Vanguard is the king of low-cost investing, known for the well-below-average expense ratios on its index funds and exchange-traded funds. It’s hard for long-term investors to beat the service and selection found here.
Active traders, on the other hand, will likely find that this stock broker falls short. Vanguard doesn’t have trading tools or platforms, and its commission schedule penalizes investors who trade more than 25 times per year.
January 10, 2017
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Vanguard is best for:
- Long-term or retirement investors.
- Those who prefer low-cost investments.
- Index fund and ETF investors.
- Investors with high account balances.
Vanguard at a glance
|Stock trading costs||Vary by account balance:
• Less than $50,000: $7 per trade for first 25 trades each year, $20 thereafter.
• $50,000 to $499,999: $7.
• $500,000 to $999,999: $2.
• $1 million to $4,999,999: First 25 trades each year are free, $2 thereafter.
• $5 million and up: First 100 trades each year are free, $2 thereafter.
|Options trades||Vary by account balance:
• Less than $50,000: $20 + $1 per contract.
• $50,000 to $499,999: $7 + $1 per contract.
• $500,000 and up: $2 + $1 per contract.
• Accounts with balances of $1 million and above earn free trades.
|Account minimum||$0; however, fund minimums start at $1,000|
|Account fees |
|$20 annual account service fee for all brokerage accounts and IRAs with balances of less than $50,000. Waived for clients who sign up for e-delivery or have at least $10,000 in Vanguard funds.|
|Trading platform||Not rated||None offered|
|Mobile app||No trading app; standard mobile app to view accounts, investment returns and research funds.
|Mutual funds||More than 2,600 no-transaction-fee mutual funds|
|55 commission-free ETFs|
|Research and data||Limited|
|Tradable securities||• Stocks
• Mutual funds
|Phone support Monday-Friday, 8 a.m.-10 p.m. Eastern; email support|
Where Vanguard shines
Expense ratios: Vanguard pioneered low-cost funds — founder Jack Bogle actually invented the index fund — so if those are your game, you’re in excellent hands with the brokerage. In fact, automated portfolio management services, such as robo-advisors, often use Vanguard ETFs to keep investor costs down.
And Vanguard’s mutual funds aren’t just low cost; they’re significantly less expensive than the industry average. Vanguard’s average expense ratio is 0.18%, and the typical equity mutual fund carries an expense ratio of 0.68%. (That’s an asset-weighted average from the Investment Company Institute. “Asset-weighting” more accurately reflects investor costs because it weights larger funds — with more investors — more heavily when calculating averages.)
Expenses can make or break your long-term savings. If you invested $100,000 and made a 6% annual return, you’d have $105,000 more after 30 years if you paid a 0.25% expense ratio than if you paid 1.0%.
Fund performance: You might assume you get what you pay for when it comes to fund performance, but the opposite is often true. Vanguard cites a Lipper report showing that 93% of its fund returns beat their peer-group averages over the 10-year period that ended in September 2016. Morningstar also consistently praises many of Vanguard’s funds, and gave its target-date retirement funds a gold rating.
This doesn’t mean all of Vanguard’s funds excel — as always, it’s important to research and benchmark each individually. But overall, the company gets high marks in this area.
Admiral Shares: Admiral Shares are a class of Vanguard mutual funds with minimum investments of at least $10,000. Most of the actively managed funds have a minimum of $50,000, but expense ratios are 52% lower than the company’s standard fund share class. It’s Vanguard’s way of passing along savings to larger accounts.
There’s little question that Vanguard caters to higher-net-worth investors; its robo-advisory arm, Vanguard Personal Advisor Services, has an investment minimum of $50,000, for example. And this is one service that won’t benefit lower net worth investors. Vanguard says it automatically evaluates fund accounts for Admiral Shares eligibility, but if a balance in the fund drops below the minimum requirement, the account may also be automatically converted back.
Investor education: Like other retirement-oriented brokers, Vanguard offers a wealth of retirement planning tools and resources on its website. Investors can learn about investment options and prioritizing their goals, predict when they’ll be able to retire with high-quality calculators and tools, estimate their retirement expenses and weigh the benefits of converting a traditional IRA to a Roth.
Where Vanguard falls short
Trading: Vanguard doesn’t target active traders. But we want to make this clear: Its pricing structure discourages the strategy, increasing commissions for investors who trade more than 25 times per year on account balances of less than $50,000. Many other online brokers discount commissions based on volume. And Vanguard doesn’t provide a trading platform or many of the analysis tools typically offered by brokers that support stock trading.
Traders with larger balances who don’t mind the lack of a platform can benefit from low costs, though. Once your account balance crosses the $50,000 mark, trades cost a mid-range $7 no matter how many you execute; the cost drops to just $2 a trade for balances of $500,000 or more. Those with balances of $1 million or more can make a limited number of trades for free.
» MORE: See our head-to-head comparison of Vanguard vs. Fidelity.
Fund minimums: Mutual fund minimums are common, don’t get us wrong. But some competitors waive them on select funds if investors agree to monthly auto-deposits. Most Vanguard retirement funds and the Vanguard STAR Fund have investment minimums of $1,000, and other Vanguard funds carry minimums of $3,000.
Account service fee: You can avoid this easily by signing up for email delivery of account statements and fund prospectuses. Otherwise, if you don’t have a total balance of at least $50,000 or hold $10,000 or more in Vanguard funds, you’ll pay a $20 annual fee.
Is Vanguard right for you?
That depends on whether you’re part of Vanguard’s target audience: retirement investors, especially those with relatively high account balances. If you are, you’ll likely find no better home. You really can’t beat the company’s well-performing and low-cost funds.
Investors who fall outside of that audience — those who can’t meet the fund minimums or want to regularly trade stocks — should look for a broker that better caters to those needs.
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Updated Jan. 11, 2017.
A previous version of the chart in this article misstated the number of commission-free ETFs and no-transaction-fee mutual funds. The chart has been corrected.