Whether I’m opening an IRA, brokerage account, or 529 savings account, or I’m simply choosing investments within a 401(k) or other investment account, I have thus far exclusively chosen Vanguard for my personal investments and I almost always recommend that my clients use them as well.
To be sure, I’d be perfectly comfortable using accounts and funds offered by plenty of other companies. Providers like Betterment, Schwab, Fidelity, iShares, TD Ameritrade, and others can all be good choices.
Some of those other providers even offer funds that cost less than what Vanguard offers, which is hugely important given that cost is the best predictor of future returns.
Still, Vanguard is almost always my first choice, and the main reason why comes down to trust.
Why I Trust Vanguard
Two of the first actions ever taken by Vanguard illustrate perfectly why they have earned my trust.
John Bogle founded Vanguard in 1975 with a unique ownership structure. Rather than being publicly owned, or being owned by a small group of partners, the company was owned by its mutual funds, which in turn were owned by the people purchasing shares in those mutual funds. That ownership structure was purposefully chosen so that business profits could be passed on to regular investors in the form of lower fees, rather than going to third-party shareholders.
The next year, in 1976, Vanguard launched the First Index Investment Trust, which was the first index fund ever made available to regular investors. This fund eventually became the Vanguard 500 fund, which is now one of the biggest and least expensive mutual funds in the world.
Those two events set a precedent that has been followed throughout the years. They signaled a commitment to minimizing fees, a commitment to index investing, and a commitment to maximizing the benefits for the everyday investor.
And that, really, is why I trust Vanguard over every other investment provider. Because they’ve followed through on that commitment year after year, I trust them to do the right thing.
Those other investment providers? Again, many of them can be used well, and in some cases can be used to minimize fees even further. But I don’t have the same trust in any of them that I do in Vanguard.
Let’s take Fidelity as an example. They recently introduced the industry’s first ever zero-fee, zero-expense ratio mutual funds, which is a big deal and is not something that Vanguard offers. They also offer many other index funds that are competitive with Vanguard in both price and quality.
But they also offer high-priced, actively managed mutual funds. They also charge you $50 to close an IRA, something that costs nothing at Vanguard. And they offer two types of target-date retirement funds, some of which are index-based and low cost, and some of which are not index-based and cost much more.
With Vanguard, I trust that there’s no bait and switch. With some of those other providers, I know that at least part of the reason they’re offering these low-cost funds is to get you in the door with the hope that they can eventually sell you something more expensive.
Given that investing is a long-term endeavor, that trust matters to me. While nothing is ever certain, I’m confident that Vanguard will continue to put my interests first.
The Downsides to Vanguard
Despite all the positives, there are some downsides to Vanguard that are worth mentioning.
The biggest is the fact that Vanguard mutual funds have relatively high minimum investment requirements. Their target date retirement funds all require $1,000 to get started, and almost every other mutual fund requires at least a $3,000 initial investment, though their ETFs do not have a minimum investment requirement.
In contrast, many other investment providers either don’t have a minimum investment or have a much lower bar to clear. Fidelity, for example, offers many funds with no minimum investment requirement, and Betterment also allows you to get started without any minimum balance.
If you’re just starting out and don’t have much to invest, you may be better off using another investment provider, at least for a while.
The other downside is simply the fact that you can, in some cases, find lower cost investments elsewhere. The difference is usually very small, but it can be a little more significant if you’re investing smaller amounts of money.
Fidelity’s new zero-cost mutual funds are a good example, though not the only one. Their Total Market Index Fund is free, compared to 0.14% per year for Vanguard’s Total Stock Market Index Fund (VTSMX) on investments up to $9,999 and 0.04% per year once your balance reaches $10,000.
On a $5,000 investment, that 0.14% difference means that you would pay an extra $7 per year to use Vanguard’s fund. That’s certainly not going to make or break your investment return, but it’s still something to be aware of.
It All Comes Back to Trust
None of this is to say that Vanguard is always the right choice or that you personally should always invest your money with Vanguard. There are many factors that go into choosing an investment provider and it’s impossible for me to tell you what the right choice is for your personal situation.
But when it comes to my personal investments, and typically those of my clients as well, Vanguard is the company I trust more than any other. They were founded with the mission of serving everyday investors and they have stuck by that mission ever since.
And when it comes to my family’s financial future, that trust means the world to me.
Matt Becker, CFP® is a fee-only financial planner and the founder of Mom and Dad Money, where he helps new parents take control of their money so they can take care of their families.
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