In an industry that has seen its share of fads, Vanguard has long stood as a symbol of low costs and plain-vanilla products. Founded by John Bogle in 1975, the Vanguard Group is now the second largest mutual fund complex in the United States and has inspired a loyal following among many of its shareholders.

Low-cost funds have been Vanguard’s hallmark— and one of its main rallying cries within the industry. Its ability to provide funds with low expense ratios depends on the company’s unusual business model. In the Vanguard Group, the management company is actually owned by shareholders of its member funds. (The typical arrangement is to have the management company contract with the fund; in such an arrangement, the shareholders of the management company have little relationship to those of the funds.) The Vanguard Group provides the family’s funds with management, administrative duties and marketing on an “at-cost” basis. The Vanguard Group also contracts out investment advice for most of its actively managed equity funds to third parties such as Wellington Management Company, LLP, at relatively low fees.

FundsVanguard’s emphasis on low costs has gone hand in hand with its allegiance to index fund investing. Oneyear after founding the company, Bogle opened what has become the largest or second largest U.S. mutual fund, the Vanguard 500 Index Fund. Much of the fund’s growth came in the mid-1990s when a seemingly tireless bull market among large-cap stocks helped fuel the relative outperformance of the Standard & Poor’s (S&P) 500. During those years, Vanguard was situated ideally for the explosion of interest in S&P 500 index funds, which became a core building block in the portfolio of many investors. Over the years, Vanguard has introduced a wide range of index funds that track everything from the entire U.S. stock and bond markets to foreign markets to specific investment styles such as growth and value. Although Vanguard offers actively managed funds, it has championed index funds as an investment strategy.

In November 2000, Vanguard took its emphasis on cost even further by introducing a new share class called Admiral, which is intended to reward long-time, large- dollar investors with fees even lower than the normal Vanguard fund. To qualify for the lower-cost structure, shareholders must meet one of the following descriptions: possess an account balance of #250,000; possess an account balance of at least $150,000, have established the account at least three years ago and be registered for online account access at the company’s website; or possess an account balance of at least $50,000, have established the account at least 10 years ago and be registered for online account access at the company’s website.

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