What kind of investor are you? If the buy and hold strategy is your style, this may be the perfect broker for you. We’ll tell you why in our Vanguard review.
Finding a new broker can painful. There are so many options out there, and they all promise you the best experience–but that’s just not true. There are different brokers for different types of investors. Who you go with really depends on how you want to approach investing your money, and what kind of investment options match your needs. Below you’ll find a full review of Vanguard’s investment services, weighing out pros and cons so you can determine if this is the right broker for you. Let’s first start with a little history on the company and their philosophy.
Vanguard has been around since 1975 when it was founded by owner Jack Bogle. At the time, Bogle saw that the majority of actively-managed mutual funds were often underperforming market indices. He also felt that investors should own the mutual funds. According to the Vanguard website:
“From its start in 1975, Vanguard has stood out as a very different kind of investment firm. Vanguard was founded on a simple but revolutionary idea that a mutual fund company should not have outside owners. Founder John C. Bogle structured Vanguard as a client-owned* mutual fund company with no outside owners seeking profits.”
Bogle then created the first ever index fund–a low-cost mutual fund, owned by those who invest in it, and one that matches the performance of a specific index. Vanguard has grown as a company since the 70s, but their philosophies have remained the same. The company still focuses on low-cost investment options and offers a wide array of investment account types to invest with.
Despite having a particular philosophy and focus, Vanguard provides plenty of options to jump in and start investing. Here’s a full look at what Vanguard offers:
Vanguard delivers both retirement and standard investment accounts. Here are the account types to choose from:
- Roth and Traditional IRAs – Both of these products are great in their own way and provide a reliable option for retirement outside of your employer-sponsored plan.
- SEPs, SIMPLEs & i401(k)s – If you have your own business, you have a few options to take advantage of retirement savings. If you’re a sole proprietor, for example, you can open a SEP-IRA. There are also options if you have employees.
- Variable annuities – Once you’ve maxed out both an IRA and 401(k) for the year, you can use a variable annuity to continue to maximize the tax benefits those retirement accounts offer. Just keep in mind these aren’t for everyone.
- 529 college savings plans – If you’re saving for your child’s college education, a 529 plan is an excellent option to consider due to the tax benefits.
- Individual & joint accounts – Whether you’ve maxed out your retirement accounts or just want to get started with investing, a standard taxable investment account is a good option.
- Income annuities – This is not necessarily an investment account, but rather a lump sum that you’d pay in return for a consistent dollar amount back. This might be an option if you’re already retired and just want a guaranteed “paycheck.”
- 401(k) rollovers and transfers – If you’ve left a job, Vanguard can help you roll your former 401(k) into an account with them.
In addition to the variety of account options, Vanguard offers more than just low-cost index funds:
- Vanguard mutual funds – Vanguard has a massive list of funds they offer (at the time of this writing, over 120). You can choose from a variety of types, as well. All-in-one funds allow you to pick a strategy and “set it and forget it,” while select funds will enable you to create diversity in your portfolio.
- Vanguard ETFs – Choose from essential asset classes, then define your strategy with an ETF, which acts like a mutual fund but trades like a stock. Find ETFs that focus on companies in the U.S., internationally, or by sector.
- Other stocks, ETFs, and mutual funds – You can purchase individual shares directly or funds managed by firms outside of Vanguard, too. Just know that funds outside of Vanguard tend to be pricier.
- Individual CDs & bonds – Instead of buying a fund that focuses on these investment vehicles, and to add some stability to your portfolio, you can purchase a Certificate of Deposit (CD) or bond on an individual basis.
- Money market mutual funds – For a short-term investment option, you can invest in cash by way of a Vanguard money market mutual fund. Consider this if you need a place to stash money for up to six months.
Other Unique Features
While Vanguard focuses mostly on self-directed investing, it does offer some alternatives:
- Managed portfolios – You can get a personal investment advisor to manage your investment portfolio for an annual fee of 0.3% (which is still pretty competitive).
