vanguard review

Brokerage Review: Vanguard


18 September,2012

If you’re into index funds, chances are that you know about Vanguard. Indeed, trading Vanguard index funds and ETFs can provide you with a low cost way to invest with the help of dollar cost averaging. However, while you can get access to some amazing index products, there are downsides to Vanguard, including the relative high fees charged for trading.

Types of Vanguard Investment Accounts

For the most part, Vanguard offers the kinds of accounts you would expect from a major player in the fund business:

  • Individual Accounts: These are the individual taxable accounts that you are probably used to. You can invest in stocks, funds, bonds, and CDs using your individual taxable account at Vanguard.
  • IRAs: You can open a Traditional or Roth IRA with Vanguard, and include the low-cost funds in your account. Your earnings will either be tax-deferred (Traditional) or tax-free (Roth) with one of these IRAs. It’s also possible to use Vanguard to rollover your 401(k) to an IRA.
  • Annuities: Not a lot of online brokers offer annuities. However, Vanguard does offer these products. You can choose from fixed and variable options, and the costs for these annuities, which are fairly straightforward, are considered among the lowest out there.

You can accomplish most of what you want with a Vanguard account, and it is worth considering Vanguard, especially if you are putting together a long-term portfolio of funds.

Fees Associated with Using Vanguard

This is where things start to get a bit ugly with Vanguard. On the positive side, you don’t have to pay a fee to trade Vanguard mutual funds on ETFs. This provides you with an incentive to focus on Vanguard offerings in your portfolio with the company. Because Vanguard offers 119 mutual funds and 48 ETFs, you have plenty to choose from. Additionally, the expenses on these funds are very small. If you are primarily interested in holding on to your investments for the long-term, you can trade these without a transaction fee, and save on the small fees associated with the funds themselves.

Once you move away from investing in Vanguard mutual funds and ETFs, though, things get a little more expensive. If you have less than $50,000 in your Vanguard account, you pay $7 for the first 25 stock trades. After that, the per-trade cost jumps to $20. That is a very hefty fee indeed. If you have more money in your account, the fees are as follows:

  • $50,000 – $500,000: $7 for all trades
  • $500,000 – $1 million: $2 for all trades
  • More than $1 million: First 25 trades are free, with $2 for each trade after that

As you can see, unless you are trading Vanguard funds, you will pay quite a bit in fees — unless you are already wealthy. Vanguard’s stock trading is not for those who have a low net worth and who are just starting out. The beginning investor is much better off opting to trade Vanguard funds.

Another cost of doing business with Vanguard is the monthly fee. If you have less than $50,000 in your Vanguard account, you will be charged $20 a year. If you have a balance of less than $2,500, you are in even worse condition, paying $10 each and every month. You will need to open your account with a minimum of $3,000. As you can see, many investors will have a hard time getting things going with Vanguard.

While it is nice that there is free dividend reinvestment with Vanguard, it is still somewhat distressing to pay all the other fees, especially for beginners. Already-established investors, with relatively large portfolios, will see better results (and save money in fees) than beginning investors.

Vanguard Short on Features

One of the biggest issues with Vanguard is that it is relatively short on features. When you compare Vanguard, with its account fees, to many of the leading online brokers that don’t charge maintenance fees, the difference is striking. Because Vanguard is more about the big investor, and interested in pushing its funds, the entire experience for the small-time investor is pretty bad.

The Vanguard site can be difficult to navigate, and there aren’t a wide variety of research tools available. The stock screener is laughable, and you can’t save your own indicators on the charts available. You can’t even access real-time quotes on your portfolio page. Reporting is at a variance with leading brokers, so those who are experienced with finding information about their portfolios and trading positions in one place with other brokers will have to hunt to find it with Vanguard.

Investors looking for in-depth research, and advanced trading tools, will not find what they are looking for at Vanguard. This site is for those who already know what they are looking for, and who are ready to execute an order. The site is definitely not ideal for poking around and looking for new ideas.

On top of that, there have been reports around the Internet about Vanguard’s poor customer service for brokerage customers. Unless you are a high net worth individual, with a substantial portfolio, working with Vanguard can be a great deal of headache.

Bottom Line

Even though Vanguard is a leader in the world of mutual funds (especially index funds), the company is terribly behind when it comes to providing a satisfying and complete brokerage experience for the individual. You need to have $3,000 to open an account, and the fees start up. You can do well with Vanguard if you use Vanguard’s own mutual funds and ETFs, and if you employ dollar cost averaging strategies.

However, there are many other brokers out there that offer low-cost fund offerings, and that don’t come with the same headaches. Carefully consider your situation before you decide what will work for you, and do a little research. Chances are that you can save time and money overall by taking your money elsewhere — especially if you are a beginner.