Vanguard to Help Educate Consumers on Investment Cost

Full throttle web and social media campaign planned by the company

Cost-conscious consumers regularly decry the high cost of gas, food and airline tickets, but too few understand the costs associated with their investments. Sure, advisors understand the toll fees take on a portfolio over time, but getting the word out to the general public has always been hard.

In order to help, Vanguard announced Monday that it planned to use a new online cost calculator, social and traditional media channels, and online ads to educate investors about how to pay attention to the price tag of their investments.

“The less investors pay in expenses, the more of their returns they can keep, and that can compound over time,” Tim Buckley, managing director and head of Vanguard’s Retail Investor Group, said in a statement. “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.”

According the company, its 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,” Buckley added. “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 offer 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 Vanguard 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 nonfinancial venues, including on consumer websites like Travelocity.com, Autotrader.com, and Amazon.com, as well as in airports, subways and movie theaters. 

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