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| - | Vanguard is an american company that is registered as investment advisor. Vanguard is know for it's mutual and index funds. Vanguard is the second provider of ETF funds (Exchange Traded Funds). The founder of Vanguard, John C. Bogle, was the creator of the first index fund. | + | **Vanguard** is an american company that is registered as investment adviser. Vanguard is know for it's mutual and **index funds**. Vanguard is the second provider of ETF funds (Exchange Traded Funds). The founder of Vanguard, John C. Bogle, was the creator of the first index fund. |
| - | Over the years, Vanguard has earned a lot of credibility among investors, because of it's low cost and diversified offer of mutual funds. | + | Over the years, Vanguard has earned a lot of credibility among investors, because of it's **low cost** and **diversified offer** of mutual funds. |
| Vanguard launched the first Index Fund for individual investors in 1976. Today, Vanguard offers more than 60 Index Funds that track several markets, including US and international stocks and bond markets, as well as sector specific index funds. | Vanguard launched the first Index Fund for individual investors in 1976. Today, Vanguard offers more than 60 Index Funds that track several markets, including US and international stocks and bond markets, as well as sector specific index funds. | ||
| - | Vanguard also offers index funds. Index funds are mutual funds that mimic the performance of a market index, like the S&P 500 or the DJI. | + | Vanguard also offers index funds. **Index funds are mutual funds that mimic the performance of a market index, like the S&P 500 or the DJI**. |
| - | Index Funds are a form of passive investment. Active investment consist in picking stocks or bonds to try to beat the market. Active investment assumes that market failures can be exploited to archive a larger performance. Active investment has a higher cost than passive investment, because it requires research. That is why active managed funds have much larger expenses than index funds. | + | ===== What are Index Funds? ===== |
| + | |||
| + | **Index Funds** are a form of passive investment. Active investment consist in picking stocks or bonds to try to beat the market. Active investment assumes that market failures can be exploited to archive a larger performance. Active investment has a higher cost than passive investment, because it requires research. That is why active managed funds have much larger expenses than index funds. | ||
| Index Funds allows individuals to invest in the stock markets, diversifying it's investment and not incurring in high costs. Index funds could help reduce long-term costs of investment. | Index Funds allows individuals to invest in the stock markets, diversifying it's investment and not incurring in high costs. Index funds could help reduce long-term costs of investment. | ||
| - | Most of vanguard funds are offered in two ways: | + | ===== Vanguard Index Funds ===== |
| - | - Investor shares: slightly higher expenses but low minimum investment. | + | Most of vanguard funds are offered in two ways: |
| - | - Admiral shares: have lower expenses but higher minimum investment. | + | * **Investor shares**: slightly higher expenses but low minimum investment. |
| + | * **Admiral shares**: have lower expenses but higher minimum investment. | ||
| + | * **ETFs**: can be more tax efficient, but may incur in brokerage commissions and spread costs. | ||
| The biggest Index Funds offered by Vanguard are: | The biggest Index Funds offered by Vanguard are: | ||
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| This funds track the Standard & Poors 500 Index (S&P 500). This index consist of the 500 largest U.S. publicly traded companies weighted by market value. It contains companies from several industries: | This funds track the Standard & Poors 500 Index (S&P 500). This index consist of the 500 largest U.S. publicly traded companies weighted by market value. It contains companies from several industries: | ||
| - | - Information Technology 25.6% | + | * Information Technology 25.6% |
