On Monday, Vanguard declared that it has lowered the management fees for 87 investment funds, marking the largest fee reduction in its history.

By cutting expense ratios on various mutual funds and exchange-traded funds (ETFs), Vanguard aims to save investors over $350 million in 2025.

This announcement aligns with a trend among investment firms that are decreasing the annual costs associated with fund ownership, which benefits individual investors significantly.

“At Vanguard, our goal is to generate value for our investors, rather than take it away,” stated Salim Ramji, Vanguard’s CEO. “By lowering costs, investors can retain a larger portion of their returns, and these savings accumulate over time.”

As the second-largest financial advisory firm in the United States, following BlackRock, Vanguard manages $10.1 trillion in global assets.

The company noted that the reduced expense ratios are effective immediately.

What is an expense ratio?

The expense ratio refers to the annual cost incurred for owning a mutual fund or ETF. It serves as a management fee that investors pay to the managing firm.

This fee is expressed as a percentage of your investment: An expense ratio of 1% means you pay $1 yearly for every $100 invested.

According to a report from Bankrate, expense ratios “have been on the decline for years.” For example, fees for stock mutual funds have fallen from 0.99% in 2000 to 0.42% in 2023 on an asset-weighted basis, which favors larger funds.

At times, Vanguard, BlackRock, and other large investment firms announce fee reductions across multiple funds, a trend some analysts refer to as a “race to the bottom” as fees move toward zero.

“Investors are benefiting when it comes to fees,” noted Zachary Evens from Morningstar in a report for 2024.

Many passive funds, including index funds, now exhibit expense ratios below 0.1%.

Actively managed funds typically have higher fees, as they involve managers taking a more hands-on approach to buying and selling investments.

However, Bankrate advises that fees above 1% “should be avoided.”

Fees are falling amid a trend towards no-load funds

The ongoing drop in expense ratios is part of a broader movement towards no-load funds, which usually do not charge fees or commissions when you buy or sell shares, according to a report by the nonprofit Investment Company Institute.

Vanguard stands as a leader in the low-cost investment fund sector as of 2024, as reported by Morningstar. Its overall asset-weighted expense ratio decreased from 0.09% in 2018 to 0.08% in 2023.

Now, some fees will be reduced further. For instance, holders of “admiral shares” in the Vanguard Windsor Fund will see the expense ratio decline from 0.32% to 0.26%. Similarly, those with institutional shares in the S&P 500 Value Index Fund will experience a fee reduction from 0.08% to 0.05%.

Morningstar has recognized three additional low-cost investment firms:

• State Street Global Advisors, with an expense ratio of 0.14%
• iShares (a division of BlackRock), with an expense ratio of 0.16%
• Dimensional Fund Advisors, with an expense ratio of 0.24%

According to company officials, Vanguard is owned by the funds it manages, a structure that allows it to pass value back to investors.

“Our funds, especially those in the U.S., are generally managed at cost,” explained Daniel Reyes, the head of portfolio review at Vanguard. “They can be run at cost because of their ownership model.”