Vanguard is an excellent choice for investors thinking about retirement, but if you intend to actively trade, you can find a better deal elsewhere.
Vanguard is the second-largest asset management group in the world and a pioneer in index funds. It offers all major types of investment products, including stocks, bonds, mutual funds, ETFs, and CDs. Though you only need $1,000 to sign up, Vanguard is targeted to those with a lot to invest. The more money you put in, the lower your trade commissions become, with the biggest investors only paying $2 per trade. You won’t find that rate anywhere else in the industry, but you won’t earn it until you invest $500,000, which will put it out of reach for most people.
Vanguard isn’t for the active trader. Unlike most of its competitors, it charges more to those who trade often to discourage the practice. It’s also lacking the extensive library of educational resources most online brokers offer to help their clients make smart investments. Vanguard does have some online articles as well as some useful calculators, though, and if you need further assistance, you can speak to one of its financial advisors.
|Price||Less than $50,000: First 25 trades $7, then $20 online, $25 by phone
$50,000 – $500,000: $7 online, $25 by phone
$500,000 – $1 million: $2
$1 million – $5 million: First 25 trades free, then $2
$5 million and above: First 100 trades free, then $2
|Options||Less than $50,000: $20 + $1 per contract
$50,000 – $500,000: $7 + $1 per contract
$500,000 and above: $2 + $1 per contract
|Minimum Initial Investment||$1,000 for Vanguard Target Retirement Funds and Vanguard STAR Funds
$3,000 for most other accounts
|Annual Account Service Fee||$20 (waived for those with a balance above $50,000 and those who sign up for paperless documents)|
|Investment Products||Mutual funds
529 college savings plans
|Best For||Long-term retirement investors|
|Not For||Active stock traders|
|Standout Features||Industry leader in low-cost mutual funds and ETFs
Low commissions for those with over $500,000 invested
Mobile account management
Vanguard provides a low-cost, hassle-free investment solution for those looking to save for retirement. It offers a full complement of investment products, including stocks, bonds and CDs, though it is best known for its mutual funds and ETFs.
Is it True?
Yes. Since its founding in 1975, Vanguard has grown into one of the largest investment management companies in the nation. Its success is due in large part to its low-cost index funds. These are a type of mutual fund that invests broadly across a market index, like the Standard & Poor’s 500 (S&P 500) Index, in a way that maintains portfolio diversification and keeps costs low. This passive investing strategy requires less work on the part of fund managers, and these savings are passed along to you in the form of a lower expense ratio.
Vanguard’s index funds have become so popular that 16 of them have made Money’s list of the 50 Best Mutual Funds and ETFs. There are no commissions when you buy or sell these products, and the average expense ratio is 0.19% — over 80% below the industry average. If you’re looking to invest primarily in these types of funds, you’ll be hard pressed to find a better option than Vanguard.
Vanguard offers other products as well, including stocks, bonds, and CDs, but it’s clear the company doesn’t cater to active traders. It lacks a trading platform and, compared to many of its competitors, its educational resources are limited. And unlike most companies, Vanguard actually increases the cost of trades over time to customers with less than $50,000 in their accounts. Your first 25 trades cost only $7, which is pretty reasonable, but any more than that and you’ll be charged $20 per trade. As you invest greater amounts of money, you can get costs down as low as $2 per trade, but most people won’t qualify for this. In order to secure that rate, you have to invest $500,000 or more in Vanguard mutual funds and ETFs.
Those investing for retirement will find plenty to love about Vanguard. It offers traditional and Roth IRAs, 401(k)s, and annuities. You can also rollover your existing 401(k) or 403(b) to Vanguard. There are online tools to help you understand how much you need to save for retirement and what types of products you should invest in based on your age and financial situation. And if you need further assistance, you can contact Vanguard Monday through Friday to speak to a representative who can steer you in the right direction.
Our Deep Dive
- Wholly owned by clients: Vanguard is owned by its clients — those who have purchased Vanguard mutual funds or ETFs. Because it doesn’t have outside owners it must pay, it is able to offer its services to you at a much lower cost.
- Low-cost mutual funds and ETFs: Vanguard’s expense ratios are far below the industry average, so you get to keep more of your money.
- Save for retirement: Vanguard offers traditional and Roth IRAs, as well as 401(k)s and annuities. If you currently have a 401(k) or a 403(b), you can roll these accounts over to Vanguard so you can manage all of your finances in one place.
- Best for high account balances: The more you invest in Vanguard, the more benefits you will receive. The cost of trading decreases as your account balance rises, and those with $500,000 or more to invest will be eligible for rates as low as $2 per trade. Individuals who invest over $10,000 are eligible for Admiral Shares, which come with lower expense ratios to help save you money.
- High initial investment required: Most Vanguard accounts require an initial deposit of at least $1,000. This isn’t uncommon for the industry, but many of Vanguard’s competitors waive this minimum if clients agree to set up periodic automatic deposits into their investment account. Vanguard doesn’t give you this option.
- All types of investment products: You can choose from stocks, bonds, mutual funds, ETFs, and CDs to build your investment portfolio. Margin and options trading are also available upon request.
