Does Vanguard always have our best interests in mind?

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neomutiny06
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Does Vanguard always have our best interests in mind?

Postby neomutiny06 » Tue Dec 27, 2016 8:16 pm

Many Bogleheads use an IPS to make sure they stay on course. No matter what the noise in the market, and despite some newly discovered research, Bogleheads have taught me to set it and forget it.

However, Vanguard has not acted this way. Vanguard has changed their recommendations over the years plenty. They went from recommending equity portfolios to include only 20% international, to 30%, to 40%, and now talk of getting to 50%.

With bonds, Vanguard has performed a similar increase in international exposure. Their case for international stocks makes sense in my mind. The international bonds research however; I am not completely sold on.

Has Vanguard changed their recommendations solely based on research and the best interests of individual investors? Or is there perhaps some motivation to capture slightly higher fees and promote newer international funds?

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Re: Does Vanguard always have our best interests in mind?

Postby livesoft » Tue Dec 27, 2016 8:22 pm

If Vanguard wanted to charge higher fees, they could easily do so and everyone would follow suit. The usual actors would try to stay just barely below the Vanguard fee to make a marketing point like they do now.
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Re: Does Vanguard always have our best interests in mind?

Postby Wildebeest » Tue Dec 27, 2016 8:38 pm

livesoft wrote:If Vanguard wanted to charge higher fees, they could easily do so and everyone would follow suit. The usual actors would try to stay just barely below the Vanguard fee to make a marketing point like they do now.


I agree and I do think that Vanguard has the best interest of the investor at heart by offering low fees.

I wish that Jack Bogle would still be in in charge of Vanguard.
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Re: Does Vanguard always have our best interests in mind?

Postby mindboggling » Tue Dec 27, 2016 9:34 pm

I think Jack Bogle is the conscience of Vanguard even though he is not involved with the company anymore. Once he passes, however, all bets are off. I wouldn't trust the current Vanguard management at all. There is no way of knowing what their plan is. When Jack passes, there will be a few days of pious words and mourning. Then upper management will throw a block party.

steve
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Re: Does Vanguard always have our best interests in mind?

Postby sambb » Tue Dec 27, 2016 9:44 pm

I wish vanguard would charge higher fees and clean up the IT
I agree that they dont stay the course
But, if you look at threads here from 2008 and 9, lots of people here dont stay the course

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Re: Does Vanguard always have our best interests in mind?

Postby AlohaJoe » Tue Dec 27, 2016 9:49 pm

neomutiny06 wrote:Has Vanguard changed their recommendations solely based on research and the best interests of individual investors?


Yes.

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Taylor Larimore
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Re: Does Vanguard always have our best interests in mind?

Postby Taylor Larimore » Tue Dec 27, 2016 9:49 pm

mindboggling wrote:I think Jack Bogle is the conscience of Vanguard even though he is not involved with the company anymore. Once he passes, however, all bets are off. I wouldn't trust the current Vanguard management at all. There is no way of knowing what their plan is. When Jack passes, there will be a few days of pious words and mourning. Then upper management will throw a block party.

steve

Steve:

Why are you so distrustful of Vanguard management? They can do what they want now.

Happy Holiday!
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Re: Does Vanguard always have our best interests in mind?

Postby Geologist » Tue Dec 27, 2016 10:02 pm

neomutiny06 wrote:Has Vanguard changed their recommendations solely based on research and the best interests of individual investors? Or is there perhaps some motivation to capture slightly higher fees and promote newer international funds?


Vanguard could have kept the minimum for Admiral shares in index funds at $50,000. That would have captured slightly higher fees in all index funds, if that is what they wanted to do. They could have not had index funds and just had their actively managed funds, which have somewhat higher fees.

All this indicates that generating higher fees is not their motivation.

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Re: Does Vanguard always have our best interests in mind?

Postby TimeRunner » Tue Dec 27, 2016 10:11 pm

neomutiny06 wrote:They went from recommending equity portfolios to include only 20% international, to 30%, to 40%, and now talk of getting to 50%.
What talk from Vanguard?
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Re: Does Vanguard always have our best interests in mind?

Postby mindboggling » Tue Dec 27, 2016 10:33 pm

Taylor Larimore wrote:
mindboggling wrote:I think Jack Bogle is the conscience of Vanguard even though he is not involved with the company anymore. Once he passes, however, all bets are off. I wouldn't trust the current Vanguard management at all. There is no way of knowing what their plan is. When Jack passes, there will be a few days of pious words and mourning. Then upper management will throw a block party.

steve

Steve:

Why are you so distrustful of Vanguard management? They can do what they want now.

Happy Holiday!
Taylor


Taylor...I think a founder, while alive, still has an influence on a company. I know you are a big supporter of Vanguard. So am I. Vanguard's influence on the financial services industry is undeniable. Most of my life savings are with them. I started investing with Vanguard in 1987. I increasingly worry about their future direction. The flood of institutional money and Vanguard's emphasis on growth doesn't bode well for the small, individual investor. Corporate policies and priorities change once the founders are no longer on the scene. An institutional investor with hundreds of million of dollars doesn't use the Vanguard website to communicate with Vanguard.

steve
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Re: Does Vanguard always have our best interests in mind?