| - | - Health Care 14.5% | + | * Health Care 14.5% |
| - | - Financials 14.1% | + | * Financials 14.1% |
| - | - Consumer Discretionary 12.7% | + | * Consumer Discretionary 12.7% |
| - | - Industrials 9.9% | + | * Industrials 9.9% |
| - | - Consumer Staples 6.9% | + | * Consumer Staples 6.9% |
| - | - Energy 6.2% | + | * Energy 6.2% |
| - | - Utilities 2.9% | + | * Utilities 2.9% |
| - | - Real State 2.8% | + | * Real State 2.8% |
| - | - Materials 2.6% | + | * Materials 2.6% |
| - | - Telecommunication Services 1.9% | + | * Telecommunication Services 1.9% |
| As you can see, this fund is very diversified. | As you can see, this fund is very diversified. | ||
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| Some of the biggest companies in this fund are: | Some of the biggest companies in this fund are: | ||
| - | - Apple | + | * Apple |
| - | - Microsoft | + | * Microsoft |
| - | - Amazon | + | * Amazon |
| - | + | ||
| - | - JP Morgan | + | * JP Morgan |
| - | - Berkshire Hathaway | + | * Berkshire Hathaway |
| - | - Alphabet (formerly Google) | + | * Alphabet (formerly Google) |
| - | - Johnson & Johnson | + | * Johnson & Johnson |
| - | - Exxon | + | * Exxon |
| This companies are investment grade companies, with stable financials. | This companies are investment grade companies, with stable financials. | ||
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| - | <table border="0"> | + | <table> |
| <tbody> | <tbody> | ||
| <tr> | <tr> | ||
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| </html> | </html> | ||
| - | If you invest less than $10,000 in a Standard & Poors 500 Index from Vanguard, it will cost you $20 per year as a service fee. The ETF doesn't have such a fee. | + | If you invest less than \$10,000 in a Standard & Poors 500 Index from Vanguard, it will cost you \$20 per year as a service fee. The ETF doesn't have such a fee and might be better for tax purposes. |
| - | The ETF can be traded in the market, but if you trade it using an account different from Vanguards, there might be a brokerage trading fee. | + | The ETF can be traded in the market, but if you trade it using an account different from Vanguards, there might be a brokerage trading fee and spread costs. |
| - | If you are willing to invest more than $10,000 in the S&P 500 fund, the Admiral Class is the better alternative, because you don't have to pay the $20 fee and the expense ratio is 0.04%. | + | If you are willing to invest more than \$10,000 in the S&P 500 fund, the Admiral Class is the better alternative, because you don't have to pay the \$20 fee and the expense ratio is 0.04%. |
| ==== Vanguard Total Stock Market Index Fund ==== | ==== Vanguard Total Stock Market Index Fund ==== | ||
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| <!-- chart --> | <!-- chart --> | ||
| + | {{:en:s_p500-vs-total-stock-market.png?nolink|}} | ||
| The top constituents of the Total Market index are the same as the top constituents of the S&P 500: | The top constituents of the Total Market index are the same as the top constituents of the S&P 500: | ||
| - | - Apple | + | - Apple |
| - | - Microsoft | + | - Microsoft |
| - | - Amazon | + | - Amazon |
| - | - Alphabet (formerly Google) | + | - Alphabet (formerly Google) |
| - | + | ||
| - | - Berkshire Hathaway | + | - Berkshire Hathaway |
| - | - JP Morgan | + | - JP Morgan |
| - | - Exxon | + | - Exxon |
| The participation of each industry in the Total Stock Market index is: | The participation of each industry in the Total Stock Market index is: | ||
| - | - Financials: 19.9% | + | - Financials: 19.9% |
| - | - Technology: 19.87 | + | - Technology: 19.87 |
| - | - Consumer Services: 13.24% | + | - Consumer Services: 13.24% |
| - | - Industrials: 12.92% | + | - Industrials: 12.92% |
| - | - Health Care: 12.72% | + | - Health Care: 12.72% |
| - | - Consumer Goods: 8.08% | + | - Consumer Goods: 8.08% |
| - | - Oil and Gas: 6.07% | + | - Oil and Gas: 6.07% |
| - | - Utilities: 2.88% | + | - Utilities: 2.88% |
| - | - Basic Materials: 2.51% | + | - Basic Materials: 2.51% |
| - | - Telecommunications: 1.81% | + | - Telecommunications: 1.81% |
| + | |||
| + | |||
