Insights From a Long Call With Vanguard Reps Today

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michaeljmroger
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Insights From a Long Call With Vanguard Reps Today

Post by michaeljmroger » Thu Jun 06, 2019 12:47 am

I had a very long call with Vanguard today. We discussed many different topics and I thought some of the things they said might interest some of you, so here are some of my notes and impressions:
  • I know Vanguard doesn’t have a stellar reputation here when it comes to support, but my experience has been pretty much flawless so far. I don’t know if it’s because I’m a Flagship client but literally every person I talked to was super nice and competent.
  • Vanguard is clearly pushing ETFs. It’s very unlikely they’ll lower the ERs on the mutual funds to match the lower prices of their corresponding ETFs (e.g. 0.07% for VTMGX, 0.05% for VEA).
  • I said that despite the current hype around ETFs, I personally preferred mutual funds as they still have many appealing attributes, for example automatic withdrawals. They said they’re considering a few options to offer these features for ETFs as well.
  • Not exactly surprising but, they agreed LifeStrategy funds aren’t suited for taxable accounts.
  • I shared some of my concerns about their technology and they take that very seriously. It’s apparently one of their top priorities at the moment, and they’re working on modernizing their apps.
  • They don’t seem particularly excited about TIPS. Even at low stock allocations, they wouldn’t go above 10% (which doesn’t match their retirement funds by the way).
  • It seems clear for them that the appropriate US/Ex-US allocation is 60/40.
  • They don’t like cash. Max 1 year as an EF, but nothing more. That’s a big difference with Schwab’s typical significant cash drag.
  • Vanguard PAS lower their fees if you’ve more than $5M with them. I thought the 0.3% was a fixed price.
  • I really liked their PAS presentation. They’re not incentivized to sell you something, so it really seems like they’re trying to find the best solution for you, not for them.
  • It’s silly, but they said it’s highly unusual for them to speak with customers who know about this stuff as much as I do, so I was very proud thanks to all of you! :beer

klaus14
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Re: Insights from Vanguard

Post by klaus14 » Thu Jun 06, 2019 1:41 am

michaeljmroger wrote:
Thu Jun 06, 2019 12:47 am
I had a very long call with Vanguard today. We discussed many different topics and I thought some of the things they said might interest some of you, so here are some of my notes and impressions:
  • Not exactly surprising but, they agreed LifeStrategy funds aren’t suited for taxable accounts.
thanks for sharing. i guess this is because bond distributions.

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newcollegeman
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Re: Insights from Vanguard

Post by newcollegeman » Thu Jun 06, 2019 7:12 am

My family & I met w Vanguard reps last week. Excellent service all around.

It was worth the trip to watch the look on my young adult children’s faces as the Vg PAS rep told them they needed to save 30% of their gross income for retirement!

I was a proud Boglehead indeed!!

Newcollegeman

bondsr4me
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Re: Insights from Vanguard

Post by bondsr4me » Thu Jun 06, 2019 7:23 am

newcollegeman wrote:
Thu Jun 06, 2019 7:12 am
My family & I met w Vanguard reps last week. Excellent service all around.

It was worth the trip to watch the look on my young adult children’s faces as the Vg PAS rep told them they needed to save 30% of their gross income for retirement!

I was a proud Boglehead indeed!!

Newcollegeman
I don't understand something. VG has no offices, so how did you meet with a VG PAS....was it over the phone or did you go to Vanguard HQ itself?
Thanks for clearing this up for me.

Great to see parents encouraging their children to get started on the straight and narrow.

Have a great day!

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newcollegeman
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Re: Insights from Vanguard

Post by newcollegeman » Thu Jun 06, 2019 10:00 am

bondsr4me,

I asked if we could come & take the Vg reps to lunch. They thanked me, but said their ethics policy wouldn't allow it. So, we settled for a face-to-face in a conference room at their place. I took the whole family!

Was perhaps the best investment meeting we've ever had. I cannot say enough about the superb care & interest taken. Vanguard has always exceeded our expectations & won multi-generational admiration in our family.

Also, I heard that their Target & LifeStrategy Funds may be moving to ETFs in the next few years, which makes sense in so many ways. Mutual funds will always be there, but adjustments to those all-in-ones that they steward make good sense.

I heard nothing that Jack Bogle wouldn't have liked, other than the words "international bonds"--which we all know his sentiments on & Vg's as well....

Appreciate the OP's insights on Vg,

newcollegeman

bondsr4me
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Re: Insights from Vanguard

Post by bondsr4me » Thu Jun 06, 2019 11:04 am

newcollegeman wrote:
Thu Jun 06, 2019 10:00 am
bondsr4me,

I asked if we could come & take the Vg reps to lunch. They thanked me, but said their ethics policy wouldn't allow it. So, we settled for a face-to-face in a conference room at their place. I took the whole family!

Was perhaps the best investment meeting we've ever had. I cannot say enough about the superb care & interest taken. Vanguard has always exceeded our expectations & won multi-generational admiration in our family.

Also, I heard that their Target & LifeStrategy Funds may be moving to ETFs in the next few years, which makes sense in so many ways. Mutual funds will always be there, but adjustments to those all-in-ones that they steward make good sense.

I heard nothing that Jack Bogle wouldn't have liked, other than the words "international bonds"--which we all know his sentiments on & Vg's as well....