- Robo-advisors – Vanguard does offer a robo-advisor option, but it requires an initial consultation with a live advisor who will develop a strategy with you. This is part of their Personal Advisor Services, and you can learn more here.
Is Vanguard for You?
Vanguard is best for those who want to play the long game. If you’re a day-trader or an impatient investor, Vanguard isn’t for you. With its low-cost mutual funds and fee-free ETFs, you’re indeed encouraged to use those investments. Also, the more money you have in the account, the cheaper trading becomes (which is typical for brokers). You can invest in individual stocks, but there are other brokers I’d recommend for that, due to cost and options. Overall, if you want to invest for retirement, like low-cost funds, and are interested in index funds and ETFs, Vanguard is a perfect match.
Vanguard is one of the lowest-cost brokers in the industry. If you’re someone who likes to invest in securities and let them ride for a longer period of time before making any changes, you’ll love Vanguard and its pricing structure. Here’s a look at what it costs to make trades with Vanguard:
- Vanguard mutual funds – FREE
- Vanguard ETFs – FREE (unless you buy or sell that ETF more than 25 times in a year)
- U.S. Treasury securities – FREE
- Other stocks and ETFs – $7 per trade
- Options – $7 + $1 per contract
- Other mutual funds (no-load; outside of Vanguard) – $20 per trade
- Futures – unavailable
- Forex – unavailable
Pros to Vanguard
When it comes to investing, Vanguard is one of the lowest-cost brokers you’ll find. So much in fact, that many of the major robo-advisors use Vanguard funds as part of their automated strategy. In some cases, their mutual fund expense ratios are up to 80% cheaper than average mutual funds elsewhere. When you begin to invest large amounts, this makes a huge difference.
For example, their website has a tool that estimates your savings. When I used $100,000 as an initial amount invested, Vanguard says I’d save over $79,000 in 30 years just by using their funds instead of a similar industry fund:
Having your assets managed by an advisor is also cheap. With Vanguard you’ll pay 0.3% of your assets annually to have your investments actively managed by someone. One catch, though–you have to have $50,000 in an account to qualify.
No conflict of interest or sales pressure
Building off of its low cost, Vanguard also has no outside owners. Because Vanguard’s funds are owned by its investors, they don’t push you to buy other products. If you’ve been investing for a while, you know this is a nice feeling because other brokers I’ve used will find a way to “encourage you” to purchase some type of actively-managed fund since it lines their pockets. This also gives you the chance to earn a more significant return on investment since you’re not paying high fees to fund managers.
The performance of their funds
According to Vanguard, 93% of their mutual funds performed better than their peer-group averages over the past 10 years. Once again, if you’re a long-term investor, this is nice to know. Remember, though, that past performance does not indicate future performance of investments, but it’s certainly a track record any long-term investor should feel confident in.
No minimum amount required to open an account
One of the great things about Vanguard is that there is no minimum dollar amount you need to open a new brokerage account (this can vary depending on the specific type of account you’re looking for). Many brokers will make you deposit upward of a few thousand dollars just to get started, so this is a nice feature. The caveat, obviously, is that to invest you need money. The requirement is merely that you have enough to purchase a single share of an ETF (which is usually under $100).
While Vanguard ETFs do have a (minimal) expense ratio, they cost you nothing to trade. That’s right–Vanguard has free trades on their ETFs. If you’re an investor who likes ETFs as a way to quickly diversify your portfolio, you’ll love this feature. You also won’t pay additional fees for broker assistance when buying Vanguard ETFs.
You can mix and match all types of ETFs to give your portfolio some instant diversification, and it won’t cost you anything to do it (in trading fees, that is). The only catch is you can’t buy or sell the same ETF more than 25 times in a year. If you do, you’ll start to pay for those trades.
