Why Vanguard Sucks

Okay, now that I’ve got your attention, allow me to more eloquently elaborate:

Vanguard Sucks.

Okay, never mind. I tried to come up with a better title, I really did. Unfortunately, there are no better words to describe my feelings towards a company that has brainwashed so many families into believing that high-priced investment managers are the devil, and their low-cost mutual fund and ETF (exchange-traded fund) investment options are their savior.

Earlier this year, Vanguard released an article discussing how its funds “deliver peer-beating returns.” In fact, over the last 10 years, Vanguard funds have outperformed 89% of their peers.

Great. Good for you.

What they DON’T mention is that the large majority of mutual funds do not beat their respective benchmarks (upwards of 90%, according to some studies). So basically, they beat 89% of crap.


I conducted a significantly more comprehensive analysis to make a better comparison.

First, to verify the articles findings, I ran a similar analysis comparing Vanguard’s fund performance to that of the average mutual fund over the last 10 years. Not surprisingly, I found very similar results.

What was surprising were the results when I compared Vanguard’s funds to the top 10% of mutual funds over the past 10 years.

On average, the top 10% of mutual fund managers outperformed Vanguard’s fund options by 1.12%, AFTER adjusting for fees.

Let me repeat that.


So WHY would anyone want to invest with Vanguard?

WHY would you consciously make that decision? To save a few dollars in fees that you lose on investment performance? Ridiculous.

With investing, as with most things in life, you get what you pay for. That philosophy holds true with Vanguard.

But wait, doesn’t Vanguard also offer wealth management and financial planning services? That’s an added benefit, right?

Sort of.

For its wealthier clients (i.e. clients that have the most money housed at Vanguard, in this case $1,000,000), they offer something they call “flagship services.” All this means is that you have access to a dedicated representative (who more times than not is not available when you call), and that you get a free consultation with a Vanguard advisor to help create a plan.

However, having clients who worked with Vanguards flagship services in the past, I can assure you that these services are mediocre at best.

While you will have the opportunity to create a plan, once, is it monitored on a regular basis? No.

If your accountant has a question about your investments, will a Vanguard representative pick up the phone and call him/her? No.

Will a Vanguard representative work with you and your estate attorney to assist in implementing a charitable remainder trust? No again.

At the end of the day, by choosing to invest your money with Vanguard, you are paying very little, and receiving performance and service commensurate with that cost.

Personal wealth management is not about paying as little as possible in fees. That’s easy, and anyone can do that. Go to E*Trade, open up a brokerage account and pay your $10 per trade (or whatever the number is). Problem solved.

On the contrary, wealth and investment management is about getting the best bang for your buck. It’s about ensuring that if you do incur an additional expense, that you are more than compensated for it through either increased investment performance, peace of mind, or time. And if you are not receiving a large enough benefit, then you don’t incur the cost.

Simple as that. THAT is what financial planning is all about, and THAT is what you receive by working with a firm such as Apple Tree Wealth Management.

Still want to work with Vanguard? Best of luck. We’ll be here ready to help when you need us.

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  1. Why Vanguard Sucks

    Would you please peer into your crystal ball and tell us which funds will be in the top 10% of mutual funds over the next 10 years? History tells us that it most certainly won’t be the same funds included in your comparison.

    By tracking indices at low cost, Vanguard’s funds allow one to do “great” at the cost of the chance of doing “exceptional”.

    Financial Planning, on the other hand, is something best handled outside a custodian’s concierge service.

    • Why Vanguard Sucks

      I have no idea what funds will be in the top 10% over the next 10 years, just like you don’t know that Vanguard will beat 89% of the average fund over the next 10 years (our jobs would be a lot easier if we knew that).

      I agree that the last 10 years best performers may very well not be the best going forward, but that applies to Vanguard the same as it applies to any other company.

      I do believe, however, that by doing a little bit of extra homework allows you to achieve the exceptional, rather than the average (not great, as the article discusses, and even more appropriate when discussing ETF performance).

      It also allows you to customize a clients investment strategy much more.

      For example, using emerging markets as an asset class, I have separate funds I use for clients who want lower volatility options versus higher volatility options, and investments within an IRA versus a taxable account. How many emerging markets options does Vanguard have? An ETF and a mutual fund, so it’s really a one-size fits all model.

