Vanguard: Is Advertising Really Needed?

By the turn of the century, Vanguard Group had become the largest mutual fund family in the world, besting Fidelity Investments. While Fidelity was increasing its fund assets about 20 percent a year, Vanguard was growing at 33 percent. Fidelity advertised heavily while Vanguard did practically no advertising, spending a mere $8 million for a few ads to get people to ask for prospectuses. The Kaufmann Fund, one-hundredth Vanguard's size, spent that much for advertising, and General Mills spent twice as much just to introduce a new cereal, Sunrise.1

What was Vanguard's secret? How wise is it with such a consumer product to spurn advertising? The answer lies in the vision and steadfastness of John C. Bogle, the founder and now retired chairman.


In 1950, as a junior at Princeton, Bogle was groping for a topic for his senior thesis. He wanted a topic that no one had written about in any serious academic paper. In December 1949 he had read an article in Fortune on mutual funds. At that time, all mutual funds were sold with sales commissions often 8 percent of the amount invested, and this was taken off the top as a front-end load. (This meant that if you invested $1,000, only $920 would be earning you money. Today we find no funds with a front-end load more than 6.5 percent, so there has been some improvement.) In addition, these funds had high yearly overheads or expense ratios. As Bogle ...

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