Appreciate the OP's insights on Vg,

newcollegeman
Fantastic!! I was unaware they would do face to face meetings at VG HQ!
They aren't that far for me...only about 1 1/2 hours drive.
I like the idea of VG's ethics policy not allowing their reps be put in a compromising situation, even tho' it was only lunch.
Thanks for the info.

FireHorse
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Re: Insights from Vanguard

Post by FireHorse » Thu Jun 06, 2019 11:15 am

michaeljmroger wrote:
Thu Jun 06, 2019 12:47 am
I had a very long call with Vanguard today. We discussed many different topics and I thought some of the things they said might interest some of you, so here are some of my notes and impressions:
  • I know Vanguard doesn’t have a stellar reputation here when it comes to support, but my experience has been pretty much flawless so far. I don’t know if it’s because I’m a Flagship client but literally every person I talked to was super nice and competent.
  • Vanguard is clearly pushing ETFs. It’s very unlikely they’ll lower the ERs on the mutual funds to match the lower prices of their corresponding ETFs (e.g. 0.07% for VTMGX, 0.05% for VEA).
  • I said that despite the current hype around ETFs, I personally preferred mutual funds as they still have many appealing attributes, for example automatic withdrawals. They said they’re considering a few options to offer these features for ETFs as well.
  • Not exactly surprising but, they agreed LifeStrategy funds aren’t suited for taxable accounts.
  • I shared some of my concerns about their technology and they take that very seriously. It’s apparently one of their top priorities at the moment, and they’re working on modernizing their apps.
  • They don’t seem particularly excited about TIPS. Even at low stock allocations, they wouldn’t go above 10% (which doesn’t match their retirement funds by the way).
  • It seems clear for them that the appropriate US/Ex-US allocation is 60/40.
  • They don’t like cash. Max 1 year as an EF, but nothing more. That’s a big difference with Schwab’s typical significant cash drag.
  • Vanguard PAS lower their fees if you’ve more than $5M with them. I thought the 0.3% was a fixed price.
  • I really liked their PAS presentation. They’re not incentivized to sell you something, so it really seems like they’re trying to find the best solution for you, not for them.
  • It’s silly, but they said it’s highly unusual for them to speak with customers who know about this stuff as much as I do, so I was very proud thanks to all of you! :beer
THANKS for Sharing.
I am just like you that prefers mutual fund over etf

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Doom&Gloom
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Re: Insights from Vanguard

Post by Doom&Gloom » Thu Jun 06, 2019 11:40 am

Thanks for the write-up. Glad to hear that it was a good experience.

Please consider clarifying the title of the thread. I almost didn't click on it as I thought it was probably about their outlook for the markets etc. Perhaps "Insights from a Discussion with Vanguard Reps" or something similar. Thanks again!

Topic Author
michaeljmroger
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Re: Insights from Vanguard

Post by michaeljmroger » Thu Jun 06, 2019 1:06 pm

Re. Vanguard's PAS fees, they're actually described here. For a $20M portfolio, you'd only pay $35,000 per year (+ the small ERs obviously). That's actually really reasonable.

Iridium
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Re: Insights from Vanguard

Post by Iridium » Thu Jun 06, 2019 1:15 pm

newcollegeman wrote:
Thu Jun 06, 2019 7:12 am
It was worth the trip to watch the look on my young adult children’s faces as the Vg PAS rep told them they needed to save 30% of their gross income for retirement!
Err... They really should post this as a question to the board as part of a portfolio review. A young adult should not be in a position of having to save 30% of income in order to retire. That is about double the typical rule of thumb.

joeschmo
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Re: Insights from Vanguard

Post by joeschmo » Thu Jun 06, 2019 1:21 pm

Thanks so much for sharing these. I spoke with Vanguard recently too and here's what I learned:

- Don't do less than 30% stocks bec you need to hedge against inflation (not sure why 30% was the number)
- Real estate - total US includes 4% REITs anyway and most people have houses so they don't recommend
- Cash - really just short term needs for them (1-2 yrs of expenses; 3-4 is not recommended). 10% is max for most conservative. (Maybe this is because it's in their best interest for you to invest everything possible?)
- Bond allocation - they use 30% ltd term tax exempt, 40% interm term tax exempt, 30% longer
- Reporting - use a trailing 5-year number - anything 6-12 mos is just noise

I too was impressed with PAS and my only concern is that they'd of course only be able to recommend Vanguard funds. I also hoped to split things betw Fidelity and Vgd and don't know how that would work if I worked with them.

Silence Dogood
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Re: Insights from Vanguard

Post by Silence Dogood » Thu Jun 06, 2019 1:22 pm

newcollegeman wrote:
Thu Jun 06, 2019 10:00 am
Also, I heard that their Target & LifeStrategy Funds may be moving to ETFs in the next few years, which makes sense in so many ways. Mutual funds will always be there, but adjustments to those all-in-ones that they steward make good sense.
Interesting... who did you hear this from?

Are you saying that the LifeStrategy/Target Retirement funds will instead invest in ETFs (for example, VTI instead of VTSMX) or that the funds themselves will be offered as ETFs?

Silence Dogood
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Re: Insights from Vanguard

Post by Silence Dogood » Thu Jun 06, 2019 1:33 pm

I would be in favor of the existing Target Retirement (mutual) funds starting to invest in the equivalent ETF share classes for the underlying funds.

It would be the best of both worlds: automatic contributions in whole dollars (fractional shares!) with the benefit of lower cost ETFs.

