Success in taking the road less traveled.

2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor

About Vanguard

Founded May 1, 1975

One of the world's largest
investment management
companies
Approximately $950 billion in
U.S. mutual funds (as of
December 31, 2005)

the client-owned investment

management company
built to put your interests first

130 domestic funds (including

variable annuity portfolios)
40 additional funds in
international markets

2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor

What are mutual funds?

A mutual fund is simply a financial intermediary that allows a group of investors
to pool their money together with a predetermined investment objective. The
mutual fund will have a fund manager who is responsible for investing the
pooled money into specific securities (usually stocks or bonds).
First started in 1924 by 3 Boston executives
Industry has grown tremendously over the years

55 million households
96 million individuals
$7 trillion in net assets

2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor

John Bogle

Princeton Years

Wellington Management Company

Philosophy: No commissions + Low overhead = maximized

growth

Principle: clarity, candor and disclosure

2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor

Growth of Vanguard

1929: Vanguard Wellington Fund

- Endures 1929 crash through diversification

1975: Vanguard begins its operations

- 28 employees, 11 funds, 1.8 billion in net assets,

1976: Vanguard index fund opens

1977: Eliminates sales commission (loads)

1990: Creates first international index funds

2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor

Growth of Vanguard (Contd .)

1995: Vanguard.com opens for business

1996: Vanguard begins offering financial planning for individuals

1997: Vanguard begins offering investments to investors outside

U.S

2003: Vanguard.com reaches 3 million registered users

2004: Offers one-step auto pilot program for 401(k) plans

2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor

Appeal of Vanguard
Commitment to low-expenses

2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor

Appeal of Vanguard (Cont)

Excellent Customer Service

Executives help man the phones during peak Call Periods

Vanguard funds dominate Forbes "Best Buy" rankings

every year

2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor

Class discussion

Why Price Perceived Quality is not applicable in this case?

2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor

Vanguards low expenses Differentiates

itself from competition
Reluctant to Advertise
No mass sales force
Prohibits frequent trading of its funds
Passive Investing
Still has an extremely loyal, cult-like customer base
www.diehards.org

2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor

10

Class discussion

Do you think that Bogles idea of advertisement avoidance

is good?

2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor

11

How did Vanguard manage to gain such

loyal customer base?
Word of mouth advertising
Believing in and sticking to its mission statement
Publicity from books, and Bogles appearances in media

2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor

12

Take away lessons

Marketing can be overdone

The Power of differentiation
Word of mouth publicity can be very powerful
Benefits of frugality and passing the value to the
customer

2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor

13

Class discussion

Do you think there is an analogy between the

success of Wal-Mart and Vanguard?

2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor

14

Competitors of Vanguard

Fidelity
Founded in 1943 by Edward C. Johnson II
Attracted crowd through their innovative ideas
First to sell through a 800 number

Capital research management

Founded in 1931 by Jonathan Bell Lovelace
Manages US$850 billion in mutual funds and US$300 billion for
institutions

TIAA CREF
Largest pension plan provider
Launched 6 no-load mutual funds in 1997
Minimum investment $250

2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor

15

Customer base that Vanguard doesnt

attract
Those who do not have studied statistics & publications
Nave investors
Those who are carried away by advertisements
Those who have faith in price-quality perception

2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor

16

Top ten mutual fund companies by assets,

2006 ($000)

2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor

17

Class discussion

Should Vanguard continue as is?

2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor

18

 2005 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corp., Distributor

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