Vanguard at a glance
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.
Here's a look at some of the features:
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.
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.