      In regard to Vanguard’s ETF’s, those were not the focus of this post. I simply compared the mutual fund options Vanguard offers to mutual funds available elsewhere. The debate over mutual funds versus ETF’s is well beyond the scope of this article (and another one I think we may disagree on).

      And I am glad that we at least have one point of agreement on planning.

      Thanks for your comment. Feel free to chime in on any other posts you have some disagreements with. All discussion is good discussion, whether we disagree or not!


      • Why Vanguard Sucks

        You get what you pay for. You hit the nail on the head with Vanguard.

  2. Why Vanguard Sucks

    “So WHY would anyone want to invest in with Vanguard?”

    because they don’t make obvious grammar errors — as cogent an argument as the one this article presented

    • Why Vanguard Sucks

      Point well taken (and corrected), Villefort

      Fortunately, we are a wealth management firm and not in the business of teaching proper grammar. However, you are correct in that we should do a better job of catching any issues prior to publishing an article.

      Thank you for pointing out our error.


      Joseph Perrotta

  3. Why Vanguard Sucks


    You make it sound like Vanguard stole your lunch money back in elementary school. It’s time to let is go man!

    Plus, I think in your attempt to slam Vanguard you actually further made the point why so many people use Vanguard.

    Over the past 10 years you would have had a 1 in 10 chance to pick a fund manager that would have beaten Vanguard’s performance. Assuming you were one of the luck 10% who actually made the right pick, you still would have only averaged a 1.12% increase in returns.

    Now, 1.12% can make a huge difference in the return of a portfolio, but not when you have to take a 1 in 10 chance to accomplish it.

    To be fair, why don’t you compare Vanguard’s returns to the bottom 10% of mutual funds over the past 10 years. My assumption is that they beat these funds by much more than 1.12% on average (likely WAY more). But, from a consumer’s standpoint, they would have been just as likely to pick these bottom 10% performers over the past 10 years as having picked the top 10% you’ve compared.

    The point is, the risk/return benefits of not going with low-cost, passively managed mutual funds does not justify itself.

    Also, just because investors are trending away from high-cost, actively managed funds doesn’t mean you can’t provide value as a financial planner/advisor. I don’t think you should be so threatened by Vanguard. Instead, why don’t you find a way to harness the public’s interest in investing in these funds instead of writing angry blogs about them?

    I’ll await your analysis on the bottom 10%.



    • Why Vanguard Sucks


      Alex Smith stole my lunch money in the 2nd grade, and yes, I still hold a grudge! (kidding).

      I understand your comments commending Vanguard, and agree to an extent. There is no doubt that Vanguard funds have outperformed the “average” mutual fund over the past 10 years. The article Vanguard released, that I linked to in the beginning of this post, states that over the past 10 years they have outperformed 89% of their peers. That is a staggering number, and they deserve kudos for doing so.

      What disturbs me about Vanguard is that they have marketed themselves so well, that an ever increasing majority of our population believes two things:

      1. Actively managed investments, and the fees associated with them, are bad, always.
      2. Because Vanguard is a one-stop-shop, they can simply buy all Vanguard funds and not need professional assistance.

      Now, to someone like myself, both assumptions are not only misinformed, but potentially very damaging to an individuals financial well being.

      For a DIY investor who has no time to conduct research on his/her own, sticking with one company like Vanguard is better than throwing darts at a dart board. There is on question about that.

      However, for someone like myself, who has the time and expertise to research available investment options, I believe there are much better, and more customizable investment options available elsewhere.

      How hard is it to find the 1 in 10 funds that are best? Not as hard as you think. The large majority of mutual funds are clearly a joke. They manage little in terms of assets, they have poor management expertise and tenure, and charge way too much (because they don’t have the economies of scale to make money otherwise). That accounts, in my opinion, for well over 50% of the market.

      Of the remaining funds, analyzing the best really isn’t too difficult. I use a simple screening method that analyzes returns, risk, fees, taxes, alpha (risk-adjusted return) and management tenure when choosing which investment options are best.

      Will I always be right in choosing the best fund managers? Of course not. However, I believe that over time, like all investing, value will be added to my clients portfolios through actively analyzing and picking the best investment managers available.

      I also appreciate the note in your comment about providing additional value as a planner, outside of the funds themselves. This observation is very relevant, and encompasses what I do as an advisor. However, Vanguard’s DIY mentality has created the mind-set that people really don’t need active, professional advice. They can just set it and forget it, which is not in the long term best interest of anybody.