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newcollegeman
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Re: Insights from Vanguard

Post by newcollegeman » Thu Jun 06, 2019 2:31 pm

Silence Dogood,

The Vg reps told us that last week & it was presented as fresh news.

Mutual funds will always be available at Vg.
ETFs will always be available at Vg.
But, there's a migration over to ETFs inside Target & LifeStrategy expected over the next couple of years.

Or, at least, that's what I heard them say!

newcollegeman

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Re: Insights from Vanguard

Post by HawkeyePierce » Thu Jun 06, 2019 4:06 pm

Does this mean the LifeStrategy funds will be more tax efficient?

Silence Dogood
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Re: Insights from Vanguard

Post by Silence Dogood » Thu Jun 06, 2019 6:15 pm

newcollegeman wrote:
Thu Jun 06, 2019 2:31 pm
there's a migration over to ETFs inside Target & LifeStrategy expected over the next couple of years.
I think what you are saying is that the Vanguard Target Retirement and LifeStrategy funds will remain as mutual funds but will instead invest in ETFs for the underlying funds.

This would result in a decrease in expense ratio.

Code: Select all

For example, for Vanguard Target Retirement 2055 (VFFVX):

Current expense ratio: 

0.5414 * 0.14 + 0.358 * 0.17 + 0.0725 * .09 + 0.0276 * 0.13 = 0.15%

Expense ratio if underlying funds were instead invested in ETF equivalents:

0.5414 * 0.03 + 0.358 * 0.09 + 0.0725 * .03 + 0.0276 * 0.09 = 0.05%

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newcollegeman
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Re: Insights from Vanguard

Post by newcollegeman » Thu Jun 06, 2019 7:26 pm

Silence Dogood,

Yes, you have said it better than I.

newcollegeman

Silence Dogood
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Re: Insights from Vanguard

Post by Silence Dogood » Thu Jun 06, 2019 7:37 pm

newcollegeman wrote:
Thu Jun 06, 2019 7:26 pm
Silence Dogood,

Yes, you have said it better than I.

newcollegeman
Sounds too good to be true!

I hope you're correct.

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Phineas J. Whoopee
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Re: Insights from Vanguard

Post by Phineas J. Whoopee » Fri Jun 07, 2019 2:04 pm

michaeljmroger wrote:
Thu Jun 06, 2019 12:47 am
... Vanguard is clearly pushing ETFs. It’s very unlikely they’ll lower the ERs on the mutual funds to match the lower prices of their corresponding ETFs (e.g. 0.07% for VTMGX, 0.05% for VEA).
...
Vanguard does not raise or lower expense ratios, regardless of whether they would prefer their customers to use traditional mutual funds or exchange-traded funds.

Vanguard reports expense ratios after the fact. It's what they already spent during the previous reporting period.

Vanguard raising or lowering ERs to discourage this and encourage that is a common misconception.

PJW

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michaeljmroger
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Re: Insights from Vanguard

Post by michaeljmroger » Fri Jun 07, 2019 6:27 pm

Phineas J. Whoopee wrote:
Fri Jun 07, 2019 2:04 pm
michaeljmroger wrote:
Thu Jun 06, 2019 12:47 am
... Vanguard is clearly pushing ETFs. It’s very unlikely they’ll lower the ERs on the mutual funds to match the lower prices of their corresponding ETFs (e.g. 0.07% for VTMGX, 0.05% for VEA).
...
Vanguard does not raise or lower expense ratios, regardless of whether they would prefer their customers to use traditional mutual funds or exchange-traded funds.

Vanguard reports expense ratios after the fact. It's what they already spent during the previous reporting period.

Vanguard raising or lowering ERs to discourage this and encourage that is a common misconception.

PJW
Sure. Just to clarify: they did mention ETFs were cheaper to run for them, which is why they were encouraging customers to use them so that they could benefit from the lower prices.

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newcollegeman
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Re: Insights from Vanguard

Post by newcollegeman » Fri Jun 07, 2019 9:17 pm

We discussed Admiral index funds in the Three Fund Portfolio, the Vg funds in TD & LS funds, and we discussed the lower ER in their equivalent ETFs.

The overall emphasis was that, while Admiral index funds would always be available, the lower cost ETFs appeared to the the future. Yes, bid/ask spread & other hidden costs were noted, as well as the temptation to frequent trades. However, it was clear that more widespread use of ETFs is in the future, certainly inside Vg TD & LS funds.

Cost savings was painted as mutually beneficial. And I suggested that this might be part of how they might try going forward to respond to “lost leader” zero cost funds out of Boston. They smiled.

I do not claim to know all the inside financial dynamics for Vg of such a change. But I can recognize a lower ER when I see it, particularly inside the Vg TD & LS funds!

I hope all this pans out in the end!

newcollegeman

ulladulla28
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Insights from Vanguard

Post by ulladulla28 » Fri Jun 07, 2019 9:33 pm

Speaking of new tech/IT, I just noticed this and I am sure I'm late to the party, but.... VG's new custom report tool link on the statement page is excellent!

jbranx
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Re: Insights From a Long Call With Vanguard Reps Today

Post by jbranx » Fri Jun 07, 2019 10:55 pm

{I edited the OP's topic title slightly to better reflect the insights gained from the call}

esteen
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Re: Insights From a Long Call With Vanguard Reps Today

Post by esteen » Sat Jun 08, 2019 12:09 am

Insightful from OP and newcollegeman, thanks to both of you for sharing what you learned directly from the horse's mouth.

