Whether you’re a new or seasoned investor, Vanguard has to be on your radar.
Not only does it provide full-service brokerage services and the largest robo-advisor in existence, but it’s also the largest issuer of mutual funds and the second-largest issuer of exchange-traded funds (ETFs).
The company has been so successful that it’s one of the largest financial institutions in the world, with more than $5.3 trillion in total assets under management.
The magnitude of the company – and the prominence of its investment products in institutional investing – are definite signs this company deserves your attention.
And if you already have some kind of managed portfolio in place, such as a robo-advisor account, you almost certainly already have some Vanguard funds in your investment portfolio.
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Vanguard Review: What is Vanguard?
Vanguard is the second largest investment management company in the world, after BlackRock.
It’s well ahead of other well-known competitors, including Charles Schwab, J.P. Morgan Chase (the largest banking corporation in the US), and Fidelity.
Though the company is best known for its mutual funds and ETFs, it does offer both self-directed brokerage services and a robo-advisor.
But funds are Vanguard’s bread-and-butter.
As stated earlier, Vanguard’s funds are so highly regarded that they’re well represented in the portfolios of both human investment advisors and robo-advisors. But they’re also commonly used for employer-sponsored retirement plans.
In fact, many employers hold their plans with Vanguard, allowing their employees to take advantage of the many fund investments the company provides.
Vanguard was launched in 1975, which makes it about middle-aged among major investment brokers.
The company was founded by John Bogle, who also developed the first index fund. The concept of the index fund was virtually revolutionary because it changed the investment industry in fundamental ways.
Up until then, most people invested in mutual funds. Most mutual funds were actively managed portfolios of stocks in scores or hundreds of companies.
But there’s a problem with actively managed funds – most underperform the market, most of the time. If fact, about 85% of all actively managed funds underperform the market in any given year.
Index funds gave investors another option. Since the funds are tied to an underlying index, they match the market performance.
They don’t outperform it, but they don’t underperform it either. This was a win for investors because matching the market proved to be superior to the returns provided by actively managed mutual funds.
And it goes without saying that index funds easily provided better performance than most individuals who select their own stocks.
How Vanguard Continues to be a Leader in the Investment Space
A major reason why Vanguard has become an industry leader is because of low expense ratios. Virtually all funds have expense ratios.
They’re expenses a fund incurs in connection with managing and marketing each fund. The industry average expense ratio is 0.58%. But Vanguard’s average for both mutual funds and ETFs is just 0.10%.
Typical Vanguard fund expense ratios are lower than the competition by nearly a half of a point.
That difference in expense ratios is much more significant than the average investor realizes.
Let’s work an example:
Competitor Fund A has an expense ratio of 0.58%. Vanguard Fund B as an expense ratio of 0.10%. Each fund has been providing a total return of 7% over the past 10 years.
Because of expense ratios, Competitor Fund A has a net annual return of 6.42%, while Vanguard Fund B has a net annual return of 6.90%.
Assuming you invest $10,000 in each fund, what will the results be at the end of 30 years?
- Competitor Fund A: $64,670
- Vanguard Fund B: $74,015
- Difference in cumulative returns: $9,345
Simply by investing in the Vanguard fund, rather than the competitor’s fund, you’ll earn in an additional $9,345 over 30 years.
And other than making the decision to go with the lower expense ratio Vanguard fund, you haven’t done anything extra to produce the higher return.
That’s the result based on a $10,000 initial investment. But if the initial investment is $100,000, the difference in returns would be $93,450.
Now we’re talking serious money!
This is a major reason why Vanguard funds are so popular among institutional investors, and increasingly, among individual investors as well.
Vanguard also charges no commissions to their advisors. And for individuals, they offer more than 75 ETFs and 140 mutual funds that also charges no commissions.
Services Offered by Vanguard
When you open a Vanguard brokerage account, you can trade stocks, options, mutual funds, ETFs, bonds, annuities, and even certificates of deposit.
Naturally, funds are a strong suit even within a Vanguard brokerage account. In addition to commission-free Vanguard funds, they also offer 1,800 non-Vanguard ETFs and 3,000 non-Vanguard mutual funds commission-free.
It’s not an exaggeration to say that Vanguard is one of the very best brokerage platforms if you want to invest in funds of any kind, whether Vanguard funds or the funds of its competitors.
You can also open a Vanguard brokerage account for virtually any purpose.
For example, they accommodate individual or joint taxable brokerage accounts:
In addition, they can assist in trusts, nonprofits, custodial accounts, and 529 savings plans.
To help you in your investing, Vanguard offers valuable tools. First and foremost is their Mutual Fund and ETF Screener tool.