      I equate this to HGTV (not sure where you’re from, this is the home-garden TV network) putting DIY fix-it-up shows on TV, where they walk you through doing a kitchen or bathroom renovation. People watch it, believe they can do it themselves, then create a total disaster that ends up costing twice as much to fix than if they had just hired a professional in the first place.

      And to your point about harnessing Vanguard’s reputation, I will not invest in Vanguard funds only because the public believes them to be better. I understand this is becoming common practice in my industry and a great marketing tool, but again, this is not what I believe is in the best interest of my clients.

      And finally, to your final request, it’s not worth the time to compare Vanguard to the bottom 10% of the industry. I wholeheartedly agree that they would completely dominate that segment, and by a large margin, as you suggested. However, it was quite a bit of work to put this initial analysis together, and I am more than willing to concede that you’re assumption is correct.

      I apologize for the lengthy response, but appreciate your post. Thanks for reading.



      • Why Vanguard Sucks

        “1. Actively managed investments, and the fees associated with them, are bad, always.”

        In the long run, they generally are. They may catch lightning in the bottle for a 5 year period or so, but over 20+ years very very few beat the market. The exception is finding a once in a lifetime investor like Warren Buffet, but finding someone like that who can consistently perform is a gamble.

  4. Why Vanguard Sucks

    While it is true that someone like Warren Buffet has beaten the S&P 500 index fund by a substantial margin for longer than 20 years, he is pretty much unique. As far as I know, while there are a few funds that have beaten the index for 10 years, *no* actively managed fund has beaten the return of the SP500 index fund for a period larger than 20 years. So if you have some names, I’d be awfully interested in knowing them (Legg-Mason is now trailing for example after leading it for about 15 years…)

    • Why Vanguard Sucks

      Hi Gary,

      It is true that when analyzing large-cap stock managers, that benchmark themselves against the S&P 500, that more often than not, they will not outperform over an extended period of time.

      However, looking purely at the return number ignores a lot of other criteria, namely asset class and risk.

      Let’s look at a specific example:

      The T.Rowe Price New Horizons mutual fund is an actively managed, small cap mutual fund. This means that the fund invests in companies with a smaller market capitalization (equal to stock share price * number of shares outstanding), versus the S&P 500 which invests in the larges 500 U.S. companies.

      Here is a trailing 20 year stock chart (I couldn’t get the link to default to a 20 year chart, but you can enter custom dates to see the numbers).


      $10,000 invested in the S&P 500 would be worth close to $49,000 today, while $10,000 invested in the T. Rowe Price New Horizons fund would be worth $92,000.

      That’s a very big difference.

      So does that debunk your comment? Not at all.

      Small cap stocks are much more volatile, and inherently much more risky. It’s not a fair comparison to simply look at the return numbers.

      What is important is to compare a funds performance to an appropriate benchmark. For example, the traditional small cap benchmark is the Russell 2000 index.

      The Russell 2000 index, over the same period of time, would grow to about $52,000. While this still does not match the New Horizons fund, it is a bit closer than the S&P 500.

      So in this specific example, the T.Rowe Price fund, which is actively managed, outperformed a passive index, over a 20 year period. Does that sound like a good investment to you?

      This type of analysis needs to be done with every asset class you look at, and fortunately, most asset classes have benchmarks to compare a funds performance against.

      From there, you also need to analyze risk, taxes, fees, and other criteria to ensure that whichever fund (or ETF) you may choose, best achieves what you are looking to accomplish.

      I hope that answers your question. Thank for your comment!



      • Why Vanguard Sucks

        You’re comparing apples to oranges. You can still passively invest while having a small cap tilt.

  5. Why Vanguard Sucks


    Agree with a majority of the commentators. Over the long-run a VAST majority of mutual funds will be out-performed by index funds. The academic, mathematical, and intuitive logic is copious to support the idea of using vanguard type funds.

    However, the last comment by Gary and then your response, hit on the one point I always want to scream! when I read debates like this. Asset class and risk, information on the market, etc. matter.

    My basic thesis on where you can beat the market is where there is imperfect / uncertain knowledge. We pretty much know as much as is humanly possible on the S&P 500 stocks.. so how can you really beat the average return? Very difficult, and once you factor in expense ratio, transaction costs internal to the fund, and tax consequences, beating a large cap portfolio in a developed country is nearly impossible in my opinion (and in all academic research).