ReedMan
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Re: Insights From a Long Call With Vanguard Reps Today

Post by ReedMan » Sat Jun 08, 2019 1:50 pm

michaeljmroger wrote:
Thu Jun 06, 2019 12:47 am
  • Not exactly surprising but, they agreed LifeStrategy funds aren’t suited for taxable accounts.
Interesting. When I had questions about opening a taxable account, wanting to get more return than high yield savings but also stability, they steered me towards LS funds.

KlangFool
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Re: Insights From a Long Call With Vanguard Reps Today

Post by KlangFool » Sat Jun 08, 2019 2:07 pm

ReedMan wrote:
Sat Jun 08, 2019 1:50 pm
michaeljmroger wrote:
Thu Jun 06, 2019 12:47 am
  • Not exactly surprising but, they agreed LifeStrategy funds aren’t suited for taxable accounts.
Interesting. When I had questions about opening a taxable account, wanting to get more return than high yield savings but also stability, they steered me towards LS funds.
ReedMan,

Which could make sense if your taxable account is small. The distribution/yield of VSMGX is 2.42%.

KlangFool

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arcticpineapplecorp.
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Re: Insights From a Long Call With Vanguard Reps Today

Post by arcticpineapplecorp. » Sat Jun 08, 2019 2:39 pm

michaeljmroger wrote:
Thu Jun 06, 2019 12:47 am
[*]Vanguard PAS lower their fees if you’ve more than $5M with them. I thought the 0.3% was a fixed price.

[/list]
always read the fine print (kudos to vanguard, this last part isn't in mice type):
Keep more of your money with our low costs

Vanguard is founded on the principle that investment companies should make money for their clients, not from their clients. So when we say Vanguard is all about keeping our costs low, it's not just talk. It's embedded in our DNA. It's one of the many reasons we have over 20 million clients. And just as Vanguard is known for keeping costs low, the cost for Vanguard Personal Advisor Services is affordable as well. In fact, the annual cost is only 0.30% of the assets we manage for you. That's $3 for every $1,000 in your portfolio.*

*Lower fees apply to assets under management of $5 million or more. Please call for details.

source: https://investor.vanguard.com/advice/personal-advisor
sounds like they'll cut you a break...but you gotta call to get it!
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

mortfree
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Re: Insights From a Long Call With Vanguard Reps Today

Post by mortfree » Sat Jun 08, 2019 2:55 pm

KlangFool wrote:
Sat Jun 08, 2019 2:07 pm
ReedMan wrote:
Sat Jun 08, 2019 1:50 pm
michaeljmroger wrote:
Thu Jun 06, 2019 12:47 am
  • Not exactly surprising but, they agreed LifeStrategy funds aren’t suited for taxable accounts.
Interesting. When I had questions about opening a taxable account, wanting to get more return than high yield savings but also stability, they steered me towards LS funds.
ReedMan,

Which could make sense if your taxable account is small. The distribution/yield of VSMGX is 2.42%.

KlangFool
Define small please.
< $25k
< 50k
< 100k
Other.

Serious question as my taxable mainly goes to VTI.

KlangFool
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Re: Insights From a Long Call With Vanguard Reps Today

Post by KlangFool » Sat Jun 08, 2019 3:16 pm

mortfree wrote:
Sat Jun 08, 2019 2:55 pm
KlangFool wrote:
Sat Jun 08, 2019 2:07 pm
ReedMan wrote:
Sat Jun 08, 2019 1:50 pm
michaeljmroger wrote:
Thu Jun 06, 2019 12:47 am
  • Not exactly surprising but, they agreed LifeStrategy funds aren’t suited for taxable accounts.
Interesting. When I had questions about opening a taxable account, wanting to get more return than high yield savings but also stability, they steered me towards LS funds.
ReedMan,

Which could make sense if your taxable account is small. The distribution/yield of VSMGX is 2.42%.

KlangFool
Define small please.
< $25k
< 50k
< 100k
Other.

Serious question as my taxable mainly goes to VTI.
mortfree,

Small enough that 2.43% of the taxable account does not generate big taxable income. In my opinion, < 100K.

KlangFool

Nutmeg
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Re: Insights from Vanguard

Post by Nutmeg » Sat Jun 08, 2019 3:54 pm

klaus14 wrote:
Thu Jun 06, 2019 1:41 am
michaeljmroger wrote:
Thu Jun 06, 2019 12:47 am
I had a very long call with Vanguard today. We discussed many different topics and I thought some of the things they said might interest some of you, so here are some of my notes and impressions:
  • Not exactly surprising but, they agreed LifeStrategy funds aren’t suited for taxable accounts.
thanks for sharing. i guess this is because bond distributions.
Could someone please explain this in more detail? It seems to me that a LifeStrategy Fund provides the benefit of automatic rebalancing. Someone who has already retired and has no earned income doesn’t have access to tax-deferred accounts, so taxable accounts are the only option for investing in LifeStrategy Funds. If taxable income is low, the taxability of bond distributions isn’t much of a factor. Are there other considerations I should take into account?

FoolStreet
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Re: Insights from Vanguard

Post by FoolStreet » Sat Jun 08, 2019 4:00 pm

bondsr4me wrote:
Thu Jun 06, 2019 11:04 am
newcollegeman wrote:
Thu Jun 06, 2019 10:00 am
bondsr4me,

I asked if we could come & take the Vg reps to lunch. They thanked me, but said their ethics policy wouldn't allow it. So, we settled for a face-to-face in a conference room at their place. I took the whole family!

