Active, passive, stocks or bonds—costs still matter

In this short video clip, Vanguard CEO Salim Ramji reiterated that costs matter, whether your investment is active or passive, in stocks or bonds. For active fixed income in particular, costs make a significant impact on both results and the risks taken to achieve those results.

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In this Bloomberg video excerpt recorded after our latest sweep of fee cuts, Ramji touched on the following themes:

The cost advantage applies everywhere. The active versus passive debate can lose sight of a basic truth: Index funds’ main advantage is low costs. But low costs can also give active managers an advantage over higher-cost peers. Vanguard, after all, offers both active and index funds.

Lower costs enable better decisions and lower risk. With lower fee hurdles, an active manager can make more disciplined risk decisions without needing to chase returns to overcome high expense ratios. This is particularly true in fixed income, with its narrower range of expected returns.

John Bogle’s legacy lives on. A quote from Vanguard’s founder, “You get what you don’t pay for,” continues to guide our strategy across investment products, both active and index.

Transcript

First of all, Bogle's “costs matter” hypothesis really put into the central kind of focus for us that it’s costs that matter. We run active funds, we run index funds, and Bogle launched more active funds during his tenure than all of his successors combined. But what we really see opportunity in is to be able to help investors keep more of what they earn. So we certainly see opportunities of that in index. And you saw that in a large portion of the cost reductions we announced today, but also last year.

But if I can just underscore, costs matter in active management as well. And so if you just take an example of our fixed income or our active fixed income, you know, we charge 11 basis points for our active fixed income; 88% of our active fixed income outperforms its peers over a 10-year period. And that’s not a coincidence.

What it means is that because we have a lower fee hurdle to overcome, it allows our investors to be much more disciplined about the investments that they’re making, the risks that they’re taking, whether it’s around credit, whether it’s around rates. And that’s how our teams are able to put up kind of numbers like 88% outperforming over a 10-year period.

And so we think the underlying piece is really that costs matter. There are a lot of people that come on this show that talk about performance, but if you look at one of the biggest predictors of long-term performance in active management as well as in index management, it really is about the cost you charge.

And you know, Bogle had a great line, which I'll repeat, which is that in investing, “You get what you don’t pay for.” And that’s been true in active, and that’s been true in index, and it’s something that we believe really quite firmly here at Vanguard.

_Notes:

_{For more information about Vanguard funds, visit vanguard.com to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information are contained in the prospectus; read and consider it carefully before investing.

All investing is subject to risk, including possible loss of principal. 

Investments in bonds are subject to interest rate, credit, and inflation risk.

For the ten-year period ended December 31, 2025, 42 of 48 Vanguard active bond funds (88%) outperformed their peer group averages. For the ten-year period ended March 31, 2026, 43 of 52 Vanguard active bond funds (83%) outperformed their peer group averages. Results will vary for other time periods. Only funds with a minimum ten-year history were included in the comparison. (Source: LSEG Lipper.) Note that the competitive performance data shown represent past performance, which is not a guarantee of future results, and that all investments are subject to risks. For the most recent performance, visit our website at www.vanguard.com/performance.

The asset-weighted average expense ratio of Vanguard active bond funds was 0.11% (11 basis points) as of year-end 2025, according to Vanguard data.

Vanguard is reducing expense ratios for certain share classes of some funds. There is no guarantee that any individual investor will save money due to the reductions in fund expense ratios. Not all fund share classes will have a reduced expense ratio, and, therefore, not all investors will experience the estimated savings. Investors that purchase the relevant funds after the expense ratios have been reduced will not experience savings. Savings means future money not spent on expense ratios and does not entail a rebate or deposit of any sort. Savings figures are estimates and should not be relied upon.}

_{Bloomberg® and Bloomberg Indexes mentioned herein are service marks of Bloomberg Finance LP and its affiliates, including Bloomberg Index Services Limited (“BISL”), the administrator of the index (collectively, “Bloomberg”) and have been licensed for use for certain purposes by Vanguard.}

_{Bloomberg is not affiliated with Vanguard, and Bloomberg does not approve, endorse, review, or recommend the Financial Products included in this document. Bloomberg does not guarantee the timeliness, accurateness, or completeness of any data or information related to the Financial Products included in this document.}

Active, passive, stocks or bonds—costs still matter

Transcript

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