LED BY FOUNDER John C. Bogle, Vanguard Group introduced the first index mutual fund for ordinary investors in 1976. The fund tracked the S&P 500-stock index and charged 0.43% in annual expenses—a huge sum by today’s standards. Initially, the Vanguard 500 fund was slow to attract investors. But as it took hold through the 1980s and 1990s, Vanguard introduced additional index funds that tracked other parts of the market. By the late 1980s, other major fund companies were also trying to get into the market.
Still, for ordinary investors, Vanguard remains the leading provider of index mutual funds, in part because of its unusual ownership structure. Vanguard is effectively owned by the shareholders of its mutual funds, who are rewarded for their ownership through lower annual expenses. This allows Vanguard to offer index mutual funds with rock-bottom annual expenses. Its exchange-traded index funds also have extremely low expenses, but Vanguard doesn’t enjoy the same dominance in the ETF market, ranking No. 2 behind iShares.
Other low-cost providers of index mutual funds include Fidelity Investments and Charles Schwab, both of which have been using index funds as a loss leader in an effort to attract new investors. Fidelity’s and Schwab’s index funds also have no minimum initial investment, making them an intriguing choice for investors with limited means. To keep up with the world of indexing, visit Bogleheads.org and check out the latest conversations.
While Vanguard dominates the market for index mutual funds geared to ordinary investors, Dimensional Fund Advisors has carved out a niche among financial advisors, who are drawn to DFA’s unique collection of index funds. The strategies employed by DFA funds are heavily influenced by academic research.
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