| + | {{:en:total-stock-market-vanguard-index-fund.png?nolink|}} | ||
| - | <!-- image --> | ||
| As you can see, the Total Stock Market index has a different composition than the S&P 500. Financials has more weight in the total stock market, whereas IT and Health Care has more weight in the S&P 500. | As you can see, the Total Stock Market index has a different composition than the S&P 500. Financials has more weight in the total stock market, whereas IT and Health Care has more weight in the S&P 500. | ||
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| The participation of the biggest countries is: | The participation of the biggest countries is: | ||
| - | - Australia 4.89% | + | - Japan 17.60% |
| - | - Canada 6.64% | + | - UK 12.57% |
| - | - China 7.10% | + | - China 7.10% |
| - | - France 6.54% | + | - Canada 6.64% |
| - | - Germany 6.19% | + | - France 6.54% |
| - | - Japan 17.60% | + | - Germany 6.19% |
| - | - Korea 3.56% | + | - Switzerland 5.00% |
| - | - Taiwan 3.18% | + | - Australia 4.89% |
| - | - UK 12.57% | + | - Korea 3.56% |
| - | - Switzerland 5% | + | - Taiwan 3.18% |
| - | <!-- image --> | + | {{:en:vanguard-ftse-index-fund.png?nolink|}} |
| Top constituents are: | Top constituents are: | ||
| - | - Tencent Holdings (China) 1.18% | + | - Tencent Holdings (China) |
| - | - Nestle (Switzerland) 0.98% | + | - Nestle (Switzerland) |
| - | - Alibaba (China) 0.83% | + | - Alibaba (China) |
| - | - Samsung (Korea) 0.81% | + | - Samsung (Korea) |
| - | - HSBC (UK) | + | - HSBC (UK) |
| - | - Taiwan Semiconductors (Taiwan) | + | - Taiwan Semiconductors (Taiwan) |
| - | - Toyota (Japan) | + | - Toyota (Japan) |
| - | - Novartis (Switzerland) | + | - Novartis (Switzerland) |
| - | - Shell (UK) | + | - Shell (UK) |
| - | - Roche (Switzerland) | + | - Roche (Switzerland) |
| - | As you can see, this index fund covers a lot of big stocks in many countries. It can be considered more diversified than the Vanguard S&P500 index fund and the Vanguard Total Stock Market Fund. | + | As you can see, this index fund covers a lot of big stocks in many countries. It can be considered more diversified than the Vanguard S&P500 index fund and the Vanguard Total Stock Market Fund. The average market capitalization is $23 billion. |
| This Vanguard fund has an low 0.18 percent expense ratio, and requires a minimum investment of $3,000 for the Investors Shares version (0.17% expense ratio), and $10,000 for the Admiral class (0.11% expense ratio). It also has an ETF version, that also has 0.11% expense ratio, but may incur in brokerage commissions. | This Vanguard fund has an low 0.18 percent expense ratio, and requires a minimum investment of $3,000 for the Investors Shares version (0.17% expense ratio), and $10,000 for the Admiral class (0.11% expense ratio). It also has an ETF version, that also has 0.11% expense ratio, but may incur in brokerage commissions. | ||
| The non ETF versions are less tax efficient and have more restrictions on buying and selling, but they do not incur in commissions or spreads. | The non ETF versions are less tax efficient and have more restrictions on buying and selling, but they do not incur in commissions or spreads. | ||
| - | |||
| - | Minimizing | ||
| This index fund, allows investors to expose it's portfolio to overseas companies. The fund is very diversified by companies, sector and countries. Because it's a market cap weighted fund, it's focused on the largest companies in the world. | This index fund, allows investors to expose it's portfolio to overseas companies. The fund is very diversified by companies, sector and countries. Because it's a market cap weighted fund, it's focused on the largest companies in the world. | ||
| Alternatives to this fund are: | Alternatives to this fund are: | ||
| + | |||
| - iShares Core MSCI Total International Stock ETF (IXUS). | - iShares Core MSCI Total International Stock ETF (IXUS). | ||
| - iShares MSCI ACWI ex-U.S. ETF (ACWX). | - iShares MSCI ACWI ex-U.S. ETF (ACWX). | ||
| - SPDR MSCI ACWI ex-U.S. ETF (CWI). | - SPDR MSCI ACWI ex-U.S. ETF (CWI). | ||
| - | The average market capitalization is $23 billion. | + | |