Postby snowshoes » Tue Dec 27, 2016 10:36 pm

The .gov has changed the way its calculated inflation around 20 times, CPI this, or that, not very transparent I may add. Close to another 5-6 times in the 80s alone . All Things change, or become obsolete. Heres a staple, McDonalds used to be burgers, tonic, & fries, take out only! It now sits one down for breakfast (muffins&eggs), lunch,(X) & dinner(x), w/ seasonal specials & soft ice cream. All high profit margined FDA approved human ingestible substances.

PS: I too worry about Vanguards asset bloat becoming a additional risk factor.
Last edited by snowshoes on Wed Dec 28, 2016 12:02 am, edited 2 times in total.

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Taylor Larimore
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Re: Does Vanguard always have our best interests in mind?

Postby Taylor Larimore » Tue Dec 27, 2016 10:38 pm

Steve:

You started investing with Vanguard a year after I did. We have been well served.

Thank you for your reply.

Happy Holiday!
Taylor
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Re: Does Vanguard always have our best interests in mind?

Postby neomutiny06 » Tue Dec 27, 2016 10:57 pm

TimeRunner wrote:
neomutiny06 wrote:They went from recommending equity portfolios to include only 20% international, to 30%, to 40%, and now talk of getting to 50%.
What talk from Vanguard?


I heard one Vanguard advisor in a video on YouTube said that the "least amount of international" equity one should have is 40%, and probably more. And they have increased the int'l allocation slowly to not shock investors.

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Re: Does Vanguard always have our best interests in mind?

Postby indexingfun » Tue Dec 27, 2016 11:01 pm

neomutiny06 wrote:Has Vanguard changed their recommendations solely based on research and the best interests of individual investors? Or is there perhaps some motivation to capture slightly higher fees and promote newer international funds?


They've been doing a very bad job of capturing slightly higher fees.

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Re: Does Vanguard always have our best interests in mind?

Postby boglephreak » Tue Dec 27, 2016 11:08 pm

assuming they dont have our best interests in mind, what are we to do about it? move to fidelity, schwab or some other brokerage company? not sure they are any better.

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Re: Does Vanguard always have our best interests in mind?

Postby JoMoney » Tue Dec 27, 2016 11:20 pm

neomutiny06 wrote:...
Has Vanguard changed their recommendations solely based on research and the best interests of individual investors? Or is there perhaps some motivation to capture slightly higher fees and promote newer international funds?

While I don't believe they're at all motivated by higher fees, I'm open to being cynically skeptical about Vanguard creating, hyping, and pushing products that most investors just don't need so they can expand their product line. The bonuses Vanguard employees get under the "Vanguard Partnership Plan" aren't transparent, but its' been suggested that some of it is based on lowering fees and gathering more clients. I would hypothesize that at some point the scale at which traditional products can grow (and shrink in costs) would start to hit some walls - so they expand the product line.
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Re: Does Vanguard always have our best interests in mind?

Postby Index Fan » Tue Dec 27, 2016 11:46 pm

Virtually no one outside of your family has your best interests in mind.

Vanguard is one of the least selfish of the investment firms out there. That's good enough for me.
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Re: Does Vanguard always have our best interests in mind?

Postby JamesSFO » Tue Dec 27, 2016 11:50 pm

Aside from style/formation drift of the target date (TR) funds (and to a lesser degree LifeStrategy (LS) funds) are there other concerns?

The TR 20xx funds have definitely had style drift and it's unclear whether it is for the better or not but that seems to me very different from not trusting Vanguard. Further, the TR funds can be avoided by directly creating a 2-4 fund portfolio with a bit of individual effort.

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Re: Does Vanguard always have our best interests in mind?

Postby Phineas J. Whoopee » Tue Dec 27, 2016 11:53 pm

neomutiny06 wrote:...
Has Vanguard changed their recommendations solely based on research and the best interests of individual investors? Or is there perhaps some motivation to capture slightly higher fees and promote newer international funds?

I don't share your apprehension, but I'd like to point something out about it. A going concern, and Vanguard Marketing Corporation is one, even if they don't have outside non-customer investors to deliver earnings to but simply are owned by the Vanguard funds to provide services at cost, runs on revenue.

Vanguard could, without changing expense ratios, capture more revenue simply from having more assets under management, which it turns out in recent years they consistently have had.

Vanguard reports expense ratios after the fact, telling us how much they already spent relative to each individual fund and share class size, but the underlying strategy they're using, increased economies of scale, can deliver more revenue even if they charge each individual customer less. Automobile manufacturers, to pick one random example, use the same principle.

Are you concerned about paying higher fees yourself, or about Vanguard realizing higher revenue?