    However, for small cap stocks and emerging market stocks (and even potentially commodity funds / metals etc.) there is REAL potential for alpha if an experienced manger / fund has true insight.

    Curious if you agree, but to me I see that as a very simple and intuitive model that accurately describes the situation. Pay for active management where there is a chance that active management can find inefficiencies in the market.

    One interesting side note, that also intuitively / anecdotedly seems to support my conclusion is information I read about Benjamen Graham (warren buffet’s investment mentor). In one of the books about him, it talks about how a MAJOR source of advantage of him was being able to go to a library (or some other similar instituions) and get the 10k’s as soon as they came out. Thus, one of his big sources of advantages was having actual information to financial analysis on… something that anybody with an internet connection can do now-a-days!

    Much harder to do that and properly understand the context of the information in a $500 million capitalization company or in a security in Brazil etc.


    • Why Vanguard Sucks

      Hi Matt, thanks for your comment. I certainly do agree that there is more value/alpha to obtain in an active fund that invests in less liquid, or less well understood/researched, securities (such as emerging markets, as you mentioned). And alternatively, as you and others mentioned, less value in an active fund that invests in more liquid/researched markets, such as US equities (or many types of fixed income securities, which represent a significantly larger market than equities).

      To elaborate on risk, even risk within an asset class needs to be reviewed. If someone wants to invest in emerging markets, for example, but does not want to assume all of the risk inherent in an index fund, why not look for an active fund that provides EM exposure, but does so with less volatiity than a traditional index? (to clarify, I am not suggesting index funds are more or less risky than other investments, but there are certainly mutual funds within the same asset class that have more or less risk than the index).

      And yes, Warren Buffet’s initial advantage was the work and time he put into researching companies, which at the time was not as widely practiced as it is today. While I don’t think most would argue that Buffet would not be successful today, it is very easy to make the case that if he were born today, we may not view him in the same light as we currently do (i.e. we probably would not refer to him as the “Oracle of Omaha”).

      Thanks again for your comment, Matt.


      • Why Vanguard Sucks

        Good point about looking to lower risk within an asset class such as emerging markets. I don’t think it would make sense for a developed asset class (US large caps and such), but for more inherently high risk markets I do think that is a great point

  6. Why Vanguard Sucks

    It seems like you all of you have some passion for investing and Joe is shaking things up which I believe is a good thing but as a normal everyday hard working person, who do you trust? What do you believe and where do you go to find someone who will help you with you hard earned money? The normal work force hasn’t a clue where to go. I am one of those. I have money to invest but the opinion not information saturation is staggering. I know I’m not alone

  7. Why Vanguard Sucks

    I want an advisor with some skin in the game. Where is the professional/credentialed advisor who is paid based in his or her net investment results. I am happy to pay a percentage of my positive results….and expect the advisor to reimburse me a percentage of any net negative results.

  8. Why Vanguard Sucks

    Truly late to this discussion, but wanted to add something that might be helpful.

    1. I think the difference between index funds and mutual funds is just semantics. Both index and mutual funds are a collection of companies grafted together by financial analysts with their own unique risk strategies. Anyone can throw a group of publicly traded stocks into a basket and call it whatever they want. Vanguard has a number of investment vehicles they have branded “index funds” that do not track the S&P500 and perform poorly.

    2. The last few generations of Americans have lived in prosperous times, so baskets of stocks that employ a risk strategy of whole market tracking have done well. But there is no certainty of continued prosperity. I think if we had a prolonged bear market, then actively managed funds would fair much better than index funds as they did during the last recession.

    If someone has place 100% of their retirement account in an index fund, then they are employing a terrible risk management strategy and have increased the probability of reaching their non-productive years poor and reliant on the government.

    Just one person’s opinion.

  9. Why Vanguard Sucks

    This is silly, so Vanguard outperforms the vast majority of mutual fund managers and charges lower fees, yet they’re a bad option? Sure, they will rarely be in the top 10% because their strategy is usually more risk-averse and passive than many mutual funds, so there will be a standard deviation of funds that take on more risk and inevitably some will outperform, but on a risk-adjusted basis I’d venture to guess the number of funds that outperform vanguard is minuscule and what you’d expect from pure chance.

    Vanguard is a solid option. Will you look back in 10 years and say, “Geeze, I would’ve made more money had I invested with X, Y or Z”? Almost certainly, but you have no way of knowing who X, Y or Z will be, and you know all the literature says a passive strategy will achieve the returns you are targeting over the long-term.

