What you're paying for
Investment costs, which pay for the management of the plan and its investments, are measured in small percentages known as expense ratios. Even a seemingly small expense ratio can make a big dent in your savings.
Let's say you have $10,000 to invest in your newborn's education fund and you're choosing between two 529 plans. In the first plan, the investment you're interested in has an expense ratio of 0.50%, which is the industry average.* A similar investment in The Vanguard 529 Plan has an expense ratio of 0.14%.
Such a small difference couldn't matter that much in the long run, right?
Well, in year one, you'd pay $50 for your investment in the first plan, versus $14 in The Vanguard Plan. So your balance at the end of the year would be $36 higher in The Vanguard Plan, all else being equal.
But wait—that's not the end of it. The $36 that you didn't pay in expenses to Vanguard will keep earning returns over the next 17 years. In fact, by the time you're ready to use your education savings, that $36 could actually be worth $94.
And remember, this scenario will keep playing out every year that you have money in your account. Put it altogether, and that 0.50% expense ratio could knock $2,328.73 off your final balance. That number drops to $671 with The Vanguard Plan. That's an additional $1,657 your child can use for education.
The moral of the story is: Don't let costs erode your savings.
You could keep more money for education by choosing Vanguard
This hypothetical illustration assumes an average annual 6% return over 18 years and does not represent any particular investment nor does it account for inflation. "What you lose to costs" represents both the amount paid in expenses as well as the "opportunity costs"—the amount you lose because the costs you paid are no longer invested. There may be other material differences between investment products that must be considered prior to investing. Numbers are rounded. The rate of return is not guaranteed.
The Vanguard 529 cost advantage
Our costs are among the lowest in the industry. Since our plan was introduced in 2002, we've cut our expenses 10 times. Because we stay focused on reducing your investment costs, more of your money can stay in your account—working toward your goals.