Vanguard expense-ratio cuts to save investors $350M this year, firm says

Vanguard slashed expense ratios on hundreds of mutual funds and ETFs — amounting to what the firm said is the largest cost cut in its history at over $350 million in investor savings this year.

Using average figures that weren't weighted by assets, the expense ratios of the affected 168 mutual funds and ETF share classes across 87 funds will drop to 9 basis points from 11 bps, according to the firm. On a per share class basis, the reductions will push down the cost by an average of 20%. In its Feb. 3 announcement, Vanguard paid tribute to its late legendary founder and included a footnote with boilerplate language indicating that its estimate of more than $350 million in savings for 2025 didn't guarantee that every single investor would realize them and that it was a prospective number calculated by the firm.

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"Jack Bogle founded Vanguard in 1975 with a simple purpose — to design an investor-owned company that would serve a single constituency, our clients," Vanguard CEO Salim Ramji, the veteran ex-BlackRock executive who took over the role last year, said in a statement. "We're focused on creating value for our investors, not extracting value from them. We're proud to build on Vanguard's legacy of lowering the costs of investing — which we have done more than 2,000 times since our founding — by announcing our largest ever set of expense ratio reductions. Lower costs enable investors to keep more of their returns, and those savings compound over time."

Vanguard has led the movement toward lower investment fees that has forced average expense ratios to fall by more than 50 bps across stock and bond mutual funds and ETFs since 2000 and given it, BlackRock, Fidelity Investments and State Street their dominant positions in a commoditized and highly competitive asset management marketplace. The competition to lower fees — the so-called race to zero — is also causing asset managers that are synonymous with passive index funds to embrace more active-management products and tax-focused technology and services that deliver lower payments to Uncle Sam alongside investment gains.

Under its latest expense-ratio cuts, Vanguard is shrinking the prices by between 1 and 6 bps across index and active products targeting many different types of assets and strategies. Its index ETFs and open-end funds carry average costs of 4 to 5 bps in equities and fixed income, while the mean ratio for money-market products is 0.10%. While those figures may look like tiny rounding errors compared to investors' often-biased expectations, Bogle and others have long decried the impact of higher fees on returns.

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For example, if an investment portfolio grows at a conservative rate of 4% annually over two decades, yearly fees of 50 basis points puts a dent of $10,000 in the value when compared to a cost of 25 basis points, and a 1% expense ratio reduces it by almost $30,000, according to a guide on the Securities and Exchange Commission's Investor.gov website. 

Transaction fees, commissions, sales charges called "loads," markups, surrender penalties, distribution costs or ongoing advisory fees, among other possible expenses, can hit investors outside the ratio, too.

"Along with the other factors you think about when choosing either an investment professional or a particular investment, be sure you understand and compare the fees you'll be charged," the guide said. "It could save you a lot of money in the long run."