  10. Why Vanguard Sucks

    The following is just my opinion, if you like Vanguard good for you…I don’t for objective reasons, no axes to grind, just the opinion of one long time investor.

    In my opinion, Vanguard is the biggest lie ever told in investing, and the author is absolutely correct. The realities are that Vanguard’s largest products, its passive indexes, employ the strategy of taking maximum risk, for average return. Investors have failed to realize that truly wealthy individuals do not take these types of risks. Wealthy individuals arrange their affairs so there is asymmetric risk return characteristics in their investments. I would much rather pay a modest management fee, and take a great deal less risk than the market. During the financial crisis of 2008, I can name a number of funds that charge roughly 1% or so in fees, but employ this risk management approach and trounced the index and saved their investors from the markets 40-50% draw down. Furthermore their process is proven over many decades and beats not only the index but the majority of their peers. That is stacking the odds in your favor, not using passive indexes if you ask me.

    Investors have been sold the marketing ploy of vanguard, that their low cost approach will get you to your goals faster, yet the reality is that what you are not paying in $cost, you are paying in opportunity cost, as the vast majority of vanguards funds aren’t producing sizable alpha. At the end of the day, investing success is more about sticking with a strategy in good times and bad and there is a part for active management, and wealth managers to play in helping clients achieve their financial goals.

    My family has been investors in First Eagle, Mairs & Power, and Tweedy Browne for generations, and all three have produced outstanding returns after fees, we stick to those three and don’t use any other investment firms. If instead a passive index, or an active equivalent Vanguard fund had been employed because my great grandfather fell for this low cost investment business, we would have had a very severe opportunity cost that would have affected us through generations. People need to wake up to the reality that vanguard is a business and their marketing strategy is being the low cost leader like Southwest Airlines. I believe this is working to the detriment of investors.

    I do not know the author, but I do also know many high net worth investors who were part of flagship and are no longer there. Their stories are all the same, as this author concludes…you get what you pay for. Investment management is a profession, and it costs money to have professional management the same way going to a doctor costs money. If you needed a knee replacement, would you go with an average doctor, who gets average results or the best doctor you could find? In the end the few extra dollars you spend in fees for a quality investment professional, will save you multiples in wealth preserved during times of trouble.

  11. Why Vanguard Sucks

    Rick, I agree. And any investment in the market is a matter of what risk you are willing to take. I do know that two friends of mine have been screwed by having a personal investment manager. Vanguard had done pretty well by me. Are there better options, maybe? But are you willing to follow your investments day by day and change investment options? Some people are, but most aren’t. But the real issue is how long do you have to invest and what risks are you willing to take.

    • Why Vanguard Sucks

      Great comment, Derek, thank you.

  12. Why Vanguard Sucks

    “On average, the top 10% of mutual fund managers outperformed Vanguard’s fund options by 1.12%, AFTER adjusting for fees.” Sure. On average, the top 10% of mutual fund managers outperformed just about *everyone* that’s why they are top.

    But are you sure someone with a few thousand dollar can invest with them? I’m thinking you’ll need somewhere between 5-10 Million. No?

    Can you share what have your personal returns or w/Apple Tree has been like over the the last 10-20 years? I feel like you need to provide a better (vetted w/data) path for someone to take if you going to encourage them to leave Vanguard. An unqualified reference to E-trade does not count.

    • Why Vanguard Sucks

      Thanks for your comment, John.

      To respond to your first question, the funds I reviewed were all easily accessible to the every day investor. Some funds have a $1,000 or $2,500 minimum investment, but more often than not there were no investment minimums. I did not compare Vanguard to other investment vehicles, like hedge funds or private equity, in which there would be much higher investment minimums, (although even there those minimums have been dropping significantly).

      And to your second point, Apple Tree is not an investment manager, i.e. we don’t have a domestic small-cap fund, for example, so I can’t reply with specific returns for comparison. We allocate assets among different asset classes, and try to choose the most appropriate fund to do so.

      The point of this post was that Vanguard mutual funds, while generally very good (and as a fund family, better than most), fall short to the best-of-the-best. I understand that they are a large, trustworthy company, and that having all of your assets in one place is easier than the alternative, but believe that some asset classes have better alternatives at other companies.

      Thanks again for your comment.

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