Your Survival Guy

Preparing your investments and family for when disaster strikes.

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Yes, Vanguard is too Big: Part II

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Has there ever been a bigger supporter of Vanguard than Dick Young whom, unlike other promoters and hucksters out there today, never had a horse in the race?

And could there be a better triple play combo than Wellington Management, Vanguard, and Dick Young’s approval?

Vanguard’s low-cost expense ratios, no 12b-1 fees, and its history with Wellington Management were, among other valuable investor tenets, enough to recommend Vanguard to you.

Buying Vanguard Wellington and Wellesley was simple. Owning them gave you a balanced portfolio with a stock to bond mix of 60/40 or 40/60. There was sophistication in its simplicity.

But times change. Trillions of dollars are now guided by Vanguard, mostly through its index funds that I believe are providing many investors with a false sense of confidence.

Let’s begin with that massive amount of money flowing into Vanguard. I’ve written to you about my concerns with the index 500 being too top heavy—swayed by a handful of companies with huge market caps.

It’s my belief, most investors don’t realize the S&P 500 Index is not an equally weighted investment in 500 companies. It’s a market cap weighted index meaning the companies with the largest market caps have the most influence on the index. Think FAANGs. Then there are the ETFs (a hedge fund favorite) that are purchased through Vanguard Brokerage Services (VBS).

As an aside, when I set my accounts up at Vanguard many years ago, I needed two accounts: A Vanguard account for Vanguard funds and a VBS for non-Vanguard funds, ETFs and common stocks. As I have written, I found the platform to be clunky. But, thanks to an email from a reader, I learned the Vanguard and VBS accounts can be combined. When was Vanguard planning on telling me?

I called my Vanguard Flagship representative Friday to ask about combining my accounts. He said, yes it can be done. I asked when they planned on letting me know about it. He said they’ve been so busy they haven’t been able to roll it out to all clients. Note to self: Isn’t that proving my point that they’re too big to properly service all their clients? I thought so too.

As another aside, in studying the Wellington Fund, it has $104.6 billion in total net assets. Only $17.9 billion is “investor share,” meaning a minimum investment of $3,000, whereas $86.6 billion is “admiral shares”, with a minimum investment of $50,000. That leaves me to believe that there’s some big institutional money in the fund. And with a median position market cap of $101.7 billion compared to $102.7 billion for the S&P 500 Index, has it not become too big? Yes, which is why it’s closed to new investors.

I had a pleasant conversation with my Vanguard representative. When I asked what their plan is to notify their investors that they can combine accounts. He said, “Anything you can do to let folks know would be helpful.”

I can tell you for a fact that the comfort level Dick Young had when he first recommended Vanguard to you is not the same today. A platform that used to be simple and sophisticated has all of a sudden become crowded thanks to promoters and speculators with more than one horse in the race.

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com