Not All Low Costs Are Equal

Jack Bogle of Vanguard on Low Costs

I came across this article on low costs. It discusses how low costs are continuing to change the landscape of the financial industry. This article discusses some beliefs from one of the largest figures in the low cost movement. A little over 40 years ago Jack Bogle founded Vanguard (one of the funds our firm uses) and has been disrupting the financial industry ever since. 

In this article Jack states he believes even though other companies are starting to have low costs, it wont be enough. This is because he believes the way they are set up will not allow them to continue to have low costs. Most of Vanguards competition are publicly traded companies. This means not only are they trying to make their customers money, they are trying to make money for their own investors too. This becomes a difficult balancing act for these money manager. It forces them to try to “serve two masters”. Customers will want low costs, but investors in the company will want revenue, which coincidentally comes from costs.

A Different Kind of Ownership

Vanguard (and Dimensional Funds who we also use in our models) are privately owned or owned by their investors. This type of ownership allows them to maintain lower costs because they don’t need the excess profits to pass to stockholders of the company. They are better able to focus their time and attention on their clients and helping them receive a better rate of return. 

The Result

Whether Bogle is right or wrong about his competition, he brings up a good point. Not all cost low cost is the same. We at Mills Wealth Advisors believe that costs are important, and are one of the best indicators of future performance. That is why we build our investment models with low cost funds to help our clients reach their financial goals. 

If you would like to read the article, CLICK HERE


If you would like to know why we use Dimensional Funds and Vanguard, CLICK HERE