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Re: Does Vanguard always have our best interests in mind?

Postby digit8 » Wed Dec 28, 2016 6:45 am

To paraphrase Churchill, I think Vanguard is the worst place to invest, except for all the other places.
I think the OP is representative exactly of the spectrum of reactions from consumers one might expect when dealing with abusiness (of any kind) that's doing it's job- the first three paragraphs break down into "I agree with the basic philosophy...I agree with their change on this....I'm not sure I agree with their change on that."

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Re: Does Vanguard always have our best interests in mind?

Postby qwertyjazz » Wed Dec 28, 2016 7:00 am

livesoft wrote:If Vanguard wanted to charge higher fees, they could easily do so and everyone would follow suit. The usual actors would try to stay just barely below the Vanguard fee to make a marketing point like they do now.

More than 3 major parties involved - plus people in each of those companies who understand the market of low cost index funds - it is not sustainable for Vanguard to raise their fees without some marketing advantage - 20 years ago sure
They have changed the market so whoever winds up in control of Vanguard has to live with that. But selling additional products and leveraging control of the stocks may increase over time (extending from just lending). Until the next revolution in investing, Vanguard will likely lead their current model. 20-30 years from now we may be talking about a different investing model that no one takes seriously yet. The cycle will repeat.
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Re: Does Vanguard always have our best interests in mind?

Postby MossySF » Wed Dec 28, 2016 7:15 am

Vanguard could raise fees of course but for what purpose? There are no shareholders to partake in the profits from those fees.

Sure the fund manager could get a raise from $1M to $2M a year. Would we even notice it though in our $100B fund? Maybe all 100 employees get a 50% raise? Spread over the 50 funds and several trillion dollars, again it would be a microscopic fee ratio increase. If the Vanguard CEO made such a decision, what would he gain? Happier workers?

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Re: Does Vanguard always have our best interests in mind?

Postby columbia » Wed Dec 28, 2016 7:22 am

My fathet steered me to Vanguard, as he has been an investor in Bogle-led funds prior to the founding of Vanguard. If he starts to worry, I will. :)
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Re: Does Vanguard always have our best interests in mind?

Postby qwertyjazz » Wed Dec 28, 2016 7:30 am

MossySF wrote:Vanguard could raise fees of course but for what purpose? There are no shareholders to partake in the profits from those fees.

Sure the fund manager could get a raise from $1M to $2M a year. Would we even notice it though in our $100B fund? Maybe all 100 employees get a 50% raise? Spread over the 50 funds and several trillion dollars, again it would be a microscopic fee ratio increase. If the Vanguard CEO made such a decision, what would he gain? Happier workers?


I believe most people go into finance with the concept of Enough in mind. Mr Bogle had no need to write about it. Wall Street is different. Any where else - like a suburb of a city founded on brotherly love - has finance people who care about you and love you. Companies have a vision created by their founder of a vision that will last millenia. Of course, Vanguard has your best interests in mind and always will.
OTOH we should never blindly follow advice even if they are completely well intentioned. Stay the course - read - make slow deliberate changes over time not lead by any single analysis. So it might not matter - but this way to the egress.
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Re: Does Vanguard always have our best interests in mind?

Postby carguyny » Wed Dec 28, 2016 7:35 am

Vanguard is a very opaque organisation to me, I don't see how I could be certain they have your best interests in mind. If you feel good about being a customer vs the alternatives, does it really matter?

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Re: Does Vanguard always have our best interests in mind?

Postby Dopey » Wed Dec 28, 2016 7:48 am

Full disclosure, did not read the thread, but I feel like every large organizations priorities are as follows:

1) Their own bottom line
2) Shareholders
3) Customers

Granted, if one of those 3 isn't doing well or agree with the direction of the company or value the product/service provided, likely the other 2 will suffer. It's a pretty holistic list, but I don't think the 40 year saver from the middle class is Vanguard's top priority.

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Re: Does Vanguard always have our best interests in mind?

Postby retiredjg » Wed Dec 28, 2016 7:48 am

neomutiny06 wrote:Has Vanguard changed their recommendations solely based on research and the best interests of individual investors? Or is there perhaps some motivation to capture slightly higher fees and promote newer international funds?

For the issue of international, I think the change in recommendation is based more on cost than anything else. Vanguard has used a balancing act between the benefit of holding international stocks (or bonds) and the costs of holding international stock (or bonds).

When I started watching roughly 10 years ago, the best benefit was closer to 20% or 30% of stocks in international . More than that was Ok to do but not very cost effective. You didn't get more bang for the buck. As costs have gone down, there is more benefit to holding something closer to market value. And that is exactly what Vanguard has done - raised percentages toward market value as the costs have gone down.

When I started watching, there were no international bond funds that made a lot of sense because of the cost. That has changed and at that point, they included international bonds. It only makes sense if the corporate mind think is to achieve maximum diversification at a cost that does not get in the way.

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Re: Does Vanguard always have our best interests in mind?

