Vanguard is making a bold move to cut fund expenses, implementing its most significant expense ratio reduction in nearly 50 years. The firm is slashing costs across 87 mutual funds and ETFs, affecting 168 share classes. These reductions will save investors more than $350 million in 2025 alone, reinforcing Vanguard’s commitment to delivering low-cost investing.
The Valley Forge, Pa.-based asset manager, which oversees $10.1 trillion as of Dec. 31, continues its long-standing tradition of passing savings back to investors. Greg Davis, Vanguard’s president and CIO, highlights the firm’s ongoing dedication to cost reduction. “This is how Vanguard has operated since Bogle,” he says, referencing founder John Bogle, the pioneer of index investing.
Davis attributes the timing of these fee reductions to Vanguard’s expanding scale, fueled by market appreciation and strong inflows. “Economies of scale allow you to distribute value back to shareholders,” he explains. By keeping costs low, Vanguard remains competitive and ensures more of its investors’ returns stay in their portfolios rather than being eroded by fees.
Lower Costs Across Major Funds
Among the funds seeing a reduction, the Vanguard S&P 500 Growth ETF (VOOG)—which holds top growth stocks like Nvidia and Apple—will see its expense ratio drop from 0.10% to 0.07%.
Vanguard’s actively managed Primecap Fund is also getting a cost trim, with expense ratios for its Admiral and Investor share classes dropping to 0.29% and 0.37%, respectively, from 0.31% and 0.38%. With an impressive 13.52% average annual return since 1984, Primecap continues to be a compelling choice for long-term investors. Vanguard reopened both Primecap Fund and its sibling Primecap Core Fund to new investors last year, further expanding access to this high-performing strategy.
Bond investors will also benefit, particularly those seeking tax efficiency. The Vanguard California Long-Term Tax-Exempt Fund (VCITX)—which invests in municipal bonds that are exempt from federal and California state taxes—will see its expense ratio drop from 0.17% to 0.14%. This is a notable reduction for high-net-worth investors in California looking for tax-free income.
The Vanguard Effect: Driving Down Industry Fees
Vanguard’s relentless focus on cost-cutting has had a profound impact on the broader asset management industry. The so-called “Vanguard Effect” has pressured competitors to lower their fees, significantly reducing costs for all investors. According to Morningstar’s U.S. Fund Fee Study, the asset-weighted average mutual fund fee declined from 0.87% in 2004 to 0.36% in 2023, saving investors billions.
Vanguard has played a leading role in this trend, maintaining the industry’s lowest asset-weighted average expense ratio—just 0.08% (8 basis points), per Morningstar’s 2023 study. While a few basis points may seem trivial, the impact compounds significantly over time, improving long-term returns.
Davis emphasizes that Vanguard’s fee reductions apply to both passive and active funds. “With these cuts, many of our funds will be in the lowest-cost decile across multiple categories,” he says. According to Vanguard, 86% of its mutual fund and ETF assets are now in the lowest-cost decile.
A New Era Under CEO Salim Ramji
The timing of these fee cuts coincides with a new strategic direction under CEO Salim Ramji, who took the helm last year after a tenure at BlackRock. Ramji has signaled a broader expansion of Vanguard’s offerings, including a push into wealth management and new fund development.
Vanguard is particularly focused on strengthening its fixed income expertise and expanding its lineup of actively managed funds. Unlike its actively managed equity funds, which are run by external managers, Vanguard’s in-house team oversees its fixed-income strategies. In recent years, the firm has rolled out new passive and active ETFs, tapping into rising investor demand.
ETFs Continue to Dominate Fund Flows
ETFs continue to gain market share over mutual funds due to their transparency, liquidity, and tax efficiency. Investors poured a record $1 trillion into ETFs last year, underscoring the structural shift in portfolio construction.
Vanguard remains a dominant player in this space, with the Vanguard S&P 500 ETF (VOO) setting an industry record with $117 billion in inflows in 2024—more than double the previous record for an individual ETF ($51 billion), according to Morningstar.
The continued fee reductions further enhance ETFs' appeal, making them an even more attractive vehicle for cost-conscious investors and advisors managing tax-efficient portfolios.
The Impact on Portfolio Management
Lower expenses don’t just benefit investors—they also improve how fund managers operate. Davis explains that reduced fees give portfolio managers more flexibility, allowing them to focus on long-term strategy rather than short-term cost recoupment.
“We are trying to add value without the drag of a high expense ratio,” Davis says. “That differentiates us from many competitors in the marketplace.”
Vanguard’s move cements its reputation as the industry leader in low-cost, investor-first asset management. For RIAs and wealth advisors, these reductions reinforce the case for using Vanguard funds as core portfolio building blocks, whether in passive index strategies or actively managed investments.
With Vanguard continuing to innovate and expand under Ramji’s leadership, advisors can expect even more opportunities to optimize portfolios with lower costs and broader fund offerings in the years ahead.
