Vanguard is privately held and does not report their revenues or earnings, but given that they currently manage over $5.1 trillion dollars, it’s very likely that they make multiple billions of dollars a year as well. This was a 25% increase from 2016, and the company is currently worth over $68 billion dollars. They were able to do this by managing over $2.45 trillion dollars.Ĭharles Schwab (SCHW), a publicly traded company, made $2.4 billion dollars in 2017 on revenue of $8.6 billion and assets under management of $3.36 trillion dollars. 2017 Profits for Fidelity and Schwabįidelity Investments, a privately held company, made $5.3 billion dollars in 2017. Quite the opposite - they are making billions of dollars per year from investors. Yet each of these companies are thriving despite massive decreases in their index fund management fees over the past few years.Īll of this begs the question: How can these companies expect to make money offering index funds for less than $1 in management fees per $1,000 invested? Vanguard, Fidelity, and Schwab Are Not Charitiesĭespite offering the tremendous service of index fund investing at low to zero cost, Vanguard, Fidelity, and Schwab are hardly on shaky financial ground. Vanguard and Schwab are also offering index funds to investors at razor-thin margins. It is clearly a loss leader, and Fidelity will need to make money by other means. Since it does not charge investors any management fees, they aren’t making money from actually managing the fund. However, few things in life are ever truly free, and I would hardly expect a financial services company to give anything for free without something in return.įidelity has clearly made a calculated decision that it can make money by offering zero expense ratio mutual funds. stock market in a single fund for free is truly remarkable. There’s something powerful about getting anything for free, but the ability to have someone give you diversification to nearly the entire U.S. People have been marveling at how Fidelity is able to offer two index funds (FZROX, FZILX) with zero expense ratios to their investors.
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