Vanguard®

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Bottom line in a sentence

Though investors who want to be in control may feel Vanguard falls short, hands-off investors who like the investment firm's low-cost mutual funds and ETFs will feel right at home.

Vanguard at a glance

Star Rating

3
  • Affordablity: 3 of 5
  • Usability: 3 of 5
  • Tools & Research: 3 of 5
  • Mobile: 3 of 5
  • Scalability: 3 of 5
  • Minimum Balance: $0
  • Cost per stock trade: $7 for your first 25 trades annually, then $20 thereafter* * - Based on standard pricing, for accounts under $50,000
  • Cost per options trade: $7 + $1 per contract
  • Commission-free mutual funds or ETFs: 70 branded Vanguard ETFs, and thousands of no-transaction fee mutual funds.
  • Customer service: Phone support Monday through Friday from 8 a.m. to 10 p.m. EST
  • Best for: Investors who want low-cost index funds

What it is

Vanguard is the 800-pound gorilla in the brokerage space, pulling in a staggering $386 billion in capital last year to bring its total assets under management as a company to over $5 trillion.

Yes, that's trillion with a T!

But unlike big hedge funds that win over investors with their sophisticated strategies and talented active advisors, Vanguard's success is built on the simple notion of making more money by doing less. Founder and former chairman Jack Bogle is credited with creating the world's first index fund – that is, an investment tied to a benchmark like the S&P 500 and not actively managed by human stock-pickers. His idea was simply to "buy the market" as cheaply as possible, figuring that the gains from cutting out fees and expenses would pay off in the long run.

That message has resonated, both as investors have grown more conscious of costs and as the financial crisis of 2008 soundly refuted the notion the "experts" should be implicitly trusted to understand the markets best.

If you're a set-it-and-forget-it kind of investor who cares about how much a fund manager is charging you, then Vanguard is perfect. But if you have any interest in looking beyond index funds, it's clear that this platform isn't very concerned with helping you with those other choices.

What it costs

Validating the Vanguard philosophy of trading less often and just leaving your money alone for the long-term, the cost structure for trades actually incentivizes inactivity – charging $7 for your first 25 transactions, then ratcheting up fees to $20 per trade after that.

This is out of step with just about every other volume-based pricing plan out there, where brokers look to discount trades for their most active (and most valuable) clients. But that's Vanguard for you! The company's whole philosophy is about low-cost funds for the long-term, and they want investors to think about this constantly on their Vanguard brokerage platform … and not much else.

Sure, you can lock in a $7 per-trade cost structure if you have more than $50,000, but $7 a pop is still at the very top of what brokers are charging across the board. And eventually, after you get to a $1 million portfolio, your online stock trades are free, but let's be honest about how long it takes most Americans to save that kind of cash.

For an active investor with less than $50,000, the cost of this broker is awfully high and actually discourages you from trading anything other than Vanguard-branded funds. But that is, in many ways, the point.

What it offers

Given the popularity of Vanguard and its massive hoard of assets, there are plenty who are drinking the Vanguard Kool-Aid these days and who may not be scared off by this rather unwelcoming approach to anything beyond its namesake index funds.

And if you're serious about investing via funds, the good news is that the Vanguard is objectively at the head of the pack. Additionally, the platform does have more to offer than simply a conduit to purchase funds with its logo on there, offering comparisons against other products from different fund families as well as tools to think holistically about portfolio makeup and long-term planning.

Quick comparison of Brokerage options:
Brokerage Overall Rating Avg. Cost Per Trade Usability Rating
vanguard logo Read Our Review
$7 3 of 5
e-trade logo Read Our Review
$6.95 4 of 5
charles-schwab logo Read Our Review
$4.95 5 of 5
td-ameritrade logo Read Our Review
$6.95 5 of 5

Here's a look at some of the features:

  • Portfolio Assistance: While other brokers sometimes stress their flashy tools or their in-depth research, Vanguard stays true to its long-term focus with tools and education designed around holistic portfolio management for retirement and not simply digging into a single trade for short-term gain. The dashboard compares your portfolio to recommended asset mixes for someone your age, and Vanguard Portfolio Analysis dashboard lets you take a big picture look at all the assets you own and compare them with the norm. This is a great gut check for anyone serious about diversification in pursuit of long-term gains instead of fashionable short-term trades that may leave you exposed to more risk.
    "If you ever wondered how your single-stock investments or ETFs overlap by asset type, Vanguard can help you take a high-level look at your portfolio with an eye towards diversification."
  • Apples-to-Apples Fund Shopping: While Vanguard certainly does plenty to prioritize its own funds, it knows that the strength of its mutual funds and ETFs should be self-evident in their structure. Thus, Vanguard provides decent fund comparison tools with the ability to compare assets, pricing and (most importantly for Vanguard's mission) expenses side-by-side with just a few clicks. If you're on this platform for the funds, you'll get good mileage out of this tool.
  • Quality Personal Finance Advice: Look, the internet is cluttered with so-called "experts" who claim to care about your financial future, but really just want to take a few bucks from you under the guise of giving advice. But if you're a Vanguard customer, you get advice on everything from tax tips to retirement planning from qualified advisors who are certified public accountants and certified financial planners. The educational resources to bend towards personal finance topics like saving or estate planning, but these are topics worth exploring. And you can be sure that with Vanguard's slow-and-steady approach via low-cost funds, that they aren't trying to push you into products just to make a quick buck.
  • The Cheapest Funds Money Can Buy: If you haven't gotten the gist yet, Vanguard is all about cutting costs. But when you see just how cheap they can go, it's simply staggering. Consider the Vanguard S&P 500 ETF (VOO). An investor with even just $1,000 can open an account thanks to the $0 minimum, purchase this exchange traded fund at no charge since it's on Vanguard's list of no-cost ETFs and then is charged a measly 0.04% annually in fund expenses. That's just 40 cents on that $1,000 investment, all-in! And if you don't like the risk of stocks, the Vanguard Total Bond Market ETF (BND) has a 0.05% expense ratio, charging you just 50 cents annually on $1,000. There's are dozens of other funds like this, too, charging less than $1 annually on $1,000 invested – which makes you understand why Vanguard is such a powerhouse.

What it lacks

The flip side of this focus on low-cost, passive funds is that anyone who wants to actively trade stocks or options is simply not welcome here.

"Heck, even the stock comparison tools (which are admittedly underpowered vs. the competiton) have a built-in feature that encourages you to compare them to a benchmark index! It goes to show yet again that Vanguard is all about low-cost index funds, and isn't afraid to remind you of that even when you're in the middle of researching individual stocks on its platform."

The long-term focus means there's an utter lack of urgency in any market metrics or research. In fact, in many of the views the default time frame isn't just one year but 10 years. And after one look at a stock quote page or options chain, it's clear that you're better off going just about anywhere else to do your research before trying to muddle through the trading process on Vanguard.

But again, this is not a bug – it's a feature. Vanguard wants you think long-term, about low-cost funds and diversification. And if you want to think otherwise, they would prefer you do it elsewhere.

Of course, it's worth noting that in place the salesmanship does overshadow what is mostly a well-meaning philosophy. It's all well and good that Vanguard tries to surface its ETFs as you search for a mutual fund, partially because the expenses always seem to be lower. But consider that when you click on the "buy and sell" item in the top level navigation, your first choice is "Buy Vanguard Funds."

There are many cases when Vanguard simply can't be beat. But for the last several years, every mutual fund and ETF provider has been restructuring their business – and their costs – to tap into the desire for low-cost index funds. There may sometimes be other funds out there that are on par or in select cases even cheaper than Vanguard, so don't forget to do your homework even here.

This broker is best for...

In perhaps the most obvious conclusion imaginable, Vanguard is great for Vanguard investors.

That happens to also encapsulate just about everyone else who is committed to low-cost index funds and a long-term investing strategy, but at times it feels like Vanguard is simply assuming it has the best option for you without even bothering to size up the competition.

To be fair, nine times out of 10 it is simply not possible to top Vanguard, so they deserve to be declared the winner. After all, 0.04% of $5 trillion is $2 billion – meaning that even if every penny this company had under management when in its "cheapest" fund, it would still earn $2 billion in fees every year.

Other providers often can't afford to cut margins that thin because they simply aren't big enough. And even when they can, the difference in cost may be so negligible that the premium charged by Vanguard is de minimus.

At least, that's what they hope you'll think.