Vanguard® review 2023

• Fee-free fund investing
• Passive investing
• Long-term investing

Many investors know Vanguard for its stable of low-cost funds, but it also offers a brokerage that may be a good fit for those looking to hold funds for the long term. Thousands of funds are available without commissions or transaction fees, which means more of the return will end up in your pockets. The Vanguard Portfolio Watch tool is also useful for assessing your overall portfolio and seeing where you can improve your diversification.

However, if you’re looking to trade often, Vanguard likely isn’t the best broker for you. Its trading platform is fairly basic and commissions on options trading are above average for the industry. Active traders might consider TD Ameritrade, which has been acquired by Schwab, or Interactive Brokers, both of which offer high-powered trading platforms.

Investors who don’t want to manage their own portfolio may also be interested in Vanguard’s robo-advisor offering, which is called Vanguard Digital Advisor. There, you’ll get portfolio management services and automatic rebalancing, which is appealing to those looking to take a hands-off approach to investing.

Pros: Where Vanguard stands out

Vanguard Portfolio Watch

Vanguard Portfolio Watch is a tool that automatically examines your portfolio to see how it compares to the criteria that you and Vanguard have set. The goal is to make sure your assets are diversified and minimize risks where possible. You can include not only your Vanguard assets, but all holdings so that you can get a comprehensive picture of your financial life and where you might have unidentified risks.

Once you’ve loaded your holdings into the tool, Portfolio Watch will give you a breakdown of what kinds of funds you own by a number of factors, for example, company size or investing style (value vs. growth). Then if there’s a place where you need more exposure – say you own too many funds invested in small companies – it can recommend the funds you need to purchase to even out your portfolio. It’s a neat tool to get a broad perspective on what you own and what you might like to own.

Low-cost funds

Vanguard has long been synonymous with low-cost funds, and that tradition continues. In addition to its own ETFs, Vanguard’s mutual funds number more than 260.

Whether you choose one of its mutual funds or ETFs, you can be sure you’re getting a good deal. Besides not charging any sales load, Vanguard’s funds have among the lowest expense ratios in the industry, fees that could otherwise really eat into your returns over time.

Vanguard says that its average mutual fund has an expense ratio of a razor-thin 0.09 percent. That means you’ll pay just $9 annually on average for every $10,000 you have invested in its funds. That compares to 0.54 percent across the rest of the industry, based on 2022 data from Morningstar and Vanguard. That’s a huge advantage for Vanguard, and increases your average annual return by nearly one-half of a percent annually. 

The average ETF expense ratio was even cheaper on Vanguard’s ETFs, at just 0.05 percent, compared to 0.25 percent for the industry as a whole in 2022. 

Of course, you won’t have to be a Vanguard customer to buy its funds, but its no-fee commission structure makes it easier and cheaper to do so.

No-transaction-fee mutual funds

Vanguard’s mutual fund offering is among the best in the industry and you won’t have to worry about excessive fees. More than 260 Vanguard funds and about 3,000 funds from other firms are available without transaction fees. That compares nicely to some of the top players in the industry, such as Charles Schwab, which has more than 4,000 no-transaction-fee funds. If mutual funds are likely to be your main investment vehicle, Vanguard is a solid broker choice. 

Commission-free stocks and ETFs

Vanguard is among the major online brokerages that have lowered commissions on stocks and ETFs to $0. The pricing structure largely does away with the previous too-complex, multi-tiered pricing system, where commissions were determined by how much you had invested in Vanguard funds. 

A nice perk that could be overlooked is that Vanguard does not charge you to place an order of its own funds (either mutual funds or ETFs) by phone, unlike many other brokers. However, it may charge you $25 to order ETFs from other fund companies via phone, depending on how much you have invested in Vanguard funds. Stock orders by phone will run you $25, as well, though customers with more than $1 million in Vanguard funds will receive this service for free.

Cons: Where Vanguard could improve

Options trading commissions

Vanguard’s commission structure for options is somewhat complex, because it has several tiers depending on how much you have invested in Vanguard’s ETFs and mutual funds. While the broker removed this tiered system for stocks and ETFs, it’s maintained some of it for options commissions. 

It’s a crucial point to note: it’s not just how much you have in the brokerage, but rather how much you have invested in its funds that determine your cost to trade options.

• If you have less than $1 million in Vanguard funds, options trades cost $1 per contract.
• From $1 million to $5 million, the first 25 options trades in a year are free and subsequent trades cost $1 per contract. 
• From $5 million and up, the first 100 options trades are free, and $1 per contract thereafter.

The options commissions sit at the high end of the industry, where the standard price is $0.65 per contract. You can find options even cheaper at TradeStation (as cheap as $0.50 a contract) or completely free at Firstrade, Robinhood or Webull.

High minimums for mutual funds

Mutual funds typically require an initial investment of several thousand dollars, and Vanguard is no different. The minimum investment for target date funds is $1,000, and it moves to $3,000 for most index funds and actively managed mutual funds. That’s quite a threshold for new investors looking to get started, especially for a fund company that touts its investor-friendly cred.

After you make that initial purchase, you won’t face a minimum ongoing purchase amount. 

Account fees

Vanguard charges a $25 account fee annually for accounts. That’s a pesky charge when virtually every other brokerage has eliminated account or inactivity fees. However, the good news is that customers can easily eliminate this fee by agreeing to receive all communications electronically or you’ll receive this waiver if you maintain more than $1 million in Vanguard assets. There are also fees for each Vanguard fund held in certain retirement accounts, but many can be waived if you have at least $50,000 in qualifying Vanguard assets.

Trading platform

Vanguard is not a broker for active traders, so the broker does not offer anything more than a basic order interface. For the right kind of investor, the lack of a trading platform is not detrimental in the least, but it certainly doesn’t help the company in the eyes of active investors. If you’re looking to trade just a few times per year or buy mostly funds, Vanguard will still work for you. 

Fractional shares

If you’re buying a mutual fund or ETF on Vanguard, you’ll be able to buy fractional shares. Vanguard introduced fractional shares trading in its own ETFs recently, but fractional shares trading in stocks and non-Vanguard ETFs is still not available. This may change at some point in the future, but until then small-money investors will miss out on this popular feature. Dividends from stocks, ETFs and mutual funds can be reinvested into fractional shares, however.