Was perhaps the best investment meeting we've ever had. I cannot say enough about the superb care & interest taken. Vanguard has always exceeded our expectations & won multi-generational admiration in our family.

Also, I heard that their Target & LifeStrategy Funds may be moving to ETFs in the next few years, which makes sense in so many ways. Mutual funds will always be there, but adjustments to those all-in-ones that they steward make good sense.

I heard nothing that Jack Bogle wouldn't have liked, other than the words "international bonds"--which we all know his sentiments on & Vg's as well....

Appreciate the OP's insights on Vg,

newcollegeman
Fantastic!! I was unaware they would do face to face meetings at VG HQ!
They aren't that far for me...only about 1 1/2 hours drive.
I like the idea of VG's ethics policy not allowing their reps be put in a compromising situation, even tho' it was only lunch.
Thanks for the info.
According to Wikipedia...

Vanguard's corporate headquarters is in Malvern, Pennsylvania, a suburb of Philadelphia. It has satellite offices in Charlotte, North Carolina and Scottsdale, Arizona.

stan1
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Re: Insights from Vanguard

Post by stan1 » Sat Jun 08, 2019 4:14 pm

Nutmeg wrote:
Sat Jun 08, 2019 3:54 pm
Could someone please explain this in more detail? It seems to me that a LifeStrategy Fund provides the benefit of automatic rebalancing. Someone who has already retired and has no earned income doesn’t have access to tax-deferred accounts, so taxable accounts are the only option for investing in LifeStrategy Funds. If taxable income is low, the taxability of bond distributions isn’t much of a factor. Are there other considerations I should take into account?
It depends on your tax rate (federal and state) for your personal situation and can't be generalized to one size fits all advice. The income from the bonds in LifeStrategy funds is taxed as ordinary income. The LifeStrategy funds also throw off small long term and short term capital gains distributions every year because of bonds. If you are in a 15% or lower federal tax rate and don't have state income tax you are fine. Other retirees might have a 30%+ federal and state marginal tax rate and would want income from a state specific muni bond fund in a taxable account. Some states tax all capital gains as ordinary income.

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nedsaid
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Re: Insights From a Long Call With Vanguard Reps Today

Post by nedsaid » Sat Jun 08, 2019 4:20 pm

Thank you for starting this thread. It gives insight as to Vanguard's thinking.
A fool and his money are good for business.

jcar
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Re: Insights from Vanguard

Post by jcar » Sat Jun 08, 2019 9:11 pm

newcollegeman wrote:
Thu Jun 06, 2019 10:00 am
bondsr4me,

I asked if we could come & take the Vg reps to lunch. They thanked me, but said their ethics policy wouldn't allow it. So, we settled for a face-to-face in a conference room at their place. I took the whole family!

Was perhaps the best investment meeting we've ever had. I cannot say enough about the superb care & interest taken. Vanguard has always exceeded our expectations & won multi-generational admiration in our family.

Also, I heard that their Target & LifeStrategy Funds may be moving to ETFs in the next few years, which makes sense in so many ways. Mutual funds will always be there, but adjustments to those all-in-ones that they steward make good sense.

I heard nothing that Jack Bogle wouldn't have liked, other than the words "international bonds"--which we all know his sentiments on & Vg's as well....

Appreciate the OP's insights on Vg,

I went to the Charlotte location and met with them in the past. They were quite helpful.
newcollegeman

TheDDC
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Re: Insights From a Long Call With Vanguard Reps Today

Post by TheDDC » Sat Jun 08, 2019 11:16 pm

Very interesting commentary. THANKS! I always wondered what kind of info you would get from PAS.

-TheDDC

Northern Flicker
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Re: Insights From a Long Call With Vanguard Reps Today

Post by Northern Flicker » Sat Jun 08, 2019 11:57 pm

Vanguard does not raise or lower expense ratios, regardless of whether they would prefer their customers to use traditional mutual funds or exchange-traded funds.

Vanguard reports expense ratios after the fact. It's what they already spent during the previous reporting period.

Vanguard raising or lowering ERs to discourage this and encourage that is a common misconception.
Agreed. I could however be rather nit-picky and suggest that Vanguard ERs are future estimates just like for other providers but that Vanguard estimates conservatively using the previous 6 months of actual fund administrative expenses as the estimate.
Last edited by Northern Flicker on Sun Jun 09, 2019 12:23 pm, edited 1 time in total.

mmcmonster
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Re: Insights from Vanguard

Post by mmcmonster » Sun Jun 09, 2019 6:01 am

Phineas J. Whoopee wrote:
Fri Jun 07, 2019 2:04 pm
[...]Vanguard raising or lowering ERs to discourage this and encourage that is a common misconception.

PJW
Probably not. But I think that they do discourage sector tilt mutual funds sometimes. How else would you explain VHCIX (Vanguard Health Care Index Fund Admiral Shares) having a minimum investment of $100k while VHT (the corresponding ETF) is currently $170/share?

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Re: Insights from Vanguard

Post by jeffyscott » Sun Jun 09, 2019 8:23 am

Phineas J. Whoopee wrote:
Fri Jun 07, 2019 2:04 pm
michaeljmroger wrote:
Thu Jun 06, 2019 12:47 am
... Vanguard is clearly pushing ETFs. It’s very unlikely they’ll lower the ERs on the mutual funds to match the lower prices of their corresponding ETFs (e.g. 0.07% for VTMGX, 0.05% for VEA).
...
Vanguard does not raise or lower expense ratios, regardless of whether they would prefer their customers to use traditional mutual funds or exchange-traded funds.