- Not for active traders: Vanguard doesn’t have a trading platform and it offers little in the way of research and analysis compared with some of the top online brokers. It also penalizes frequent trading, raising the per-trade cost after your first 25 trades. This penalty goes away once you’ve invested enough money, but it’s unlikely that many people will reach this point quickly.
- Speak to a financial advisor: If Vanguard’s online resources don’t answer your questions, you can call the company to get your questions answered by a financial advisor. Customer support is available weekdays from 8 a.m. to 10 p.m. Eastern Time.
- College savings plans: Parents looking to save for their children’s college can open a 529 college savings account through Vanguard. The company has online resources to help you determine the type of 529 plans available in your state and what your best option is.
- Account service fee: Vanguard charges its customers a $20 annual account service fee, though it is easily avoided. If you have invested over $50,000, it is automatically waived, but if you don’t meet this requirement, signing up for paperless statements can also eliminate the fee.
- Online investment calculators: If you’re not sure which mutual funds to invest in or how much you need to save for retirement, Vanguard’s online tools can help you out. Just answer some basic questions about your finances and your plans for the future and you’ll get good recommendations on how to best invest your money.
- Mobile account management: Vanguard offers mobile apps for Android and iOS devices. They enable you to view your account information and track your investments over time. You can also buy and sell stocks, mutual funds, and ETFs directly from the app. Deposit funds by taking a picture of the front and back of a check and submitting it to Vanguard. The app also gives you access to the same online education resources found on the company’s website.
Investing with Vanguard will cost you at least $1,000 upfront. The company doesn’t have a minimum for opening an account, but fund minimums begin at $1,000. There is no option to waive this fee by enrolling in automatic deposits, but don’t let that deter you. No matter which company you go with, you’ll have to deposit some money, and preferably enough to make a substantial investment.
If you choose to invest in stocks or ETFs from other companies, the amount you’ll pay will depend on how much you’ve invested in Vanguard funds and ETFs, as well as how often you trade. The system is designed to discourage active trading and reward sizeable investments. A client with $20,000 in their account will be charged $7 for their first 25 trades and $20 for every trade thereafter. If that same client were to invest $500,000, they could buy stocks for $2 per trade. Unfortunately, most people aren’t going to be able to invest that kind of money, so they won’t be able to take advantage of rates that low. If you are one of the lucky few, though, you won’t be able to find a better deal.
Cheaper (or Free!) Alternatives
If you’re interested in more active trading, you can find a better deal with another online broker. Merrill Edge offers a $6.95 flat-fee trade plan, for example. Ally Invest and OptionsHouse both offer $4.95 trade fees with no minimum opening deposit, making them the cheapest options by far. Going with any one of these three brokers is definitely the way to go if you’re interested in taking a more active role in your investments.
Before you deposit your money in any kind of investment account, though, you should do some research. Think about how you want to invest and look at the commissions and fees the company charges, as well as how those change as your account grows. Make sure you’re choosing something that’s in line with your budget and financial goals.
T. Rowe Price: This is an investment management company that offers services similar to Vanguard, including stocks, bonds, mutual funds, and retirement accounts. Unlike Vanguard, though, T. Rowe Price doesn’t discourage frequent trading. After executing more than 30 trades in a year, your trade costs decrease from $19.95 to $9.95 per trade.
Fidelity: This is a popular online broker and wealth management company that offers more comprehensive educational materials than Vanguard. It may be a good place to start if you’re new to investing because of this. The company charges a flat fee of $7.95 per trade, which is pretty reasonable compared to its competitors; however, there’s no discounts available to high-volume traders, so it’s also not the best deal out there.
Charles Schwab: This broker offers a full suite of wealth management services, including investments, banking, and trading. Like Vanguard, Charles Schwab requires a minimum $1,000 deposit for its brokerage accounts, but its commissions are more affordable at $8.95 per trade. Those who are new to investing can take advantage of Charles Schwab’s extensive online education resources, too.
What Others Are Saying
- Reuters reported that Vanguard recently cut its ETF fees in Hong Kong. Competitors Blackrock and Charles Schwab have done the same. A company spokesperson explained the move: “We believe in the low cost approach and think this will ultimately benefit the growth of the ETF market in Hong Kong.”
- Bloomberg published an article looking forward at investment returns in the next five years. Vanguard was asked to comment and gave the following advice: “The next five years are going to be more challenging than the previous five years in investing…Be cautious of trying to be heroic in this environment.”
- Morningstar wrote an article about Vanguard’s index and active funds. While the company is best known for its index funds, its active funds have provided greater returns to investors over the past five years. The article concludes that index funds remain a safer investment, though: “Although it’s often said that active funds are safer than index funds (particularly by those who have active funds to sell) because the active funds have a cash cushion and can raise more cash as needed, the reality tends to be otherwise. The active funds tend to be somewhat bumpier because they are less diversified. They have fewer holdings, and they’re more likely to concentrate into a few sectors.”
The Bottom Line
Vanguard is a good choice if you’re looking to save for retirement, particularly if you already have a lot of money to invest. But if you’re an active trader, you can find lower commissions elsewhere.