Postby retiredjg » Wed Dec 28, 2016 7:57 am

Dopey wrote:Full disclosure, did not read the thread, but I feel like every large organizations priorities are as follows:

1) Their own bottom line
2) Shareholders
3) Customers

Granted, if one of those 3 isn't doing well or agree with the direction of the company or value the product/service provided, likely the other 2 will suffer. It's a pretty holistic list, but I don't think the 40 year saver from the middle class is Vanguard's top priority.

What you say certainly makes sense for other investment companies. For example, Fidelity is privately owned and the family that owns it does get the benefit of the "bottom line'. Other companies might be publicly owned (shares of stock sold) and the shareholders would get the benefit of any profits.

But neither of these things is true for Vanguard. They have a completely different structure. The customers are the owners/shareholders and it is the customers who get the benefit of whatever happens there.

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Re: Does Vanguard always have our best interests in mind?

Postby qwertyjazz » Wed Dec 28, 2016 8:10 am

retiredjg wrote:
Dopey wrote:Full disclosure, did not read the thread, but I feel like every large organizations priorities are as follows:

1) Their own bottom line
2) Shareholders
3) Customers

Granted, if one of those 3 isn't doing well or agree with the direction of the company or value the product/service provided, likely the other 2 will suffer. It's a pretty holistic list, but I don't think the 40 year saver from the middle class is Vanguard's top priority.

What you say certainly makes sense for other investment companies. For example, Fidelity is privately owned and the family that owns it does get the benefit of the "bottom line'. Other companies might be publicly owned (shares of stock sold) and the shareholders would get the benefit of any profits.

But neither of these things is true for Vanguard. They have a completely different structure. The customers are the owners/shareholders and it is the customers who get the benefit of whatever happens there.


I believe your logic also applies to all governments including dictatorships. For who does he work for but the people? All people in government in all governments throughout time are purely interested in serving others. We are the shareholders. There can never be a conflict of interest. (See Godwin's rule for full explanation of rant)
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Re: Does Vanguard always have our best interests in mind?

Postby Rodc » Wed Dec 28, 2016 8:15 am

I think there are rational reasons for most of the changes. But, the style drift in target date funds may have been driven at least in part to better compete with other companies than looking out for investors.

Vanguard is a fine company, but you should Never assume Any company has your best interests at heart. If nothing else human nature will drive many executives to pursue growth (or their power, domain, department size, company size, company income) that may not be in your best interest. And even if they are pure of heart and action, a change for the general good might not be to your benefit.

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You simply have to stay on top of things and make your own decisions in your own best interests.
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Re: Does Vanguard always have our best interests in mind?

Postby Dandy » Wed Dec 28, 2016 9:33 am

In general I think VG believes it is doing what is best for their customers. I don't believe their "experts" are any smarter than any other firm's "experts". I trust VG more than almost any other investment/bank/Credit Union. But, I do think they have a taste for growth of their assets under management -- and have been very successful. But, if that is true it can be a slippery slope.

also, I was not comfortable with how they introduced their International Bond Fund for example. They just slammed it into various balanced funds and made it a success - like it or not. Kind of we know what is best and we will just do it. That move along with increasing the allocation to International equities in those funds, and other previous changes makes those funds slow motion active funds. All active fund managers feel they are doing their best to increase the value of their funds - some are just more active than these VG funds. So, VG believes it is acting in the best interest of its customers but may have too much confidence that they know what is best. And, in some cases don't convince customers to buy - they just do it for them.

So VG may be placing too much emphasis on growth and have a bit too much confidence in their investment "expertise". It seems to be a baby step in the wrong direction from Mr. Bogle's approach -- but still much better overall to alternative firms.

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Re: Does Vanguard always have our best interests in mind?

Postby MossySF » Wed Dec 28, 2016 9:59 am

qwertyjazz wrote:I believe most people go into finance with the concept of Enough in mind. Mr Bogle had no need to write about it. Wall Street is different. Any where else - like a suburb of a city founded on brotherly love - has finance people who care about you and love you. Companies have a vision created by their founder of a vision that will last millenia. Of course, Vanguard has your best interests in mind and always will.
OTOH we should never blindly follow advice even if they are completely well intentioned. Stay the course - read - make slow deliberate changes over time not lead by any single analysis. So it might not matter - but this way to the egress.


I'm not saying the employees at Vanguard don't want to earn money. What I'm saying is the CEO of Vanguard decides the compensation structure and he has a different target than what the employees want. Sure, higher salaries *MIGHT* be needed for the Wall Street specialists who'd rather be in Manhattan. But the rest of the company -- IT, software development, customer service, receptionist, mailroom clerk, etc. -- they're just jobs like most others. Why would anybody in charge decide to pay vastly more than market salaries for these positions? For some nebulous reason to stick it to us Vanguard investors?