I’ve had brokers whose online system is terrible to use. It’s cluttered, and you can’t find anything you need. Vanguard is very clean and simple when you log in. And it’s easy to view your portfolio performance as well as get to any relevant documents you might need. This might seem like a silly “pro” but it’s one thing I’ve loved about my Vanguard account–everything is just so easy to locate, and trades are simple to make.
Cons to Vanguard
While Vanguard offers plenty of guides and resources on their website, including a pretty sweet blog, they fall short with standard customer service. Sometimes you just need to talk to someone, and Vanguard lags in this area versus its peers.
The biggest reason for this is its lack of a chat feature. In today’s day and age, nearly all companies are moving to offer a chat option so you can quickly get information while you’re online without having to wait for an email response or someone on the phone.
Instead, Vanguard offers phone support (only during certain hours), mail support (not sure when I’d ever use that), or secure messaging (which is basically like an email). The contact information is also annoying to find–you have to log out and navigate to the Contact page.
High initial minimum investment on some funds
Vanguard’s best funds have a higher than average minimum investment amount. You can find some funds that offer a $1,000 minimum (this is the lowest you’ll see), but the majority of their funds have either a $3,000 or $10,000 minimum investment amount. If you have this kind of money to invest, this isn’t an issue, but it creates a significant barrier for most people just getting started with investing.
Non-Vanguard funds are expensive
Vanguard definitely encourages you to invest in their funds since they’re cheap. If you go outside of that and invest in another type of mutual fund, the trading fees will be pretty steep. I ran into this problem when I rolled my IRA over to Vanguard, and I had some outside funds as part of my portfolio. The cost to sell the fund was triple what I would have paid had I unloaded it with my previous broker before transferring. That was a mistake on my end for not reading the fine print, but if you plan to buy and sell outside funds, Vanguard may not be the best for you.
It’s not suitable for day traders
If you’re trading individual stocks on a daily basis, I would recommend a much lower-cost broker. Vanguard charges $7 per trade (which is excellent on a per-trade basis), but that cost can add up if you’re making multiple trades every day. Read more on who Vanguard is for, but if you’re a day trader–I would avoid Vanguard.
Slim selection when it comes to investment options
As I mentioned above, you can invest in the most common types of investment types, like stocks, bonds, and mutual funds. But if you’re looking to invest in vehicles like foreign currency, futures, or commodities, look elsewhere because Vanguard doesn’t offer them as an investment option.
Not the best for research and analyzing data
The Vanguard research platform is pretty limited. You won’t find things like trend lines, drawing tools, or volume data on securities you’re investigating. This goes hand-in-hand with the fact they aren’t built for day traders, but it’s still a limiting option if you want to research a new security. You also can’t customize your charts like you can with other platforms. This means you cannot pull investments back into charts you’ve created with custom parameters to analyze in the same way you did with previous investments.
Also, your purchases may not line up with actual real-time quotes. I found that even when buying ETFs, quotes are often delayed up to 10 to 20 minutes, which is frustrating if you’re trying to time the purchase of an investment.
Alternative Option – TD Ameritrade
The most comparable option to Vanguard, in my opinion, is TD Ameritrade. TD Ameritrade will give you a much better mobile app experience and a far superior trading platform. Day traders and more active investors might benefit from this as it makes the investment experience overall much better. TD Ameritrade doesn’t have as many fee-free ETFs as Vanguard so it may not be the best if you’re using ETFs as your primary strategy.
As you can see, there are many pros and cons to Vanguard. For the right investor, there is no other option than Vanguard. If you’re someone who is a passive investor, wants to play the buy-and-hold game, and is looking for cheap funds that perform incredibly well, I’d strongly recommend Vanguard. If you’re someone who is brand new to investing, doesn’t know what they want yet, or likes to trade stocks and all types of other funds on a more frequent basis, I’d consider a broker like TD Ameritrade. So ultimately it boils down to your style of investing. Now the only question is, which one will you choose?