Vanguard has made its reputation by lowering the cost of investing. The company touts the fact that the average expense ratio for its Mutual funds and ETFs is 82% less than the industry average. This means more earnings for investors, which is especially good for long-term investors who have decades to let their money grow. Whether you are investing for retirement or long-term wealth accumulation, Vanguard offers one of the lowest-cost and time-tested methods for consistently growing with the market.
However, since the investment philosophy that guides Vanguard’s business is to minimize the cost of investing and maintain long-term discipline, active traders may find that Vanguard is not right for them. You will not find trading tools or platforms on Vanguard, and the commission schedule is onerous for most investors who make more than 25 trades per year. In addition, if you need more hands-on advice, you must have $50,000 invested to make use of their financial advisor service.
Who should consider Vanguard
Vanguard really shines as a brokerage for investors building retirement portfolios. It encourages investors to choose from a number of investment options that mitigate potential risk, such as index funds. These funds are set up to track the performance of a specific market index, such as the S&P 500. Such funds do not need an active manager, which keeps the fees low, and the investor can expect to do about as well as the market overall.
Anyone who is investing for retirement may be well-served by the basic strategy behind index funds, which were invented by Vanguard’s founder, Jack Bogle. A retirement investor’s funds will grow in a relatively low-risk and low-cost investment that will benefit from the long time frame that passive index fund investing requires.
Vanguard’s wide variety of accounts and investment options includes Stocks, Bonds, exchange-traded funds (ETFs), and Mutual funds. The company also has developed its own branded Mutual funds and ETFs.
Vanguard fees and features
|Stock trading fees|
|Amount minimum to open account|
|Account fees (annual, transfer, inactivity)|
|Commission-free ETFs offered|
|Mutual funds (no transaction fee) offered|
|Offers automated portfolio/robo-advisor|
|Ease of use|
|Mobile app||iOS, Android, Fire OS|
|Customer support||Phone, Email|
Strengths of Vanguard
- Low investment fees: Though it may seem like no big deal to pay a 1% investment or management fee, this cost compounds in the same way interest does. Vanguard reported that the average expense ratio across the entire fund industry (excluding Vanguard) was 0.62% in 2017, or $62 for every $10,000 invested. Meanwhile, Vanguard’s expense ratio during that same time was 0.11%, or $11 for every $10,000 invested, which is 82% lower than the average.
- Fund performance: Investors with Vanguard can feel confident about the firm’s track record of success, as 89% of Vanguard’s funds outperformed their peers over the 10-year period ending Sept. 30, 2018. Combine this high performance with the low fees, and Vanguard investors can reasonably expect their portfolios to do quite well over time.
- Retirement education: Vanguard offers a great deal of high-quality and well-researched educational information and tools for investors who are preparing for retirement. With the website, you can determine the best investment options for retirement, decide how to prioritize your financial goals, predict when you can afford to retire, estimate expenses in retirement and weigh the benefits of various tax strategies.
- Vanguard Personal Advisor Services: Investors who would like some expert guidance can partner with a financial professional using Vanguard Personal Advisor Services. The advisor will help you articulate your financial goals and develop a personalized financial and investing plan for you. Your advisor also will be available for questions or support as you move forward with your investment plan. Only investors with $50,000 or more under management may access Vanguard Personal Advisor Services, and there is a 0.30% annual fee for the service.
Drawbacks of Vanguard
- Active Trading: Vanguard is not set up for active trading. This is in part because active traders are not Vanguard’s target clientele. However, the lack of simple trading tools or platforms and the fact that the cost per trade goes up after making a certain number of trades per year for some accounts mean Vanguard is effectively discouraging its customers from doing active trading. While this is not a problem for investors who are trying to prepare for retirement, investors who would like to have a one-stop shop for passive and active investing will have to look elsewhere.
- Advisor services may be out of reach: Vanguard’s Personal Advisor Service requires investors to have at least $50,000 invested, which means beginning investors or those with fewer assets in their accounts may be shut out of getting personalized advice. This could be a problem, as it is the new investors who are most likely to need such personalized service to get on the right track.
Is Vanguard safe?
While every investment carries some inherent risk, you can rest assured that your money is as safe as possible invested in Vanguard funds. First, Vanguard is a member of the Securities Investor Protection Corporation (SIPC), which protects individual investor assets up to $500,000. Vanguard provides additional coverage for eligible customers through Lloyd’s of London.
In addition, Vanguard uses multiple security measures to ensure that only the customer (and no one else) has access to his or her accounts.
Vanguard is an excellent choice for mid-level to high-level investors who want set-it-and-forget-it investments that will provide a stable retirement or otherwise grow wealth. But that does not mean it is the right choice for everyone.
Anyone who wants to do active trading may find Vanguard to be limiting and may be happier with a brokerage like Ally Invest or TD Ameritrade. Both of those brokerages are better set up to allow active trading and in fact encourage the practice by reducing trading fees after you have completed a certain number of trades per year. Vanguard, on the other hand, increases its trading fees after you have made a certain number of trades per year for some accounts.
In addition, younger investors with less money to work with may find that they can’t get the kind of personalized service they need to make the best choices with their money. For such investors, Betterment, with its focus on improving investor behavior and providing personal financial advice, may be a better fit.
Ultimately, Vanguard does what it does very well for its target clientele. If you are outside of that target, it may not work for you.