Sure, I can see the CEO deciding he wants $15M instead of $10M per year and the Board of Directors agreeing with him. (I'm just making numbers up -- I have no idea what is the actual compensation is.) Yeah, it unfair that CEOs get paid that much but it's 1 person so the compensation is spread over several trillion in assets. I just don't see how this spills over into sharing the spoils to for all Vanguard employees & vendors. Most people are greedy just for themselves.

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Re: Does Vanguard always have our best interests in mind?

Postby rob » Wed Dec 28, 2016 10:18 am

For some reason Vanguard gets a free pass on this board with their style drift..... changing indexes, changing mix in target funds, adding small into some funds, adding emerging into other etc.

But have they acted directly against MY and others interests outside of style drift - Unfortunately the answer is yes IMO. The debacle with the "tax managed" international fund.... I and many others are locked (due to taxable gains) into a fund that was completely changed from what was sold and what was covered in the prospectus (yes I read it). That was the point that, to me, Vanguard became just another investment company; one that clearly just parrots words that have no meaning to management.

In the end, they are doing great in the asset gathering game and no doubt mgt is paid very well - not that we would know despite that nonsense about "shareholders owning the company". I invest in tax deferred while they continue to have the best funds for my use, but no longer add to in taxable accounts where you have to trust the company.
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Vanguard Tax Managed Fund Changes?

Postby Taylor Larimore » Wed Dec 28, 2016 11:13 am

The debacle with the "tax managed" international fund.... I and many others are locked (due to taxable gains) into a fund that was completely changed from what was sold and what was covered in the prospectus (yes I read it).

Rob:

How has Vanguard Tax-Managed International fund changed?

Thank you and best wishes
Taylor
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Re: Does Vanguard always have our best interests in mind?

Postby garlandwhizzer » Wed Dec 28, 2016 11:45 am

I am surprised by the ire that some on the Forum hold for Vanguard which is far and away more dedicated to client's interests in my view than any other financial firm. If you're upset that V has increased INTL and also equity relative to bond holdings, then you have the simple option not to follow their advice. If you know what's better for your interests and temperament than V I suggest you follow your own path. V does not insist that you do as they suggest, only it tries to weigh risk and reward in real time and adjust portfolios accordingly which is in my view a valuable service for many. I for one agree with V's changes and believe that the 30+ year bull market in bonds is over, that bond returns going forward from here are going to be very subdued, about the inflation rate for a decade or so, and that it is appropriate for those who need real asset growth in their portfolios to at least consider consider taking on more volatility/risk with equities. Likewise the US has had a strong equity bull market for 7 years which has substantially stretched US valuations relative to INTL and especially to EM, neither of which went along for the big ride in this 7 year bull. Most observers believe there is a close relationship between long term returns and valuations, hence it may be entirely rational to suggest increasing INTL relative to US equity. Vanguard is in my view doing its best to cater to the interests of its clients and I find the argument that V is merely trying to line its own pockets spurious. Investors as a group seem to agree with me as they continue to move more and more money from other firms into V. If you can find a better financial firm to take care of your interests move your assets from V in that direction. I have found no such firm.

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Re: Vanguard Tax Managed Fund Changes?

Postby rob » Wed Dec 28, 2016 12:26 pm

Taylor Larimore wrote:Rob:

How has Vanguard Tax-Managed International fund changed?

Thank you and best wishes
Taylor

The tax managed fund no longer exists - it's original mandate was to track an index as much as possible while minimizing the taxable effects. e.g. It could diverge from the index by avoiding holdings that had large dividends, forcing tax loss sales, avoiding share lending etc. It was not a strict index fund as it had the mandate to diverge from it's bogie index for US tax purposes. Remember; Past tax rules didn't have the current favorable non-US dividend tax treatment. THIS is the fund I invested in... the one Vanguard defined in it's prospectus etc.

The TM fund and the true index fund were then "merged" (including the ETF share class) [from memory they merged the idx fund into the TM fund then renamed it as the TM fund actually had the ETF share class]. NOW the fund tracks the index blindly.... No tax management, no avoiding dividends etc. The largest issue; No ability to react to future tax changes (e,g, Removal of favorable tax treatment of qualified dividends or alike).....

I know this is a first world issue but now I'm locked in due to taxable gains and Vanguard metaphorically pulled the rug out from under taxable investors in this fund...... The tax drag on the "new" merged fund is higher than the orig TM fund.

There is a lot of good in Vanguard but this decision costs me real dollars every year but more critically now I cannot reconcile phrases like "stay the course" with mgt actions - actions speak far louder than words in my view and they lost my trust with that decision (there have been smaller changes I disagree with as it's style drift but not on the scale of the destruction of the TM fund).
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nedsaid
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Re: Does Vanguard always have our best interests in mind?

