Vanguard Group

• Date founded: May 1, 1975
• Industry: Investment management
• Corporate Headquarters: Malvern, Pennsylvania
• Type: Private

Overview

The Vanguard Group is an American investment firm founded by John C. Bogle in May 1975. The Pennsylvania-based company managed more than $9.3 trillion in assets in 2024 with a unique ownership structure, making its investors ultimately its owners. Salim Ramji assumed leadership of Vanguard's executive team in July 2024, as chief executive officer (CEO). The company is one of the primary providers of mutual funds and ranks near the top in exchange-traded funds (ETFs). The company also offers services for asset management, educational accounts, trusts, brokerage, annuities, and financial planning. Vanguard’s physical assets include its main office outside of Philadelphia, US satellite offices in Arizona and North Carolina, and international offices in Asia, Australia, and Europe. By 2024, it employed about 20,000 people worldwide and processed investments for approximately 50 million investors in more than 170 countries.

History

The Vanguard Group was founded by Bogle in 1975, but the company’s origins can be traced back a few years earlier. While working at the Wellington Fund between 1951 and 1974, Bogle started a passive fund, an investment fund that was not managed by an investment advisor. Instead, its value was attached to and mirrored the performance of another fund. Bogle mirrored his fund from the Standard & Poor’s 500, also known as the S&P 500, a stock index based on the market values of the 500 largest publicly traded companies in the United States.

Bogle named the fund Vanguard. He took the name from the ship used by British Vice-Admiral Horatio Nelson in a battle against French forces under command of Napoleon Bonaparte in 1798. The name comes from the French words avant, meaning “before,” and garde, meaning “guard.” The French term avant-garde, of which vanguard is a variant, came to mean “ahead of the others” or “in the forefront.” This became representative of the way Bogle envisioned the new investment management fund.

The initial fund at Wellington was low-cost, setting the stage for the way Bogle structured the Vanguard Group. Most mutual fund companies have outside investors or stockholders who have a vested interest in how much money the company makes. This increases costs and reduces the amount of return seen by those who purchase the funds. Bogle established a different model, one in which the investors own the funds and the funds own the company. This essentially means that the stockholders own the company. Vanguard was the first mutual fund company to operate in this way. By the end of its first year in operation, this client-owned, no-sales commission model resulted in Vanguard managing about $1.7 billion in client assets.

Through Vanguard, Bogle established the first index fund for individual investors in the United States in 1976. Previously, index funds had only been available to institutional investors such as insurance companies and pension groups. Index funds are mutual funds tied to a specific aspect of the financial market, such as the S&P 500. They are diversified, making them lower risk, and are also low-cost. In 1986, Vanguard introduced American investors to the first bond index fund for individual investors. These are funds that invest in bonds instead of stocks or other financial vehicles.

The first stock index funds for international investors were made available through Vanguard in 1990. Six years later, the company opened its Australian office. Offices in Tokyo and Singapore followed in 2000 and 2003, respectively. The company’s Asia Pacific headquarters in Melbourne, Australia, was established in 2005.

The London office opened in 2008, followed by Vanguard Investments UK, Ltd. in 2009. The company’s Canadian offices opened in 2011. By 2024, Vanguard’s offices offered an approximate combined 208 funds in the United States, and around 215 funds internationally.

Impact

Vanguard investors own the funds that in turn own the company. This makes the people who invest in the funds the owners of the company. Unlike traditional stockholders in a company, the investors do not have a say in operational aspects of the company, such as its leadership or operational strategies. However, this model means that all the company’s profits directly benefit the clients who invest through Vanguard, not outside investors or stockholders.

Vanguard’s client-owned model helps keep costs down for investors because the company does not have to meet the financial expectations of outside investors or shareholders. Its clients are its shareholders. This results in more of the income generated by investments staying with the people who are investing. Some experts have suggested that on a $50,000 investment, the policies used by Vanguard could save as much as $24,000 in fees over a twenty year period.

This model impacts not only the individual investors but the investment community as a whole. The need to compete with the no-commission, low-cost model encourages other companies to hold their rates down as well, potentially making investing less expensive for all investors.

Vanguard has also taken other steps that affect the profit for its investors and the investment market as a whole. For example, in 2018, it announced that it was going to eliminate fees for all ETF transactions on their own trading platform. It was hoped this move would make the investment trading industry re-evaluate its policies and procedures in order to compete.

By 2024, Vanguard was the world’s largest issuer of mutual funds and second-largest issuer of ETFs, and some experts theorized this move could alter the way ETFs and NTFs (no transaction fee mutual funds) are traded. The company’s business model and success have effectively changed the course of investing. Bogle retired in 1996 and died in early 2019. Since his retirement, the company’s management continued to follow his model and seek innovations in investing.

Bibliography

“About Vanguard.” Vanguard, corporate.vanguard.com. Accessed 9 Jan. 2025.

Edwards, John. “How Vanguard Index Funds Work.” Investopedia, 8 Nov. 2024, www.investopedia.com/articles/investing/111715/how-vanguard-index-funds-work.asp. Accessed 9 Jan. 2025.

Edwards, John. “Who Owns Vanguard Group?” Investopedia, 30 Aug. 2024, www.investopedia.com/articles/investing/110515/who-are-owners-vanguard-group.asp. Accessed 9 Jan. 2025.

“History of Vanguard.” Vanguard Investments Australia, 2022, www.vanguardinvestments.com.au/retail/ret/about-us/history-of-vanguard.jsp. Accessed 9 Jan. 2025.

“John Bogle, Founder of Vanguard, Dies at 89.” Associated Press, 17 Jan. 2019, www.apnews.com/907bdb692d6e4b368118066de547076c. Accessed 9 Jan. 2025.

Sloan, Allen. “How Vanguard’s Decision to Forgo Profit Has Paid Off for Investors.” Washington Post, 15 Sept. 2016, www.washingtonpost.com/business/economy/how-vanguards-decision-to-forgo-profit-has-paid-off-for-investors/2016/09/15/87eb7940-7b65-11e6-ac8e-cf8e0dd91dc7‗story.html. Accessed 9 Jan. 2025.

Steinberg, Marty. “Jack Bogle, Founder of Vanguard Group and Creator of the Index Fund, Dies at Age 89.” CNBC, 17 Jan. 2019, www.cnbc.com/2018/12/14/jack-bogle-founder-of-vanguard-group-and-creator-of-the-index-fund-dies-at-age-89.html. Accessed 9 Jan. 2025.

“Vanguard Company Overview and News.” Forbes, Aug. 2024, www.forbes.com/companies/vanguard/. Accessed 9 Jan. 2025.