Vanguard Group is removing its flagship 500 Index fund (VINIX), which tracks the S&P 500, from its employees’ 401(k) plan. It sounds pretty shocking until you talk to Jack Bogle, inventor of the index fund, as we did.
Bogle, who never shies away from poking at the firm that he founded—but left 20 years ago—shrugged his shoulders. “It’s not a big problem. They’re trying to simplify. There really are a lot of choices,” he told Barron’s.
Indeed, that was Vanguard’s thinking. According to the plan, as reported in the Philadelphia Inquirer, Vanguard is dropping 12 funds from its employee 401(k) retirement plan. It will now offer 15 funds, down from 27, plus a target-date series. By contrast, the average defined-contribution plan offers 18 funds, of which participants use just 2 1/2. Around half of all 401(k) participants invest in a single target-date fund.
In a statement, Vanguard said that it streamlined its retirement plan “to simplify the offerings and preserve a broad choice of low-cost active and index funds—stock, balanced, and bond. The plan will continue to our popular Target Retirement Fund series; our building-block index funds (Total Stock, Total Bond, Total International Stock, Total International Bond); and supplemental choices, such as our oldest active funds (Windsor Fund, Wellington Fund, and PRIMECAP Fund).”
In addition, Vanguard called the Total Stock Market Index Fund VINIX, +0.86% “the best proxy for the U.S. market.”
Interestingly, the cuts will remove some well-established, low-cost Vanguard funds.
The funds that were cut include Vanguard High Yield Corporate, Vanguard Short-Term Inflation Protected Securities, Vanguard Balanced Index, Vanguard Institutional Index (S&P 500), Vanguard Small-Cap Index, Vanguard Selected Value, Vanguard U.S. Growth, Vanguard Morgan Growth, Vanguard Windsor II, Vanguard Extended Market Index, Vanguard Explorer, and Vanguard International Value.
Dan Wiener, editor of the Independent Adviser for Vanguard Investors, a monthly newsletter, points out that several of those funds are actually on Vanguard’s “Select” list of “well-established, low-cost funds.” “They are telling outside investors that these are the best fund Vanguard offers when they are removing them from the 401(k) plan for their own employees,” Wiener says.
Bogle says, “All over the country 401(k)s have found that too many choices lead to too many options for employees, and they pick badly.” Besides which, he adds, Vanguard Total Stock Market has a correlation of 99 with the S&P 500 SPX, +0.01%