosures.

I like lots of things about Vanguard, but their corporate governance and reporting is, at best, opaque.
At least in theory, the board that is elected by the funds (and the fund owners) that hires and has oversight into how Vanguard is run is privy to all of this. There are still potential principal-agent problems, and a close eye at who these people are reveals a bit of an appearance of conflict with the same people jumping back and forth from running the company to being on the board, but so far the structure seems to have worked largely for the benefit of the owners large and small.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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