Dam right you can, and I have just done it. Let’s talk about how and why I invested with Vanguard.
So…..Why Vanguard?
Well I’m a bit of a latecomer to the whole Index investing and passive inverting, and to say it’s blown me away would be an understatement. Been the eternal tight ass that I am, I spent a lot of time researching the practice, before I threw my cash at it.So let me share with you a brief synopsis about what I’ve found and what I’ve done so far.
I know what killed my dreams….. It was the fees!!!!
No matter what I’ve read in this space, everything seems to come full circle back to fees and the fact that in order to make money you must reduce fees at all cost!! No matter how good the manager of your selected fund is, your profits over time will be consumed by fees. They may not devour all your profits but they will put such a dent in them that you might find yourself having to work 5-10 years longer than you would have if you were invested in a Passive fund. Fees eat into your compounding returns with devastating consequences, and must always be reduced as much as possible.
Ok, fees, bad.. Got it.
“But that’s ok, my Managed Fund out performs the market so it doesn’t matter,” I told myself
Sorry my friend but they won’t, and definitely not over the long term.
Only a teeny tiny percentage of managed funds will beat the market and if they do best the market, your percentage of the profits will be whittled away by management fees, administration fees and any number of other fees that may be hidden within your account.
According to the Morningstar web site there are more than 10,000 ‘active’ funds based in Australia and New Zealand. Of that 10,000 less than 10% have outperformed the market, and that percentage drops even more when you look at consistency over the low term.
99% of actively managed US equity funds underperform and fail to beat their benchmark since 2006:Financial Times
So where did this new found knowledge leave me? It left me pursuing low fee passively managed index funds which inevitably lead me to Vanguard. There’s no bigger player in the low fee index fund arena than John C. Bogle and his Vanguard group.
Average cost of a Managed fund is 2 to 3% per annum you can get a Vanguard EFT for as little as .04% per annum, compounded this can save us thousands of hard earned Dollar-Reedoos
For 50k this would be $1000 to $1500 a year compared to only 20 bucks for Vanguard Option
There are 3 basic ways to invest with Vanguard for us living in Australia. The first 2 are through the Vanguard website by investing in their Wholesale or Retail managed funds, we will talk about those two in a sec. The third way to invest is by buying ETF’s via your preferred brokerage platform, be that a traditional broker or one of the many online ones.
What way did I go and why….
The Retail Fund has a relatively low start-up amount of 5k, and a very low minimum deposit of just $100, which can be done via BPAY making it nice a simple. This way you can setup a monthly or weekly automated bank transfer putting your savings on autopilot, set and forget.
The next method ramps up a notch, the Wholesale Fund option with the minimum investment of $500,000, that’s right 500k. Do you have $500,000.00 to invest? well I sure don’t, so the Wholesale option is out right?
Well maybe not, I have saved my little jocks off over the last decade, and had 100,000 Dollar-Reedoos to my name that I wanted to invest with Vanguard. So I called them up and after a short conversation with one of their team they allowed me to open a Wholesale Account. Not bad just saved myself .17% P.A on fees, and as we all know by now fees are the devil. There is a downside for me tho as my minimum deposit has to be 5k, and for someone wanting to invest every month to take advantage of dollar cost averaging this is a little step, but where there’s a will there’s a way. Instead of monthly my deposits I may have to go for quarterly or every other month, we will see.
Wholesale Basic Summary
Vanguard Australian Index Fund
| Minimum Investment | Minimum Deposit | Fees | Spread |
| $500,000.00 | $5,000.00 | .18% p.a | 0.10% |
Retail
Vanguard Australian Index Fund (Up to 50K investment*)
| Minimum Investment | Minimum Deposit | Fees | Spread |
| $5,000.00 | $100.00 | .75% p.a | 0.10% |
*Note These are the fees for up to $50,000 invested. The rate drops as your total invested raises
.50% for 50k to 100k, and .35% for 100k and beyond.
Now if you have a small amount to invest or you wish to invest a single lump sum amount maybe investing though ETFs may suit you more. Vanguards ETF have the some of the lowest annual fees around with the Vanguard US Total Market Shares Index ETF (ASX:VTS) having only a .04% p/a fee. However you will need to take into consideration your brokerage fees and add that on top. Brokerage can cost around $20 a trade so for that reason I wanted to go with one on the Funds offered on the Vanguard site itself.
That’s my down and dirty quick overview of what led me to dropping 100k into Vanguard Wholesale Funds, Australian Shares Index Fund, and International Shares Index Fund.
National,