Vanguard reports expense ratios after the fact. It's what they already spent during the previous reporting period.

Vanguard raising or lowering ERs to discourage this and encourage that is a common misconception.

PJW
Is it a misconception, though? I believe that Vanguard can choose how to allocate expenses to the different share classes, to at least some extent. I posted the following in another discussion of ETF vs. mutual fund ERs, perhaps you have an explanation as to why in one case the difference in expenses occurs in the "other expenses", while in the other it is the management fee?

Vanguard reports management fee of 0.03% for both VTI and VTSAX. The difference is the other expenses of 0.00% and 0.01%. I'm guessing the 0 other expenses for VTI, means they are less than 0.005% :?: . In any case, the difference there is the other expenses.

OTOH, for VXUS/VTIAX the management fee is 0.07% for the ETF and 0.09% for the mutual fund with 0.02% other expenses for both.

I'm not sure what's included in the management fee and what's included with other, but these two data points indicate that it is possible for the management fee to be the same between the ETF and mutual fund and that it is also possible for the other expenses to be the same (within round off error, anyway). Why those two things don't occur simultaneously in any Vanguard pair, I don't know. Could it be because Vanguard does not want it to, that they want the ETF expenses to be less than mutual fund expenses?
Time is your friend; impulse is your enemy. - John C. Bogle

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Re: Insights from Vanguard

Post by Seasonal » Sun Jun 09, 2019 8:58 am

I wonder if PAS recommendations differ from those of their CFPs
joeschmo wrote:
Thu Jun 06, 2019 1:21 pm
Thanks so much for sharing these. I spoke with Vanguard recently too and here's what I learned:

- Don't do less than 30% stocks bec you need to hedge against inflation (not sure why 30% was the number)
Ben Graham recommended no less than 25% and no more than 75% stocks. Vanguard is just rounding up. Probably because smaller amounts aren't enough to be meaningful.
joeschmo wrote:
Thu Jun 06, 2019 1:21 pm
- Real estate - total US includes 4% REITs anyway and most people have houses so they don't recommend
REITs and home may both be real estate, but they are very different investments. I agree with their non-recommendation.
joeschmo wrote:
Thu Jun 06, 2019 1:21 pm
- Cash - really just short term needs for them (1-2 yrs of expenses; 3-4 is not recommended). 10% is max for most conservative. (Maybe this is because it's in their best interest for you to invest everything possible?)
Cash is not expected to do well given its very low risk and history bears this out.
joeschmo wrote:
Thu Jun 06, 2019 1:21 pm
- Bond allocation - they use 30% ltd term tax exempt, 40% interm term tax exempt, 30% longer
I'd mirror the average maturity/duration of the market. 30/40/30 may well do that. Adjust if you have a specific horizon.
joeschmo wrote:
Thu Jun 06, 2019 1:21 pm
- Reporting - use a trailing 5-year number - anything 6-12 mos is just noise
Five years could just be noise. We don't have enough data to know what is meaningful.
joeschmo wrote:
Thu Jun 06, 2019 1:21 pm
I too was impressed with PAS and my only concern is that they'd of course only be able to recommend Vanguard funds. I also hoped to split things betw Fidelity and Vgd and don't know how that would work if I worked with them.
Every time I've spoken with Vanguard about my portfolio they've recommended selling everything that isn't Vanguard. When I explained why I didn't think that would make sense, they've agreed with me.

Why do you want to split between Vanguard and Fidelity? If it's essential, Fidelity probably has funds that mirror whatever Vanguard recommends.

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Re: Insights From a Long Call With Vanguard Reps Today

Post by fortyofforty » Sun Jun 09, 2019 9:44 am

But Vanguard has the Bogleheads. I don't think Fidelity has anything equivalent. Perhaps there are Fidoheads out there, of which I'm unaware.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | There are many roads to doublin'. | Original Vanguard Diehard

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Re: Insights from Vanguard

Post by grabiner » Sun Jun 09, 2019 9:45 am

klaus14 wrote:
Thu Jun 06, 2019 1:41 am
michaeljmroger wrote:
Thu Jun 06, 2019 12:47 am
I had a very long call with Vanguard today. We discussed many different topics and I thought some of the things they said might interest some of you, so here are some of my notes and impressions:
  • Not exactly surprising but, they agreed LifeStrategy funds aren’t suited for taxable accounts.
thanks for sharing. i guess this is because bond distributions.
It's not just that. If your investment needs change over time, you may need to sell one LifeStrategy fund to buy another one, and pay taxes on all your capital gains. If you hold separate stock and bond funds, you can change your allocation by directing stock dividends to the bond funds, and if that isn't enough, selling only as much stock as you need in order to change allocations. (To do this with a LifeStrategy fund, you would have to give up the simplicity; you could go from 80% stock to 60% stock by selling a quarter of your LifeStrategy Growth to buy a fund fund.)

