Massy: Johnson from California is commenting on the fact that we are in an increasingly competitive environment and wondering what it means for Vanguard expense ratios in the future. Will we be increasing our expense ratio to keep up with the competition?
Tim: I'd first correct Johnson a little bit on the investment philosophy.
We believe clients should keep more of their return. And the way they get to keep more of their return from what the markets give them is to cut their expense, like lower their expense ratio year after year if you can do it.
Massy, you know this, we don't have any other owners out there. And we don't have a private family, public shareholders, PE investors. No, we just have our clients. They own Vanguard.
So as a team up here, you know, with the rest of the Vanguard leadership, we run Vanguard just like you would any other competitive company. Like we try to maximize return for our owners. Our owners just happen to be our clients. So we want to maximize it in the funds and how we run our business.
So when we have good years, and we've had several of them, and we have that excess revenue, what do we do with it? Well, we get to pour that 100% back into the business or give some back to our shareholders, and we do a little bit of both.
So we can take the profits, put them back into the business, and increase our investments in technology, funds, services, talent. And if you look at that investment budget, it's doubled, Greg, I want to say. It's doubled in the past five years. It's growing by another 20% next year.
At the same time, we like to dividend back some of the savings to our clients. Well we can't, like a traditional company, just write that old-fashioned dividend check and send it out. The way we have to do it is lower your expense ratio. So if you see the expense ratio lower, as a client, the client should think about that's how Vanguard's giving value back to me.