Postby nedsaid » Wed Dec 28, 2016 12:47 pm

mindboggling wrote:I think Jack Bogle is the conscience of Vanguard even though he is not involved with the company anymore. Once he passes, however, all bets are off. I wouldn't trust the current Vanguard management at all. There is no way of knowing what their plan is. When Jack passes, there will be a few days of pious words and mourning. Then upper management will throw a block party.

steve


There is actually a better relationship between Mr. Bogle and Vanguard management than there was before with the previous CEO. I think Vanguard is doing their best for their shareholders. With the massive amounts of cash flooding Vanguard now, they are experiencing some issues. There have been a lot of comments here about customer service and their Information Technology. I believe that these issues will be resolved over time.
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Re: Does Vanguard always have our best interests in mind?

Postby Dandy » Wed Dec 28, 2016 12:50 pm

If you're upset that V has increased INTL and also equity relative to bond holdings, then you have the simple option not to follow their advice.


True up to a point. People who bought TD or Life Strategy Funds may not always know or may have other issues rather than just selling and buying something different.

1. They may have simplified their investment by consolidating into say a TD fund and thought they were set. Now, perhaps at a somewhat advanced age, they find they have to settle for the changes or become their own advisor again.
2. If they bought TD or LS funds in a taxable account, again for simplification, now they may face unwanted cap gains to get investment more in line with their original plan.
3. If they already had a large allocation to international equities in their taxable account and now their TD or LS funds in their TIRA have upped the international equities - they now must live with higher international equities or sell taxable international equities to return to their original allocation plan.

To me these funds were pitched or purchased more as a simple, diversified all in on fund that you could basically set and forget. The number of very significant changes to allocations and content, not all of which is necessarily bad, is far from that concept. If VG was going to change these funds significantly over time they should have a more prominent warning to that effect. Here is the product summary on line from one fund:
Product summary
Fund facts
The LifeStrategy Funds are a series of broadly diversified, low-cost funds with an all-index, fixed allocation approach that may provide a complete portfolio in a single fund. The four funds, each with a different allocation, target various risk-based objectives. The Growth Fund seeks to provide capital appreciation and some current income. The fund holds 80% of its assets in stocks, a portion of which is allocated to international stocks, and 20% in bonds, a portion of which is allocated to international bonds. In addition to stock market risk, the fund is also subject to currency risk and country risks. Investors with a long-term time horizon who are looking for growth of principal over time and who can accept stock market volatility may wish to consider this fund.
Please note: The Lifestrategy funds are subject to the risks of their underlying funds.


How about adding some wording like: From time to time VG will make changes to the overall allocation between equities and fixed income and/or the types of equities and fixed income included based upon the advice of our research team.
Wording not buried somewhere but right up front.

I think VG believes the changes are in the best interest of the customer - I think the concern is so does every active manager. There is a quote that "to a boy with a hammer everything looks like a nail". If you believe in your research and give the ability to make a change then it is likely changes will be made (maybe too many).

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Re: Does Vanguard always have our best interests in mind?

Postby Gropes & Ray » Wed Dec 28, 2016 1:00 pm

Take a look at the Vanguard board: https://about.vanguard.com/who-we-are/our-leaders/ This is not a group that should be gunning for higher fees or salaries. I think they are doing a good job, even if I don't like every decision they make.

However, I think people should realize that although we receive the benefit of Vanguard's mutual structure, we are not owners of the company. The board is self perpetuating; none of us has ever voted for any of them. They don't disclose business matters. They don't pay dividends. We rely on their fidelity to the original mission of Vanguard in order to receive the benefit of a mutual structure. So far, so good.

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Re: Does Vanguard always have our best interests in mind?

Postby Earl Lemongrab » Wed Dec 28, 2016 1:39 pm

Vanguard is owned by its funds (not fund owners as is popularly said) so it wouldn't be out of the realm of reasonable to think that they doing things to promote certain funds. However, I don't care. I don't use their advice. I don't use their target funds. I don't use their brokerage.

What I do use is their good lineup of low-cost ETFs to implement the portfolio I want.
This week's fortune cookie: "You will enjoy doing something spontaneous this weekend." Apparently that meant working on a dead PC, but I didn't enjoy that much.

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Re: Does Vanguard always have our best interests in mind?

Postby billyv » Wed Dec 28, 2016 2:25 pm

I can think of a couple reasons why Vanguard might be recommending a higher percentage of international funds.

First, the paranoid reason: having crushed the competition here in the US, Vanguard's greed-obsessed managers have set their sights on total world domination and they're using us -- their loyal customers -- to achieve their nefarious ends. In that case, look for Vanguard to be recommending 100% VXUS in stocks and 100% VWOB on bonds by 2020!

Second, which is the theory I happen to ascribe to: over the past 20-30 years, the size and variety of global markets has increased exponentially. For a company that made its name preaching the virtues of "owning the market," it only makes sense for Vanguard to advise fund-holders to increase their exposure to international bonds and equities.

Take your pick. 8-)

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Re: Does Vanguard always have our best interests in mind?

Postby qwertyjazz » Wed Dec 28, 2016 2:50 pm

Gropes & Ray wrote:Take a look at the Vanguard board: https://about.vanguard.com/who-we-are/our-leaders/ This is not a group that should be gunning for higher fees or salaries. I think they are doing a good job, even if I don't like every decision they make.

