Vanguard® review 2022
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Vanguard: Best for
- Fee-free fund investing
- Passive investing
- Long-term investing
Vanguard has a well-deserved reputation in the fund industry for its low costs and investor-first mentality. But some may not know that it also runs a brokerage that’s a solid choice for investors looking to primarily practice a buy-and-hold strategy in funds. Thousands of funds are available without commissions or transaction fees, allowing more of your money to be invested and increasing your ultimate return. Those looking to trade often will likely be disappointed by Vanguard’s trading platform, however. Active traders are probably better off with brokers such as TD Ameritrade or Interactive Brokers. Still, Vanguard presents a solid option for long-term investors who don’t trade often.
Investors looking to take a hands-off approach to their investments might also be interested in Vanguard’s robo-advisor offering Vanguard Digital Advisor. For a modest fee, you’ll get portfolio management services and automatic rebalancing without having to think about it. This option can be great for new investors who aren’t ready to take a more active role in managing their portfolio.
Vanguard: In the details
Top feature you’ll love
Vanguard Portfolio Watch
Vanguard Portfolio Watch is a tool that automatically examines your portfolio to see how it compares to 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 risk.
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.
Pros: Where Vanguard stands out
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 130.
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 0.10 percent. That means you’ll pay just $10 annually on average for every $10,000 you have invested in its funds. That compares to 0.60 percent across the rest of the industry, based on 2020 data from Morningstar and Vanguard. That’s a huge advantage for Vanguard, and increases your average annual return by one-half of a percent annually.
The average ETF expense ratio was even cheaper on Vanguard’s ETFs, at just 0.06 percent, compared to 0.24 percent for the industry as a whole in 2020.
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.
Vanguard was created on the vision and positive ethos of founder Jack Bogle to help individual investors build wealth, and that’s most obvious in the broker’s education and planning tools. The broker offers articles, videos and podcasts that inform clients on the state of the market and help investors make smart financial decisions with a long-term mindset.
The broker’s site includes tons of retirement-planning tools, calculators and resources for investors of all ages. Investors can set up plans for various goals, compare funds side-by-side, screen for funds, as well as project college and retirement costs so that you can meet them.
Commission-free stocks and ETFs
Vanguard is among the major online brokerages that have lowered commissions on stocks and ETFs to $0. But its decision was hardly in the vanguard at all, as the company was among the last major online brokers to make the move to commission-free. But the shift definitely behooves a fund company that’s long been known for its investor-friendly pricing. The pricing structure largely does away with the previous too-complex, multi-tiered pricing system, where commissions were determined on 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 does charge you $20 to $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 $20 to $25, as well, though customers with more than $1 million in Vanguard funds will receive this service for free.
No-transaction-fee mutual funds
Vanguard offers a truly astounding number of mutual funds on its platform: more than 14,000. So chances are that you can find what you’re looking for in a fund. Of these, more than 9,750 can be purchased without a sales load, while more than 3,200 can be traded without a transaction fee. That compares nicely to some of the top in the industry, such as Charles Schwab and TD Ameritrade, both of which have more than 4,000 no-transaction-fee funds.
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 determines 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.
Vanguard charges a $20 account fee annually for accounts with less than $10,000 in Vanguard assets, either ETFs or mutual funds. 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 $50,000 in Vanguard assets.
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.
If you’re buying a mutual fund on Vanguard, you’ll be able to buy fractional shares. Otherwise, you’re out of luck on purchasing partial shares on stocks and ETFs. However, if you have dividend reinvestment set up, Vanguard will allow you to reinvest into fractional shares of mutual funds, ETFs or stocks.