Vanguard Lowers Mutual Fund Costs

Last Updated Oct 6, 2010 11:59 AM EDT

Earlier this morning, Vanguard announced it was lowering costs on its mutual funds.
Effective today, Vanguard has reduced the minimum amount required to qualify for Admiralâ„¢ Shares to $10,000 for most of our broad-market index funds and $50,000 for actively managed funds, down from the previous $100,000 minimum. Admiral Shares cost significantly less than traditional fund shares, and their expense ratios are among the lowest in the mutual fund marketplace.
The differences in fees between Admiral class shares and Investor class shares can be significant. For example, The Vanguard Total Stock Market Index Fund Investor Class shares have a 0.18% annual expense ratio, while the Admiral Class shares charge only 0.07% annually.

On a $10,000 investment, that amounts to a savings of $11.00 annually. Assuming a seven percent annual return, that would equate to over $200 in savings over a ten year period, for every $10,000 invested.

Conversion to Admiral class shares will take place without triggering a taxable event as the investor's cost basis will remain unchanged. Vanguard's public relations principal, Rebecca Katz, says this will lower costs for about two million investors.

Last year, Schwab announced index funds with expense ratios as low as 0.09% annually, though no minimum investment is required to achieve these fees.

With Morningstar's study showing that expenses are even a better predictor of performance than their star rating, Vanguard's announcement is more good news for investors.

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