If you like credit unions and are looking for an investment firm, check out Vanguard!
Disclaimer: We are not financial professionals, and this article is intended only to educate and inspire, not to provide specific advice about your specific personal financial situation (so don’t call the lawyers). Also, Vanguard isn’t paying us or anything for writing this article; we’re just big fans.
Part 6 of “How to Invest – Safely and Smartly – During the Retirement Years”
I have always been interested in managing money, even as a kid. Don’t make fun of me, but some of my most cherished childhood memories involved getting my first savings account passbook and then seeing each new stamp there when I’d make a deposit. It wasn’t about the total getting larger for its own sake, but because it meant that I was that much closer to getting what I was saving up for. I think I got this trait from my Mom, who also tends to keep her eye on the ball, on what the real focus is, without getting too distracted.
Forward to 2008, my 30-year-old self had had a retirement investment goal and strategy in place for almost 10 years already (but not always the means to fund it, being a grad student most of that time). So when the financial crises happened, I was relatively calm and knew I could weather even that major shit storm of Wall Street malfeasance. No one made it out unscathed, not even me, but I did far better than most and a big part of that was because I had decided – after very careful deliberation and research – that Vanguard was a great match for me and my investment needs.
I discovered Vanguard while attending a liberal arts college just outside of Philadelphia. It was much smaller then, of course, just a small investment firm on the outskirts of Philly. But its core values and co-operative organizational structure have remained the same, even after its surge in popularity after the 2008 financial crisis (for all the reasons I first started investing with them).
Introduction to the Vanguard Group
Founded in 1975 by John C. Bogle, The Vanguard Group is a mutual fund investment firm organized in a co-operative way, similar to a credit union. It is owned by its funds and their shareholders, like me. There are no separate, outside owners who demand profits. This means that it can operate at cost.
Long-Term, Sensible Investment Philosophy
Vanguard’s investment philosophy focuses of four pillars: Goals, Balance, Cost, and Discipline.
Most people are investing for a reason, like retirement or to put a down payment on a house. So before deciding where to invest your money, you have to have investment goals. They have to be clearly defined, measurable, and realistic.
From balance springs the ideas of proper asset allocation and diversification. With an eye toward your investment goals, you should seek to balance risk and potential returns.
With investing, there are things you can control and things you can’t. For example, markets can be crazy and unpredictable. But keeping more of your cash by keeping your costs as low as possible is well within your control. You can also keep more of your returns by being as tax efficient as possible.
Keeping calm in the face of a major financial crisis, like the one back in 2008, isn’t easy. But for optimal investing success, you have to discipline yourself to stay your course through periods of market craziness. If you’ve set your goals, made an appropriate and balanced investment plan, and kept your costs low, then you will feel much better about staying your course when the markets go wild (and they will!).
To really geek out on the details of Vanguard’s investment philosophy, read their “Principles for Investing Success.”
Co-operative Culture at The Vanguard Group
On Vanguard’s website they proudly display a quote from an article in the Harvard Business Review from March 2012:
“…if [a Wall Street firm’s] senior management and board would like to study a culture that does put clients first, they should hop in a limo and go 110 miles southwest to Valley Forge, Pa.—the home of The Vanguard Group.”
I think this says it all.
Low-Costs Mean You Keep More of Your Money
Because of its co-operative structure, profits are channeled back into Vanguard’s funds in the form of lower costs. For example, Vanguard’s Wellesley Income Fund (VWINX) has an expense ratio of 0.22%, which is significantly lower than the average of similar funds (see Morningstar, Inc., for details). This holds true across Vanguard’s funds.
To sum things up: If you give serious consideration to using Vanguard as your investment firm, you will save a lot of money on costs and fees, be an owner-shareholder in the firm, and feel like your firm has integrity, prudence, and a proven history of excellence.
On the other hand, keeping your money at a big Wall Street firm is like throwing some of your hard-earned cash away, only worse. Those high costs and fees pay for ridiculously unwarranted executive salaries and bonuses. Not to mention the risk you take putting your money into the hands of the men who caused our most recent financial crash.
–Good luck, we’re all gonna need it!
Photo Credit: Valley Forge National Park, Valley Forge, PA, by Jade0626