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Monday, March 12, 2012

Vanguard and the 5x Phenomenon

Reported by Armie Margaret Lee

First came Vanguarding. Now the folks at Valley Forge have coined a concept called the "5x Phenomenon."

The idea, according to a press release Vanguard issued today, is if consumers would not shell out five times more than they have for a car, a vacation or a book, why would they do so for a mutual fund?

Vanguard is running ads on consumer-centric Web sites such as Travelocity.com, Autotrader.com and Amazon.com, and at airports, on subways and in movie theaters.

The firm is also dispatching what it calls an "At-Cost Cafe" truck in four major Eastesrn cities. The truck will sell coffee at 1/5 the average price.

To help individuals better understand the role that cost plays in a portfolio, Vanguard has unveiled an online calculator that allows users to compare thousands of funds and ETFs. Vanguard is also tapping social media channels to educate consumers.
Company Press Release

Vanguard Steps up Efforts to Raise Awareness on Big Impact of "Small" Costs

VALLEY FORGE, Pa., Mar 12, 2012 -- Most consumers would balk at being asked to pay five times more than they need to: $40 for a movie ticket? $18 for a gallon of gas? $125 for the latest best-seller? Yet, many individuals don't realize that they may be doing just that when it comes to investing. Vanguard plans to use a new online cost calculator, social and traditional media channels, and online Vanguarding ads to educate investors about how they could save thousands of dollars simply by paying attention to the price tag on their investments.

"The less investors pay in expenses, the more of their returns they can keep, and that can compound over time," said Tim Buckley, managing director and head of Vanguard's Retail Investor Group. "Americans need to save more overall to reach their long-term financial goals, and spending less on their investments automatically boosts the amount they can set aside."

Vanguard research shows that a 25-year-old hypothetical investor who contributes 9% of a $30,000 annual starting salary (changing over time*) to a balanced fund with expenses of 1.25% would be, at retirement, roughly $100,000 behind someone investing in a portfolio with expenses of 0.25%. All other things being equal, by choosing a fund that's five times more expensive, an investor would forgo 20% of a portfolio's value over a 40-year career.

"The missed opportunity for investors is that a couple of basis points may not seem significant on the surface," said Mr. Buckley, "but, in the words of Benjamin Franklin, 'a small leak will sink a great ship.'"

To help investors easily see the role of cost in a portfolio, Vanguard has introduced an online calculator that enables them to compare thousands of funds and ETFs, determine how much money they can save over time, and identify low-cost alternatives.

Vanguard is also using its website and social media to help educate investors about mutual fund costs. Among these efforts, several contributors to the Vanguard Blog will describe how the concept plays out in real life. For example, Vanguard manager Charu Gross, who blogs about her own experiences as a young investor, will post about how, unlike in other areas of our lives, price doesn't correlate with quality when it comes to investing. In coming weeks, retirement thought leader John Ameriks will blog about the "double whammy" impact of costs on a retiree's income stream and principal balance.

Vanguard's Facebook page and Twitter feed will also serve up unique and thought-provoking ways to promote cost-consciousness among its more than 100,000 fans and followers.

To encourage consumers to understand that costs matter in their investment lives, new Vanguarding ads will introduce the concept of the "5x Phenomenon." If consumers wouldn't pay five times more than they have to for a car, a vacation, or a book, why would they do so for a mutual fund? Ads will run in non-financial venues, including on consumer websites like Travelocity.com, Autotrader.com, and Amazon.com, as well as in airports, subways, and movie theaters. Also as part of the campaign, an "At-Cost Cafe" truck will demonstrate the impact Vanguard's at-cost advantage by selling coffee at 1/5 the average price in four major Eastern cities during two-day intervals over the coming weeks.

Vanguard introduced the concept of Vanguarding in 2010 with a comprehensive campaign to highlight the company's uniqueness in the investment management marketplace and to promote the investing best practices that it has emphasized since commencing operations in May 1975. Vanguarding is all about going beyond just investing by following sound investment principles, investing at-cost, and partnering with a client-owned firm.

About Vanguard

Vanguard, headquartered in Valley Forge, Pennsylvania, is one of the world's largest investment management companies. Vanguard manages nearly $1.7 trillion in U.S. mutual fund assets, including nearly $200 billion in ETF assets. Vanguard offers more than 170 index and actively managed funds to U.S. investors and more than 70 additional funds in non-U.S. markets. For more information, please visit vanguard.com.

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