Founded in 1975 by Jack Bogle, Vanguard is best known for its low-cost mutual funds. Bogle created the brokerage firm when he realized that most managed funds failed to beat market indices. Today, the brokerage firm has become one of the world's largest investment management companies that's known for introducing the world to low-cost index investing.
- Investment opportunities
- Mutual funds
- Tools and resources
Vanguard also tries to make the investing process as simple and seamless as possible by offering a range of resources to its investors, from financial planning to asset management services. While the brokerage firm is known for its mutual funds, it also offers its clients a variety of other managed funds and ETFs. Other benefits include:
Vanguard offers a comprehensive range of investment options in stocks, ETFs, and bonds. Investors on Vanguard can also place trades outside of the brokerage firm without incurring major penalties, so long as they hold a Vanguard account. An account with Vanguard will allow them to transfer investments "in kind," which involves moving them around without tax consequences.
Vanguard's main focus, however, is on low-cost mutual funds and ETFs. It's a focus that's pushed them to charge no commission fees for trading their mutual funds, a fact that can seldom be said about other brokerage firms. To make trading easier, the firm provides research on mutual funds via fund profiles and provides a mutual fund and ETF screener. This screener lets investors filter information by fund and management style. Investors can also create a hypothetical portfolio before investing any money. This brings investors some peace of mind as they can plan out their investments beforehand, making changes as they see fit, all without forking up any money. Investors also take advantage of the brokerage firm's provisions of alert messages and portfolio analysis.
Tools and Resources
Vanguard's portfolio analysis tool is free and incredibly helpful for investors who want an insight into their allocation of assets and the associated costs of taxes. Additionally, the tool helps investors to manage risks identified in the portfolio by recommending ways to improve upon the figures. When investors require additional help outside of the online system, they can rest assured that the brokerage firm's customer service is efficient. When calling, investors have ensured a live person who is knowledgeable and can assist with their inquiries.
Stock traders also have access to valuable resources to facilitate their investments. For instance, investors hail Vanguard's stock screener, which helps them make informed decisions before placing trades. The stock screener is customizable, allowing users to pick criteria they'd like to analyze based on market indices or industry sectors. Some of the customizable criteria include minimum deposits, risk levels, and tax efficiencies. Once investors make a decision, they can place a trade directly, and then compare funds to see which ones perform better.
- Prices and rates
- Online presence
- Fund woes
Despite offering a number of helpful investment resources and solutions, the Vanguard platform also possesses a number of drawbacks. Prospective clients should be aware of the following items prior to using their service:
While mutual funds are Vanguard's prime focus, it seems ETFs might be a more cost-efficient choice for investors. The $3,000 minimum purchase for most funds, for instance, is pretty steep, and Vanguard charges $1,000 minimum reinvestments thereafter. Vanguard's lower fee mutual funds, Admiral Shares, boast expense ratios that are around 30-50% lower than other mutual fund shares. However, this advantage comes at a steep price since participants of these mutual funds generally require at least a $10,000 balance in the mutual fund. Thus, investors who have control over their account may want to go the ETF route instead, as ETFs tend to be more tax efficient and cheaper, with lower expense ratios.
Prices and Rates
Vanguard's stock and non-Vanguard ETF prices are quite high compared to what other brokerage firms charge. Accounts with less than $50,000 are charged $7 for the first 25 trades and then $20 for subsequent trades. Investors who want access to unlimited $7 trades need to have more than $50,000 in their account. Vanguard also offers $2 trading fees, but investors require a minimum of $500,000 in their accounts to qualify for this reduced fee. Thus, unless stock investors want to create a large account with Vanguard, they're better off using another brokerage firm.
Another one of the company's drawbacks is its website. Users have complained about its outdated look and clunky feel. The charts that the site produces tend to be poor in quality and users complain they can't save their charts' indicators. While the site's research tools are helpful, critics say they pale in comparison to the tools and instruments found at other brokerage firms. Additionally, the site's trading tools need to be updated too in order to keep up with the industry. Investors complain that they can't modify an order and instead have to cancel it, then resubmit it, a tedious task they can avoid doing by moving to some of Vanguard's competitors.
Some critics believe the time for mutual funds is slowly coming to an end. Today, these funds are being replaced by low-cost and simple to trade ETFs. This means that Vanguard's distinguishing factor, mutual funds, might fail to help it rise above the competition.
The Bottom Line
While Vanguard's distinguishing feature is its mutual funds, unfortunately for the company, they no longer have exclusivity in this arena. There are other mutual fund houses that also provide commission free ETFs and either similar or reduced mutual fund fees when compared to Vanguard's annual fees. This further diminishes Vanguard's competitive edge in the market. Stepping outside of mutual funds and ETFs, investors will incur greater costs when placing trades with Vanguard. Individual stocks, for instance, are priced much higher at Vanguard than other brokerage firms.
Vanguard is thus ideal for investors who want to hold large accounts at their brokerage firms and who want to deal exclusively in in-house mutual funds and ETFs. For such investors, the low costs and fees associated with placing these kinds of trades will make Vanguard's services worth it. For other investors who don't want to invest significant amounts of money, it may not make sense to use this brokerage firm.