Lower TDF fees? That's the Vanguard touch

June 4, 2021

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In 2009, the average target-date fund (TDF) investor spent 1.03%1 of every dollar invested on fees. Today, that investor pays just 0.52%, a dramatic drop of nearly 50%.

Many forces led to those savings. We're proud to say Vanguard is one of them. That's not us talking. That's the sentiment of leading research firm, Morningstar.

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Today, the average Vanguard TDF participant pays just 0.09%, among the lowest fees in the industry. In the last decade, TDF fees have fallen so far that you may be wondering whether Vanguard will try to sustain this advantage. The answer is yes.

At Vanguard, we don't lower costs in response to competition. We lower costs because it's central to our core identity as the only investment firm in the industry owned by our investors.3 We don't have to worry about our stock price or private shareholders. Vanguard founder Jack Bogle structured the company in this innovative way so that we have only one mission—to create wealth for our clients, and only our clients.

When you invest with Vanguard, you can feel confident that every decision we make is driven by our desire to help you achieve financial well-being for your participants and fiduciary well-being for you.

We innovate to improve your outcomes

Reducing fees is just one way we strive to help TDF participants build their account balances so that they can retire with the income they need for the retirement they want. We constantly seek ways to improve outcomes for our TDF participants and plan sponsors with:

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  • Long-term, risk-adjusted performance that consistently ranks Vanguard Target Retirement Funds in the top 25% of the industry.4
  • Glide-path design that focuses on giving our participants the best chance of generating lasting retirement income.
  • Constant testing to identify improvements to our target-date fund glide path and our investment management methodology, providing a level of due diligence that can help plan sponsors fulfill their fiduciary responsibilities and defend their decisions to investment committees.
  • We've cut fees while innovating and without sacrificing performance. Since 2006, we've added asset classes to our glide path multiple times, giving or increasing investors' exposure to emerging market stocks, international equity and fixed income, and short-term inflation-protected securities. As a result, Vanguard Target Retirement Funds are the most diversified target-date product on the market, representing 89% of the world's liquid, investable asset classes.5 This innovation has helped our funds continue to be top performers while reducing volatility.

    Investors affirmed our value by making us the industry leader in assets under management.6 We're immensely proud of helping our 15 million participants keep more of what they earn, but what we do for you is just as important as why. We do it because we believe that putting the unique needs of our investors first is the right thing to do.

    Our funds meet your needs, not the other way around

    A look at the history of TDF fees shows how early we put a stake in the ground to save you money. In 2009, when the TDF expense ratio was 1.03%, ours was just 0.20%, a massive savings of 80%. In 2013, the push for lower fees gained momentum when the U.S. Department of Labor emphasized that plan sponsors should be sure to understand expenses and ensure they were appropriate for the services provided.

    Fees continued to fall consistently and quickly. One force driving lower fees is the growing popularity of index-based TDFs. We started our TDF franchise in 2003 with our world-class, low-cost index funds because we believed they best capture market risk and returns at the lowest possible cost, giving participants the best chance of generating lasting retirement income.

    We believe that many other providers began introducing index-based TDF products to lower fees in response to competitive and regulatory pressure. That's exactly the opposite of how Vanguard did it. We started by asking how we could best help participants save enough to retire. Then we developed TDFs to meet those needs.

    From the start, Vanguard has worked to lower fees on our Target Retirement Funds

    Vanguard target retirement client fees
    We lower fees as assets grow and create efficiencies of scale.

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    Source: Vanguard data from December 31, 2003 to December 31, 2020. Franchise assets include Vanguard Target Retirement Funds and Trusts.

    Lower costs have played a recurring role in helping our participants save enough to retire by enabling them to keep more of what they earn. In December 2020, we built on our time-honored tradition of cutting fees when we announced lower minimums for Vanguard Institutional Target Retirement Funds, saving participants an estimated $16 million.7 Predictably, a competitor soon followed. Morningstar cited the reduced minimums for "pushing the fee war for target dates into a new arena."

    We did it again in March of this year by lowering fees on our Target Retirement Trusts by 5% to 10% across the board, helping our clients keep an estimated $20 million more of what they earned.8

    Since 1975, all Vanguard investors combined, have saved an estimated $140 billion9 by paying less in fees than those who paid the industry average.

    What does $140 billion mean to us? It's a number that inspires us every day to work toward our mission of taking a stand for all investors, to treat them fairly and to give them the best chance of investment success. And it's a number that can inspire confidence in plan sponsors and participants that Vanguard is on your side.

    At Vanguard, you can do more than invest with us. You can believe in us.

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    1 Source: Morningstar, 2021 Target-Date Strategy Landscape report. Figures are average asset-weighted expense ratios from December 31, 2009, through December 31, 2020.
    2 Source: Morningstar 2021 Target-Date Strategy Landscape report.
    3 Investor-owned means that fund shareholders own the funds, which in turn own Vanguard.
    4 Morningstar 2021 Target-Date Strategy Landscape report.
    5 Sources: Vanguard and FactSet, March 31, 2021. Broadest global diversification is determined by comparing the global liquid market coverage across target-date fund providers.
    6 Sources: Vanguard and Morningstar, as of March 31, 2021.
    7 Estimated savings is the difference between the Investor TDF Acquired Fund Fees and Expenses (AFFE) and the Institutional TDF AFFE multiplied by eligible assets. Estimates of eligible assets were provided by the IIG and FAS businesses during the second quarter of 2020 and were updated to reflect market performance during the remainder of 2020. The final estimate was discounted to remain conservative given that not all eligible assets would immediately transition to the lower-priced Institutional TDF series.
    8 Estimated savings is the difference between the previous and current expense ratios multiplied by eligible assets. Estimates of eligible assets were provided by the IIG business in January 2021 based on year-end 2020 data.
    9 Source: Vanguard. Data is for U.S.-only funds as of December 13, 2019. Cumulative savings for Vanguard investors is calculated by taking the difference between Vanguard's asset-weighted expense ratio and the industry asset-weighted expense ratio for each year, multiplying that by Vanguard's assets each year, and then adding together the results for all years from 1975 through 2019.

    Notes:

    • For more information about Vanguard funds, call 800-523-1036 to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing.
    • All investing is subject to risk, including the possible loss of the money you invest. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income. Diversification does not ensure a profit or protect against a loss.
    • Investments in Target Retirement Funds and Trusts are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the workforce. The fund/trust will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in a Target Retirement Fund or Trust is not guaranteed at any time, including on or after the target date.
    • The Vanguard collective trusts are not mutual funds. They are collective trusts available only to tax-qualified plans and their eligible participants. The collective trust mandates are managed by Vanguard Fiduciary Trust Company, a wholly owned subsidiary of The Vanguard Group, Inc. Investment objectives, risks, charges, expenses, and other important information should be considered carefully before investing.