However, I think people should realize that although we receive the benefit of Vanguard's mutual structure, we are not owners of the company. The board is self perpetuating; none of us has ever voted for any of them. They don't disclose business matters. They don't pay dividends. We rely on their fidelity to the original mission of Vanguard in order to receive the benefit of a mutual structure. So far, so good.


Excellent point - they all look really honest in their pictures
How much do they each make a year?
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Re: Does Vanguard always have our best interests in mind?

Postby qwertyjazz » Wed Dec 28, 2016 2:59 pm

MossySF wrote:
qwertyjazz wrote:I believe most people go into finance with the concept of Enough in mind. Mr Bogle had no need to write about it. Wall Street is different. Any where else - like a suburb of a city founded on brotherly love - has finance people who care about you and love you. Companies have a vision created by their founder of a vision that will last millenia. Of course, Vanguard has your best interests in mind and always will.
OTOH we should never blindly follow advice even if they are completely well intentioned. Stay the course - read - make slow deliberate changes over time not lead by any single analysis. So it might not matter - but this way to the egress.


I'm not saying the employees at Vanguard don't want to earn money. What I'm saying is the CEO of Vanguard decides the compensation structure and he has a different target than what the employees want. Sure, higher salaries *MIGHT* be needed for the Wall Street specialists who'd rather be in Manhattan. But the rest of the company -- IT, software development, customer service, receptionist, mailroom clerk, etc. -- they're just jobs like most others. Why would anybody in charge decide to pay vastly more than market salaries for these positions? For some nebulous reason to stick it to us Vanguard investors?

Sure, I can see the CEO deciding he wants $15M instead of $10M per year and the Board of Directors agreeing with him. (I'm just making numbers up -- I have no idea what is the actual compensation is.) Yeah, it unfair that CEOs get paid that much but it's 1 person so the compensation is spread over several trillion in assets. I just don't see how this spills over into sharing the spoils to for all Vanguard employees & vendors. Most people are greedy just for themselves.


The lack of transparency makes me wonder about the similarities to other mutual fund companies. I do not know if their are a few more zeros for the board and CEO (billions not millions). I do not think they would share unless needed. But I cannot tell the difference of lowering fees to capture business from lowering fees out of good will. I do not know if the advice is motivated out of good or to capture more business. They seem like nice enough people, but Bogleheads would not be as supportive of mutual fund people charging 2 and 20 who seem like nice enough people. There is a history of doing good. But I do not know the present and cannot predict the future.
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Not Bad

Postby Taylor Larimore » Wed Dec 28, 2016 3:39 pm

I know this is a first world issue but now I'm locked in due to taxable gains and Vanguard metaphorically pulled the rug out from under taxable investors in this fund...... The tax drag on the "new" merged fund is higher than the orig TM fund.

Rob:

Vanguard Tax-Managed Fund was merged into their Developed Market Index Fund (VTMGX). I checked the Morningstar's Tax Analysis page for VTMGX. It has been in the top 30% of its category (foreign large blend) during the past 1,3,5,10 and 15-year for after-tax returns. Not bad.

Happy Holidays
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: Does Vanguard always have our best interests in mind?

Postby Gropes & Ray » Wed Dec 28, 2016 3:49 pm

qwertyjazz wrote:Excellent point - [the directors of Vanguard] all look really honest in their pictures
How much do they each make a year?


It doesn't really matter. They have consistently reduced expense ratios, and they provide good funds at very reasonable (and improving) rates. I can't sit around and worry about whether the e/r on the Total Market fund could have been 0.047 instead of 0.048 if the board ate McDonald's at their meeting instead of filet.

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Re: Does Vanguard always have our best interests in mind?

Postby retiredjg » Wed Dec 28, 2016 4:29 pm

qwertyjazz wrote:But I cannot tell the difference of lowering fees to capture business from lowering fees out of good will.

I guess this is sort of the point. I doubt they lower fees for either of those reasons. I think they lower fees because the cost of running the fund has gone down.

In another company, this would be profit and it would likely be diverted to the owners or the stockholders. At Vanguard, because of its unique corporate structure, the savings are not turned into profit, but passed on to the customers. It is a different business model and has nothing to go with "good will" or gathering a larger share of the market.

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Re: Not Bad

Postby sport » Wed Dec 28, 2016 5:08 pm

Taylor Larimore wrote:
I know this is a first world issue but now I'm locked in due to taxable gains and Vanguard metaphorically pulled the rug out from under taxable investors in this fund...... The tax drag on the "new" merged fund is higher than the orig TM fund.

Rob:

Vanguard Tax-Managed Fund was merged into their Developed Market Index Fund (VTMGX). I checked the Morningstar's Tax Analysis page for VTMGX. It has been in the top 30% of its category (foreign large blend) during the past 1,3,5,10 and 15-year for after-tax returns. Not bad.