If you want the simplicity of an all-in-one fund in a taxable account, the Target Retirement funds are better, as they get more conservative over time without the need to change funds.
Wiki David Grabiner

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Re: Insights from Vanguard

Post by grabiner » Sun Jun 09, 2019 9:51 am

newcollegeman wrote:
Thu Jun 06, 2019 2:31 pm
But, there's a migration over to ETFs inside Target & LifeStrategy expected over the next couple of years.
HawkeyePierce wrote:
Thu Jun 06, 2019 4:06 pm
Does this mean the LifeStrategy funds will be more tax efficient?
It wouldn't make a difference in tax efficiency. The LifeStrategy funds have two sources of capital gains: gains distributed by the underlying funds, and gains the funds themselves realize from rebalancing. Switching to ETFs won't affect the rebalancing gains, and with the ETFs a share class of the mutual funds, it won't affect the gains distributed by the underlying funds either.
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Re: Insights From a Long Call With Vanguard Reps Today

Post by retiredjg » Sun Jun 09, 2019 9:52 am

fortyofforty wrote:
Sun Jun 09, 2019 9:44 am
But Vanguard has the Bogleheads. I don't think Fidelity has anything equivalent. Perhaps there are Fidoheads out there, of which I'm unaware.
Now that's an interesting thought. :happy

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Re: Insights from Vanguard

Post by alex_686 » Sun Jun 09, 2019 10:09 am

jeffyscott wrote:
Sun Jun 09, 2019 8:23 am
Is it a misconception, though? I believe that Vanguard can choose how to allocate expenses to the different share classes, to at least some extent. I posted the following in another discussion of ETF vs. mutual fund ERs, perhaps you have an explanation as to why in one case the difference in expenses occurs in the "other expenses", while in the other it is the management fee?

..

I'm not sure what's included in the management fee and what's included with other, but these two data points indicate that it is possible for the management fee to be the same between the ETF and mutual fund and that it is also possible for the other expenses to be the same (within round off error, anyway). Why those two things don't occur simultaneously in any Vanguard pair, I don't know. Could it be because Vanguard does not want it to, that they want the ETF expenses to be less than mutual fund expenses?
This is a misconception. Share level expenses can only be based on expenses associated with that share class. Vanguard has to come up with a plan on how it identifies and allocates the expenses, and then must use that plan for all of its funds. There is not much wiggle room, and that is around some subjective judgments.

"Management" refers to investment adviser the fund hires to run their portfolio. i.e., the portfolio manager. This is one of the few areas where Vanguard has direct control over its expense. It is also the area where fund families make their profits.

All of the other operational expenses tend to be either operational or marketing. Operations is run at cost with no profit. All funds look to squeeze this as hard as possible to lower expenses.

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Re: Insights from Vanguard

Post by BlueCable » Sun Jun 09, 2019 10:12 am

Iridium wrote:
Thu Jun 06, 2019 1:15 pm
Err... They really should post this as a question to the board as part of a portfolio review. A young adult should not be in a position of having to save 30% of income in order to retire. That is about double the typical rule of thumb.
Saving 30% of $70,000 for forty years with 3% real return gets you only around $1.5M, so I'd consider 30% a reasonable, if somewhat conservative, savings rate for a household a bit above the median American household. It's especially reasonable if you do not rely on Social Security for your retirement.

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Re: Insights From a Long Call With Vanguard Reps Today

Post by nedsaid » Sun Jun 09, 2019 10:13 am

fortyofforty wrote:
Sun Jun 09, 2019 9:44 am
But Vanguard has the Bogleheads. I don't think Fidelity has anything equivalent. Perhaps there are Fidoheads out there, of which I'm unaware.
Well, I am a Fidelity customer but I wouldn't call myself a Fidohead. I would say there are a lot of people here with Fidelity accounts and who like Fidelity's range of products and very good customer service.
A fool and his money are good for business.

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Re: Insights From a Long Call With Vanguard Reps Today

Post by columbia » Sun Jun 09, 2019 10:24 am

nedsaid wrote:
Sun Jun 09, 2019 10:13 am
fortyofforty wrote:
Sun Jun 09, 2019 9:44 am
But Vanguard has the Bogleheads. I don't think Fidelity has anything equivalent. Perhaps there are Fidoheads out there, of which I'm unaware.
Well, I am a Fidelity customer but I wouldn't call myself a Fidohead. I would say there are a lot of people here with Fidelity accounts and who like Fidelity's range of products and very good customer service.
I’ve never spoken to a rep from any fund company. Largely because I’ve never had any need to...

How does Fidelity pay for the better customer service? It seems like it must be out of the revenue on all those pricey funds they offer. (Even looking at US equities. I was amazed by the number of funds with an ER more than 0.50%)

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Re: Insights From a Long Call With Vanguard Reps Today

Post by nedsaid » Sun Jun 09, 2019 10:39 am

columbia wrote:
Sun Jun 09, 2019 10:24 am
nedsaid wrote:
Sun Jun 09, 2019 10:13 am
fortyofforty wrote:
Sun Jun 09, 2019 9:44 am
But Vanguard has the Bogleheads. I don't think Fidelity has anything equivalent. Perhaps there are Fidoheads out there, of which I'm unaware.
Well, I am a Fidelity customer but I wouldn't call myself a Fidohead. I would say there are a lot of people here with Fidelity accounts and who like Fidelity's range of products and very good customer service.
I’ve never spoken to a rep from any fund company. Largely because I’ve never had any need to...

How does Fidelity pay for the better customer service? It seems like it must be out of the revenue on all those pricey funds they offer. (Even looking at US equities. I was amazed by the number of funds with an ER more than 0.50%)
Well, that is good old fashioned capitalism. Lots of retail mutual funds have expense ratios of 1.00% or more. My Fidelity Rollover IRA has an expense ratio of 0.14%. It does contain a couple of active funds: a GNMA fund and an International Small-Cap fund. Everything else is indexed. I also rolled my Variable Annuity there and the fees for that are low too.

