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Fund Spy

Inside the Vanguard Science Project

Vanguard's more-patient shareholders outperformed the rest.

In my report on the latest Morningstar Investor Returns data, I noted an interesting performance detail: Investors in Vanguard's lower-cost Admiral share class were doing better than those in the firm's Investor shares by a margin that was greater than the gap in expense ratios. What's intriguing is that, in addition to new investors who open an account with $100,000 or more, Vanguard permits its most patient shareholders to invest in Admiral shares, too.

The initial requirements in July 2000 were: have at least $150,000 in a three-year old account, $50,000 or more in a 10-year-old account, or $250,000 or more in a new account. (Later, they lowered that final threshold to $100,000.) Thus, they set up a fascinating experiment to see if patient investors do better than their less-patient brethren.

Investor Returns Primer
Before I go further, I'll explain investor returns. You are familiar with total returns, which fund companies, Morningstar, and everyone else show for a fund's performance. These reflect how an investor who bought at the beginning of the time period in question and then held all the way through to the end would have fared. Dividends are assumed to be reinvested.

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