Slow And Steady Wins The Race
It's 20 years since Vanguard launched its first index funds for Australian investors.
Last year at Vanguard we celebrated the 20th anniversary of our incorporation in Australia back in 1996.
But in some ways 2017 is an equally significant milestone. It's been 20 years since we launched our first local index funds, leveraging the experience we gained over the previous two decades in the US.
It was 20 years ago…
Back in 1997 Prime Minister John Howard was fresh in the Lodge, Telstra was the big newcomer on the ASX and investors were dealing with the fallout from the Asian currency crisis.
A lot's happened since.
Investors have continued to experience a bumpy ride at times, with significant downturns caused by the dotcom bubble, the GFC and more recently the Eurozone debt crisis. These experiences have contrasted with periods of market exuberance over this time as well, such as the post-GFC recovery across global equity markets.
Those investors who have stayed the course in a diversified portfolio across a wide range of asset classes through both periods of volatility and market growth have enjoyed returns that have outpaced inflation and cash.
When it comes to capturing long-term market returns at the lowest possible cost, an index fund is among the most efficient investment vehicles investors have at their disposal.
Funds for life
On 6 June 1997, we launched the Vanguard International Shares Index Fund (VISIF) and the Vanguard Australian Fixed Interest Index Fund (VAFIF), with the Vanguard Australian Shares Index Fund (VASIF) following three weeks later.
At the time, the three index funds combined provided access to more than 1890 securities in Australia and overseas, with management expense ratios starting at 0.28 per cent p.a.
Fast forward 20 years and management expense ratios have fallen to as low as 0.18 per cent, illustrating our commitment to lowering the cost of investing and helping investors to keep more of their returns…
…our funds have changed along with markets, which look a little different today…
…and investors who committed $10,000 to the Australian shares, international shares and Australian fixed income funds back in 1997 would have seen their initial investment grow to $45,977, $28,399 and $32,032 respectively today (after management expenses), capturing the power of long-term market growth.
Over the years, our three inaugural funds have become the bedrock of our stable of 37 managed and exchange traded funds.
And as we've built out our local product range to encompass every major asset class, we haven't followed short-term fads or the latest trends. Instead we've built products that will last the distance over the long term.
That was then…this is now
A lot has changed since 1997, but Vanguard's underlying investment principles haven't. They are the same now as they were 20 years ago, encouraging investors to create clear and appropriate investment goals, develop a suitable asset allocation using broadly diversified funds, minimise costs, and maintain perspective and long-term discipline.
Investors in our index funds who had the patience and discipline to stay the course would have been well rewarded over the long term, proving the value of thinking ahead when it comes to choosing investment funds to serve you for the next 20 years.
Robin Bowerman is Head of Market Strategy and Communication, Vanguard Australia. As a renowned market commentator and editor Robin has spent more than two decades writing about all things investment.