So you can do low-cost investing at Fidelity, they have an office downturn that I can visit. I met with one of their advisors, we talked about a deferred fixed annuity after looking over my portfolio and the online retirement planner. He even mentioned the new Zero funds. Worthwhile visit, no pressure but it did confirm posts that Fidelity is in the annuity business. I have found their people to be helpful and knowledgeable. But I rarely call them, most everything is done online. You might get a low key pitch for an annuity or wealth management but that is about it. They also have a robo advisor service which is competitive with Vanguard.

Pretty much, there are choices out there. Vanguard has gotten criticism for customer service but they have had a huge influx of cash and are struggling to keep up, I suppose they are typical for a large firm. But from what I am reading, most Vanguard customers have a good experience and Vanguard Personal Advisory Service seems to be good. Fidelity has better customer service and a better website than Vanguard, but it seems Vanguard is plenty good enough. Every company has its problems.
A fool and his money are good for business.

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Re: Insights from Vanguard

Post by jeffyscott » Sun Jun 09, 2019 10:48 am

alex_686 wrote:
Sun Jun 09, 2019 10:09 am
jeffyscott wrote:
Sun Jun 09, 2019 8:23 am
Is it a misconception, though? I believe that Vanguard can choose how to allocate expenses to the different share classes, to at least some extent. I posted the following in another discussion of ETF vs. mutual fund ERs, perhaps you have an explanation as to why in one case the difference in expenses occurs in the "other expenses", while in the other it is the management fee?

..

I'm not sure what's included in the management fee and what's included with other, but these two data points indicate that it is possible for the management fee to be the same between the ETF and mutual fund and that it is also possible for the other expenses to be the same (within round off error, anyway). Why those two things don't occur simultaneously in any Vanguard pair, I don't know. Could it be because Vanguard does not want it to, that they want the ETF expenses to be less than mutual fund expenses?
This is a misconception. Share level expenses can only be based on expenses associated with that share class. Vanguard has to come up with a plan on how it identifies and allocates the expenses, and then must use that plan for all of its funds. There is not much wiggle room, and that is around some subjective judgments.

"Management" refers to investment adviser the fund hires to run their portfolio. i.e., the portfolio manager. This is one of the few areas where Vanguard has direct control over its expense. It is also the area where fund families make their profits.

All of the other operational expenses tend to be either operational or marketing. Operations is run at cost with no profit. All funds look to squeeze this as hard as possible to lower expenses.
In the case of VXUS/VTIAX, it is the management fee that creates the difference in expenses. The management fee is 0.07% for the ETF and 0.09% for the mutual fund. This is the only difference in the ER for this pair, as they list 0.02% other expenses for both.

You indicate that Vanguard has direct control of this part of the ER, this would appear to mean that Vanguard chosen to set the management fee higher for the mutual fund. This is the only reason that the total ER is 2 bp more for Admiral shares than it is for the ETF.

From VXUS summary prospectus:
Image

From VTIAX summary prospectus:
Image
Time is your friend; impulse is your enemy. - John C. Bogle

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Re: Insights From a Long Call With Vanguard Reps Today

Post by yousha » Sun Jun 09, 2019 10:56 am

nedsaid wrote:
Sun Jun 09, 2019 10:39 am
columbia wrote:
Sun Jun 09, 2019 10:24 am
nedsaid wrote:
Sun Jun 09, 2019 10:13 am
fortyofforty wrote:
Sun Jun 09, 2019 9:44 am
But Vanguard has the Bogleheads. I don't think Fidelity has anything equivalent. Perhaps there are Fidoheads out there, of which I'm unaware.
Well, I am a Fidelity customer but I wouldn't call myself a Fidohead. I would say there are a lot of people here with Fidelity accounts and who like Fidelity's range of products and very good customer service.
I’ve never spoken to a rep from any fund company. Largely because I’ve never had any need to...

How does Fidelity pay for the better customer service? It seems like it must be out of the revenue on all those pricey funds they offer. (Even looking at US equities. I was amazed by the number of funds with an ER more than 0.50%)
Well, that is good old fashioned capitalism. Lots of retail mutual funds have expense ratios of 1.00% or more. My Fidelity Rollover IRA has an expense ratio of 0.14%. It does contain a couple of active funds: a GNMA fund and an International Small-Cap fund. Everything else is indexed. I also rolled my Variable Annuity there and the fees for that are low too.

So you can do low-cost investing at Fidelity, they have an office downturn that I can visit. I met with one of their advisors, we talked about a deferred fixed annuity after looking over my portfolio and the online retirement planner. He even mentioned the new Zero funds. Worthwhile visit, no pressure but it did confirm posts that Fidelity is in the annuity business. I have found their people to be helpful and knowledgeable. But I rarely call them, most everything is done online. You might get a low key pitch for an annuity or wealth management but that is about it. They also have a robo advisor service which is competitive with Vanguard.

Pretty much, there are choices out there. Vanguard has gotten criticism for customer service but they have had a huge influx of cash and are struggling to keep up, I suppose they are typical for a large firm. But from what I am reading, most Vanguard customers have a good experience and Vanguard Personal Advisory Service seems to be good. Fidelity has better customer service and a better website than Vanguard, but it seems Vanguard is plenty good enough. Every company has its problems.
I agree. Vanguard is an excellent Company regardless of some minor issues.

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