Happy Holidays
Taylor

Taylor,
The complaint is not that it is a bad fund. The complaint is that we bought a tax managed fund, which was then changed into a fund that is not tax managed. It is kind of a "bait and switch" situation. The situation became even worse when Vanguard changed the index to include small cap stocks when neither the index fund nor the tax managed fund contained those originally. Since we are talking about a tax managed fund, by necessity, all the investors have this in a taxable account where they are locked in unless they want to pay capital gains taxes to get out of the fund. I bought a tax managed fund that did not include small cap stocks. Now I have a fund that is not tax managed and does contain small cap stocks. This is not what I signed up for, but I am stuck with it. Of course, I complained to Vanguard when the changes were announced, but the complaints fell on deaf ears. Happy holidays to you too.
sport

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Re: Does Vanguard always have our best interests in mind?

Postby Grt2bOutdoors » Wed Dec 28, 2016 5:14 pm

mindboggling wrote:I think Jack Bogle is the conscience of Vanguard even though he is not involved with the company anymore. Once he passes, however, all bets are off. I wouldn't trust the current Vanguard management at all. There is no way of knowing what their plan is. When Jack passes, there will be a few days of pious words and mourning. Then upper management will throw a block party.

steve


It takes a lifetime to earn someone's trust, it takes less than 5 minutes to lose it. Remember that the next time you are so distrustful. If you don't like something Steve you have the right to vote with your feet. The benefit of having assets Steve is you, you get to direct where it goes and when it leaves, not Vanguard, not their management, only you. I believe Vanguard as a collective whole is well aware of the customer's right to leave if things for the customer changes in a negative manner. If they aren't, don't worry, their competitors are chomping at the bit to capture just a sliver of the assets they currently hold.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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JamesSFO
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Re: Not Bad

Postby JamesSFO » Wed Dec 28, 2016 6:17 pm

sport wrote:
Taylor Larimore wrote:
I know this is a first world issue but now I'm locked in due to taxable gains and Vanguard metaphorically pulled the rug out from under taxable investors in this fund...... The tax drag on the "new" merged fund is higher than the orig TM fund.

Rob:

Vanguard Tax-Managed Fund was merged into their Developed Market Index Fund (VTMGX). I checked the Morningstar's Tax Analysis page for VTMGX. It has been in the top 30% of its category (foreign large blend) during the past 1,3,5,10 and 15-year for after-tax returns. Not bad.

Happy Holidays
Taylor

Taylor,
The complaint is not that it is a bad fund. The complaint is that we bought a tax managed fund, which was then changed into a fund that is not tax managed. It is kind of a "bait and switch" situation. The situation became even worse when Vanguard changed the index to include small cap stocks when neither the index fund nor the tax managed fund contained those originally. Since we are talking about a tax managed fund, by necessity, all the investors have this in a taxable account where they are locked in unless they want to pay capital gains taxes to get out of the fund. I bought a tax managed fund that did not include small cap stocks. Now I have a fund that is not tax managed and does contain small cap stocks. This is not what I signed up for, but I am stuck with it. Of course, I complained to Vanguard when the changes were announced, but the complaints fell on deaf ears. Happy holidays to you too.
sport


Makes sense to be frustrated. Question though, assuming neither fund had enough resources to "stand on its own" and one or both needed to be shut down, what would you have proposed? Since as you note it was mostly a fund held in taxable accounts, if they shut the fund and forced sales that would have incurred taxes. So if keeping it and shutting it were out, what else could they do?

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Re: Does Vanguard always have our best interests in mind?

Postby Norcalkenny » Wed Dec 28, 2016 6:21 pm

garlandwhizzer wrote:I am surprised by the ire that some on the Forum hold for Vanguard which is far and away more dedicated to client's interests in my view than any other financial firm. If you're upset that V has increased INTL and also equity relative to bond holdings, then you have the simple option not to follow their advice. If you know what's better for your interests and temperament than V I suggest you follow your own path. V does not insist that you do as they suggest, only it tries to weigh risk and reward in real time and adjust portfolios accordingly which is in my view a valuable service for many. I for one agree with V's changes and believe that the 30+ year bull market in bonds is over, that bond returns going forward from here are going to be very subdued, about the inflation rate for a decade or so, and that it is appropriate for those who need real asset growth in their portfolios to at least consider consider taking on more volatility/risk with equities. Likewise the US has had a strong equity bull market for 7 years which has substantially stretched US valuations relative to INTL and especially to EM, neither of which went along for the big ride in this 7 year bull. Most observers believe there is a close relationship between long term returns and valuations, hence it may be entirely rational to suggest increasing INTL relative to US equity. Vanguard is in my view doing its best to cater to the interests of its clients and I find the argument that V is merely trying to line its own pockets spurious. Investors as a group seem to agree with me as they continue to move more and more money from other firms into V. If you can find a better financial firm to take care of your interests move your assets from V in that direction. I have found no such firm.

Garland Whizzer


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