Asset and Wealth Management

In January 1974 Wellington Management fired its chief executive, John Bogle. He persuaded the directors of Wellington's mutual funds to let him set up a new company to run their administration. Vanguard was incorporated on 24 September 1974 and began operating on 1 May 1975, owned by the funds it served and therefore, through them, by their investors; Bogle called it "the mutual mutual fund". In September 1975 its board approved a fund that would simply buy the stocks in the S&P 500 index. The First Index Investment Trust launched on 31 August 1976 and raised about $11.3 million against a target of $150 million. Rivals called it "Bogle's Folly".

By the end of 2025 Vanguard managed about $12 trillion, about 84% of it in index funds. Its asset-weighted expense ratio was about 0.06%, against about 0.32% for the fund industry (Morningstar). On a stylized calculation, $12 trillion at 0.06% is about $7.2 billion of revenue a year; at the industry's 0.32% it would be about $38 billion. Each basis point Vanguard does not charge is worth about $1.2 billion a year to its investors. This chapter explains how asset managers earn, why their prices have fallen for fifty years, and where the money in the business has moved.