My first investment in the Vanguard 500 Index Fund appears to have been in 1993. It appears in my spreadsheet as “Vanguard Index Trust,” so that must have been the name it was called in Vanguard statements. At some point, Vanguard began mentioning the Vanguard Total Stock Market Index Fund in literature, suggesting it as a possibility for investors who wanted to own the market. It tracked the Wilshire 5000.
My motivation for buying the Vanguard 500 Index Fund in the first place had been to hold the whole market and not to pick stocks, so I was mildly interest, 5000 being a bigger number than 500 but, to the best of my recollection, at the time the expense ratio for 500 Index was something around 0.20%, and something around 0.50% for Total Stock. My recollection is that the reason I was aware of the expense ratios was that Vanguard made a point of mentioning them in its short blurb about the two funds.So I decided to give it a pass, because 0.50% is a bigger number than 0.20%.
I wasn’t thinking about a small-cap premium or anything like that, and I wasn’t really sensitive to costs, either. Netscape Navigator didn’t launch until about 1994, and my home internet service wasn’t good enough to make much use of it. I believe Schwab was the first major broker to launch a website. Vanguard launched theirs in December, 1995, Morningstar in 1997. There were probably financial forums on CompuServe or USENET or BBSes but I wasn’t following them.
Expense ratios were discussed in print media but I wasn’t consuming a lot of investment writing then. If I had, though, I’d have been aware that expense ratios above 1% were the norm for mutual funds. So 0.50% wasn’t a huge
I find that in 1991 Kiplinger’s was saying (my underlining)
STEP 6 Keep costs low. Look for funds with belowaverage expense ratios. The average expense ratio for U.S. diversified stock funds is 1.37%, according to Investment Company Data Inc. Funds levy fees on shareholders for costs of managing the fund. These costs, plus 12b-1 fees, are called the annual expense ratio.A 1% ratio means the fund keeps $1 for every $100 you have invested. Expense ratios are expressed in the tables as dollars per $100 in assets. Costs are important, especially over the longer term. A fund with a high expense ratio has to achieve higher returns each year to match the returns of a similar fund with lower costs.
Among the top-performing no-load aggressive-growth funds, Twentieth Century Ultra, with an annual expense ratio of 1%, beats Robertson Stephens Emerging Growth (1.88%). And among top growth-and-income funds, Financial Industrial Income (0.76%) has an advantage over Monetta Fund (1.50%).
Low expense ratios are especially important for bond funds and moneymarket funds, which generally deliver more modest returns than stock funds. “There are no star managers in the fixedincome field, ” notes Sheldon Jacobs, publisher of No-Load Fund Investor newsletter. Because their expenses are frequently lowest, the Vanguard bond funds merit extra attention. Expense ratios for all of Vanguard’s tax-free bond funds are 0.25% a year, while those of its taxable bond funds range from 0.21% to 0.41%. The average expense ratio for all bond funds is 1.03%.
