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Subject:  Re: Vanguard Roth Date:  4/16/2002  5:07 PM
Author:  AcmeFool Number:  34229 of 78166

1) How does this benefit anyone but Vanguard?

Actually...Vanguard itself really does not benefit from this arrangement. These fees are simply a way for Vanguard to make everyone pay the fees they are actually responsible for. Look at it this way...

Person A has $5000 at Vanguard in VFINX; Person B has $50,000 at Vanguard in VFINX. Using just the expense ratio of 0.18%, person A would pay fees of $9 and person B would pay fees of $90. Unfortunately for Vanguard, there was a total cost of running VFINX for these two people of $109 (just accept the premise). Now...which person do you believe should be responsible for paying that $10 fee? In terms of work required by Vanguard, do you think peson B took up 10 times the resources? I don't...and neither does Vanguard. So the fee passes to the person that has essentially underpaid.

Now...let's change the operating cost for Vanguard and say it only cost them $100 to run the fund for these two people...but person A still pays the $10 fee and they take in $9 extra.