It enables you to isolate the funds you want to invest in. You can decide which type of funds you want to choose, like specific industry sectors, as well as expense ratios. Once you enter the criteria, the tool will give you a shortlist of funds to choose from.
The Vanguard Tax Center is a tool that enables you to continuously track the tax outcomes of your investments. They also offer portfolio analysis that will match your current asset allocation with your target allocation, to help you stay on track.
If the brokerage platform has a weak spot, it’s trading fees. Vanguard’s commission for stocks and options is $7, which is on the high end of the industry range.
But then Vanguard is a platform designed primarily for buy-and-hold investors, and not active traders.
Vanguard Personal Advisor Services (PAS)
If you prefer a managed portfolio option instead of – or in addition to – self-directed investing, Vanguard offers its Vanguard Personal Advisor Services (PAS), which is Vanguard’s version of a robo-advisor service.
However, Vanguard PAS is more of a hybrid between a robo-advisor and a traditional financial advisory service. It offers investors access to a live financial advisor to assist with their financial planning. Access to financial planning services is done via phone, email, or video chat sessions.
Vanguard PAS requires a minimum investment of $50,000 and has a basic annual management fee of 0.30% of your account value. However, the management fee works on a sliding scale, which you can see below.
|0.30%||On assets up to $5 million|
|0.20%||On assets above $5 million and up to $10 million|
|0.10%||On assets above $10 million and up to $25 million|
|0.05%||On assets above $25 million|
The minimum investment is high for robo-advisors, but again, Vanguard offers access to live financial planners, something most robo-advisory services do not offer.
That seems to be an effective strategy because Vanguard Personal Advisor Service (PAS) is the largest robo-advisor in the industry, with more than $115 billion in assets under management.
Popular Vanguard Funds
In fact, according to MarketWatch, all but two of the 10 largest mutual funds are Vanguard funds.
The five largest Vanguard mutual funds are:
- Vanguard 500 Index Fund Admiral Shares (VFIAX), the largest mutual fund.
- Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX), the second-largest mutual fund.
- Vanguard Total Stock Market Index Fund Institutional Plus Shares (VSMPX), the fourth largest mutual fund.
- Vanguard Total International Stock Index Fund (VGTSX), the sixth-largest mutual fund.
- Vanguard Total Stock Market Index Fund Institutional Shares (VITSX), the seventh-largest mutual fund.
Vanguard’s ETFs are also among the largest in the industry.
According to ETFdb.com, six of the 15 largest ETFs in the industry are from Vanguard.
The five largest Vanguard ETFs include:
- Vanguard S&P 500 ETF (VOO), the third-largest ETF in the industry.
- Vanguard Total Stock Market ETF (VTI), the fourth-largest ETF.
- Vanguard FTSE Developed Markets ETF (VEA), the sixth-largest ETF.
- Vanguard FTSE Emerging Markets ETF (VWO), the ninth-largest ETF.
- Vanguard Value ETF (VTV), the 13th largest ETF.
Of course, by itself size doesn’t make a mutual fund or ETF a top performer.
However, it does provide solid evidence of the popularity of Vanguard funds, particularly among institutional investors.
Those institutions specifically seek out mutual funds and ETFs that have an established track record of strong returns and low expense ratios.
That’s exactly what Vanguard funds offer.
How to Get Started with Vanguard
To open an account of Vanguard, you’ll need to specify whether the funds are coming from your bank account, another Vanguard account, a rollover from an employer plan, or a transfer of investments from another financial firm.
Information required will include the routing number and account number for your bank, as well as your current employer’s name and address.
You’ll then need to choose the type of account, which can be either a taxable brokerage account, a retirement account, a small business retirement account, or a 529 or custodial account.
It’ll take about 10 minutes to complete the online application, and you’ll be emailed a confirmation within one or two days.
Once your account is open and funded, you can begin choosing the investments for your portfolio
Should You Open an Account with Vanguard?
Vanguard has a lot going for it, certainly its wealth of wildly popular and commission-free mutual funds and ETFs. Vanguard also recently joined a long list of brokerage firms that have eliminated commissions on stock trades.
It’s the perfect platform for a buy-and-hold investor, especially one who favors investing in funds.
However, if you primarily invest in individual securities, and especially if you’re a frequent trader, you’ll be much better served by going with an investment firm that offers more powerful stock screening tools.
But if you’re a long-term investor and not an active trader, Vanguard just might be the perfect investment platform for you.
Finally, investors who have a more complex financial situation may benefit from using Vanguard Personal Advisor Services which offer a blend of automated financial advice with the ability to access a human financial advisor to help you with more complex questions.