Many investors (particularly novice investors) are often under the impression that a full-service brokerage is a one-size-fits-all solution.
Even if a service offers stocks, penny stocks, mutual funds, ETFs, bonds, forex trading, and options, you might not be their focus. Vanguard is a prime example of a brokerage that does it all.
Vanguard is a popular full-service broker among investors owing to its low-cost funds. The expenses make this brokerage a great choice if you’re a wealthy investor saving up for retirement or if you’re a buy-and-hold investor. Essentially, if you’re betting on long-term, this service is ideal.
Vanguard won’t be in line with your investment strategy if you’re an active trader or if you’re a novice with short-term goals in mind.
That’s because most beginners don’t have a net worth in millions, and Vanguard will charge you a pretty penny in commissions if you don’t have a high net worth. The higher your net worth, the lower the commission.
The commission isn’t just steep. It also compounds if you make more than 25 trades annually – a not so subtle way to deter investors from active trading.
How do you get started? You can choose from their varied selection of accounts and choose one that works well with your investment strategy and future goals.
If you’re looking to save up for retirement where it can grow tax-free, or at least as a tax-deferred investment, consider setting up an IRA account.
What “tax-deferred” means is that you will be taxed at a lower rate when you retire because you’ll probably move to a different tax bracket. So, your investment will grow tax-deferred. This approach is the basic idea behind a traditional IRA account.
The other type of IRA account is the Roth IRA. In a traditional IRA account, you pay the tax after you contribute. A Roth IRA account lets your earnings grow tax-free after you contribute with after-tax money or money on which you’ve already paid taxes.
Vanguard offers both these account options. You can opt for whichever one serves your objectives better.
If you’re looking for a plan geared toward college savings, which lets you use your funds flexibly (and with certain tax advantages), then a 529 college savings plan would be the way to go.
Even with low-cost investments, your earnings grow tax-deferred. And the funds are flexible so that you can use them for college expenses, as well as K-12 tuition expenses.
Additionally, you can also go for fixed and variable-rate annuities, or individual or joint accounts. Or if you’re planning for retirement or you’re a small business owner, there’s 401(k) and simple IRA plans too.
Here’s a rundown of all the accounts Vanguard offers:
- Money market
- Traditional/Roth/Rollover IRA
- SEP IRA
- Simple IRA
- 529 college savings
- Individual 401(k)
You can trade Vanguard funds and ETFs commission-free, but if you plan on buying funds and ETFs through Vanguard, they can be steep. Like I mentioned above, if you don’t have a high account balance, trading stocks at Vanguard won’t be economical.
As for a minimum balance and investment, you’ll need to invest $3,000 (recently lowered from $10,000) if you’re opting for Vanguard-only mutual funds. As far as ETFs go, though, you only need to own one share, which can cost you as low as $50.
So, if you’re a beginner, investing in EFTs would be the smart move. Regardless of that, you’ll have to invest at least $1,000 (in the Star fund) to get started. Unfortunately, there’s no way to waive this deposit, but this fee is typical for most investment brokers.
To qualify for their admiral shares and save more on fees, you can either invest at least $10,000 in their index funds or $50,000 in their actively managed funds.
- If less than $50,000, then 25 trades are $7; after that, you’re charged $20-25
- If more than $50,000 but less than $500,000, you’re charged $7 by phone or $20 online
- Up to a million dollars: $2
- Up to $5 million: $2 and 25 free trades
- Above $5 million: $2 and 100 free trades
The $2 per trade fee seems attractive, but if you’re an average Joe, chances are you can’t invest enough to benefit from that rate. For those who do invest to meet the threshold, Vanguard gives most of its competitors a run for their money.
Why choose Vanguard?
As explained above, Vanguard funds are low-cost. The lowest in the market. The rates are so low that they have made Vanguard’s competitors (Fidelity and others) rethink their fee structures.
The mutual funds have a considerably low expense ratio, too – 0.11% as an average and 0.62% for equity funds. It goes without saying that the lower the expense ratio you have to pay, the more returns you get on your annual savings.
What all of this means in plain English is this: if you invest at least $50,000, Vanguard will manage your investments for you and take a 0.3% cut from your securities every year.
But why are Vanguard funds relatively inexpensive and low-cost? That’s because Vanguard’s investors own the company. The investors are people like you who buy its mutual funds and ETFs, so Vanguard does not have to pay fees to third parties.
Including Vanguard’s own ETFs, it covers 1,800 commission-free ETFs and more than 3,000 commission-free mutual funds. Although a few mutual funds or ETFs should suffice if you’re building a portfolio, you have plenty of options to choose from, nonetheless.
Vanguard is also accessible via your smartphone. You can download their Android or IOS version of the app and get a quick overview of your investments and account information.
The app also lets you trade your mutual funds and ETFs. It also gives you access to Vanguard’s educational portal, which can help you make better investment decisions.
Aside from the educational resources, their online investment calculators can help you calculate your savings and investment-related choices.
Why it might not be the right option for you
Vanguard’s competitors have an edge when it comes to investment minimums. As I touched on above, you have to deposit at least $3,000 to get started – a minimum that can’t be waived.
So, if you’re cost-conscious about this non-negotiable fee, there are cheaper or even free alternatives you might want to look into.
Customer support is another feature where Vanguard falls short. If you have a burning question, you’re limited to either email correspondence or a phone call. If you send a question by email, there may be a delay until you get an answer, and then, you can only call them during particular hours, if you don’t want to wait for the information. Most online investment brokers streamline this process by offering you a chat feature.
Their website has a dated and basic design. You wouldn’t mind the aesthetic if the design were user-friendly. It’s not. Let me give you a quick example. If you’re looking for Vanguard’s contact information, you’ll have to log out to find the “About Us” page.
There aren’t any charts or reports for trading on the platform either. If you’re a day trader, you won’t find Vanguard’s tools for tracking up to standard. If you’re an active trader, you’ll need an automated system or at least some degree of customization. Vanguard offers neither.
Besides, a day trader needs to make frequent trades, and Vanguard discourages that by penalizing trades beyond a certain threshold.
Vanguard Review Bottom Line
In a nutshell, if you’re a parent looking to save up for your child’s college expenses, an investor trying to save up for retirement, or an investor with the long game in mind, you’ll find that Vanguard is the ideal investment broker.