The bottom line: Vanguard is the king of low-cost investing, making it ideal for buy-and-hold investors and retirement savers. But active traders will find the broker falls short despite its $0 stock trading commission, due to the lack of a strong trading platform.
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Pros & Cons
- Large mutual fund selection.
- Commission-free stock, options and ETF trades.
- Leader in low-cost funds.
- Helpful customer support.
- Basic trading platform only.
- Limited research and data.
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Vanguard is synonymous with low-cost investing: The company has a solid reputation for the well-below-average expense ratios on its index funds and exchange-traded funds. For long-term investors looking to pair a buy-and-hold strategy with the lowest-cost offerings, it's hard to beat the service and selection found with Vanguard. Notable features include commission-free ETF trades, more than 3,100 no-transaction-fee mutual funds, and an expanded lineup of proprietary, low-cost, socially responsible mutual funds and ETFs.
Vanguard joined in the broker price revolution, dropping its stock trading costs to $0 in January 2020, down from as high as $7 before. Still, active traders will likely be disappointed by this . Vanguard's trading platform is suitable for placing orders but not much more. Given its longtime focus on buy-and-hold investors rather than active traders, the bulk of our evaluation is based on Vanguard's retirement offerings. If you're interested in actively trading stocks, check out our .
Low costs: Vanguard pioneered low-cost funds — founder Jack Bogle actually — so if those are your game, you’re in excellent hands with this brokerage. Of course, competitors have taken note, and Charles Schwab and Fidelity both have drastically slashed costs (in some cases lower than Vanguard) to attract cost-conscious investors. Still, Vanguard remains the standard bearer; many automated portfolio management services, such as robo-advisors, use its ETFs to keep expenses low. Vanguard also offers two mutual funds and three ETFs for socially conscious investors.
and ETFs aren’t just low cost; they’re significantly less expensive than the industry average. Vanguard’s average expense ratio is 0.10%. The average expense ratio across all mutual funds and ETFs is 0.45%, according to a June 2020 study from investment researcher Morningstar.
Expenses can make or break your long-term savings. If you invested $100,000 and made a 6% annual return, you'd have nearly $39,000 more after 30 years if you paid a 0.25% expense ratio than if you paid 0.50%.
Number of mutual funds and ETFs: In case you haven't noticed yet, Vanguard's bread and butter is low-cost funds. A solid portfolio can be constructed from just a handful of mutual funds or ETFs (such as these ), but Vanguard makes sure you're not left wanting for options. It boasts an impressive collection of 3,100-plus no-transaction-fee mutual funds from other providers (none of Vanguard's 120-plus open funds charges transaction fees). But that total is lower than the 4,500-plus at and 4,200-plus at . Vanguard also offers commission-free online trades of ETFs.
Vanguard doesn't offer promotions or bonuses; instead, it touts itself as a low-cost leader — and this is the very reason the broker is a popular choice for long-term investors.
Admiral Shares: What do you do when you're already low? Go lower. Admiral Shares are a class of Vanguard mutual funds that boast super low expense ratios — as in 41% lower than the company's standard fund share class — and used to be the broker's way of passing along savings to larger account holders. But in 2018, Vanguard lowered the minimum investment threshold for many of those index funds to $3,000 from $10,000. That said, higher minimums persist for other funds ($50,000 for most actively managed funds and $100,000 for certain sector-specific index funds).
To some degree, Vanguard caters to higher-net-worth investors; for example, its robo-advisory arm, , has an investment minimum of $50,000. And the $3,000 minimum for many Admiral Shares funds, even though much more accessible than $10,000, still may be out of reach for lower-net-worth or beginner investors. That said, a handful of Vanguard's mutual funds have $1,000 minimums, including all of their target-date retirement funds. (Looking for help managing your investments? Here are our .)
Still, there is a lower-cost way to purchase Vanguard funds — most are also available as an ETF, and can be purchased on a per share basis.
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.
Platform: Vanguard's trading platform is basic, and lacks the analytical tools typically offered by brokers that support stock trading.
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. That initial minimum purchase amount of $1,000 to $3,000 will be too high for many .
Account service fee: You can avoid this easily by signing up for email delivery of account statements and fund prospectuses. Otherwise, you'll pay a $20 annual fee.
Ask yourself this question: Are you part of Vanguard’s target audience of retirement investors with a relatively high account balance? If so, you’ll likely find no better home. You really can’t beat the company’s robust array of low-cost funds.
Investors who fall outside of that audience — those who can’t meet the fund minimums or want a powerful platform to regularly trade stocks — should look for a broker that better caters to those needs. (Need help figuring out what you want in a broker? .)
Arielle O'Shea also contributed to this review.
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