Vanguard Review

Vanguard is best known for its funds, both mutual funds and ETF’s. In fact, Vanguard is the original source of index-based funds.

Vanguard also offers trading in individual securities, including stocks, options, bonds, and other fixed income assets.

It also offers another advantage that’s become common among major investment brokers, and that’s a managed investment option. You can use Vanguard’s robo-advisor to manage your entire portfolio (or just a portion of it) while you go the do-it-yourself route with individual funds and securities.

Founded in 1975, and based in Malvern, Pennsylvania, Vanguard is one of the largest financial services companies in the world, with more than $5.1 trillion in assets under management.

It’s the largest provider of mutual funds, and the second largest provider of exchange traded funds (ETFs), after BlackRock iShares.

The company was created by John C Bogel, one of the legends of modern investing. He created the first index fund in 1975, and in 1999 Fortune Magazine named him “one of the four investment giants of the twentieth century”.

But one of the most distinguishing factors about Vanguard is that the company is owned by its investors, who are shareholders in the company. This gives Vanguard primary responsibility to its investors, since there are no shareholders.

Minimum initial investment

The Vanguard brokerage account requires a minimum investment of $3,000.

You only need $1,000 start investing in Vanguard target retirement funds or the Vanguard STAR Fund.

Available accounts

Vanguard offers the following accounts:

• Taxable Individual and joint brokerage accounts
• 529 college savings plans
• Trusts
• Non-profits
• Custodial accounts
• Traditional, Roth, SEP, SIMPLE, and rollover IRAs
• Solo 401(k) plans

Accounts are also broken down by portfolio size as follows:

• Voyager clients, $50,000 to $500,000
• Voyager Select clients, $500,000 to $1 million.
• Flagship clients, $1 million to $5 million.
• Flagship Select client, over $5 million

Each client level entitles you to a progressively lower fee structure, as well as increased access to live financial advisors.

Investments offered

Vanguard offers the following investment types:

• Mutual funds
• Stocks
• Options
• Exchange traded funds (ETFs)
• Certificates of deposit (CDs)
• Bonds
• Annuities

Personal advisor services

Vanguard offers their personal advisor services to add a human touch to an otherwise highly automated process. You can use a personal advisor as an “emotional circuit breaker”, to keep you from getting off-track, particularly when the markets are misbehaving.

The advisor can also help you with life financial decisions, like retirement, or saving for other goals, like a college education or a home.

You need a minimum account balance of $50,000 to take advantage of this service.

Mutual Fund and ETF screener

This may very well be the best tool on the Vanguard trading platform. It’s especially important since Vanguard is primarily designed for fund investors. The Screener allows you to set criteria for the funds do you want to invest in. And since there are roughly as many funds today as there are individual stocks, this sorting capability is increasingly important.

You can choose funds based on criteria, such as domestic or international, specific fund families, the term and expense ratios, total return, and choose specific investment sectors.

Portfolio analysis

The trading platform will show you your current asset allocation, next to your target allocation, so you can see how close you are to your desired portfolio.

It will also show a historic return analysis, which will breakdown the average theoretical performance of your portfolio since 1926.

Vanguard mobile apps

Available for Android, Kindle, and Apple iOS, including iPhone and iPad. The apps are available for download on Google Play or the App Store. The app can be used to manage your personal account or even an employer sponsored plan, like a 401(k).

You can use the app to:

• Check your account balance
• See your portfolio performance
• Check prices
• See your transaction history
• Check cost basis
• Buy and sell investments
• View your asset mix
• Check investment returns
• Choose your target asset allocations
• Research mutual funds, ETF’s, and stocks
• Get the latest financial news and market updates
• Deposit checks

Customer service

Phone and live chat with live financial advisors are available Monday through Friday, from 8:00 AM to 8:00 PM, Eastern time.

Email communication is available on a 24/7 basis.

Let’s compare Vanguard to two other major investment firms: Fidelity and Ally Invest.

Overall, we prefer Vanguard because of their incredibly low fees. As you’ll see below, Vanguard offers a sliding scale for their annual fee, and you can avoid paying fees altogether if you buy Vanguard funds.

Ally, on the other hand, has a 0.30% annual fee—which is higher than many robo-advisors.

Virtually every major brokerage offers their own version of a robo-advisor. Even though Vanguard specializes in funds—which are themselves individually managed portfolios—they nonetheless offer Vanguard Personal Advisor as a standalone robo-advisor.

In fact, according to Barron’s, Vanguard Personal Advisor is not only the largest robo-advisor, with $112 billion in assets under management, but by a wide margin. The #2 spot is held by Charles Schwab Intelligent Portfolios with $33 billion.

Minimum initial investment

Vanguard Personal Advisors requires a minimum initial investment of $50,000, which is quite high by robo-advisor standards.

Accounts available

• Individual and joint taxable accounts
• Traditional, Roth, SEP, SIMPLE and rollover IRAs
• Trusts

Rebalancing

Vanguard Personal Advisors rebalances your portfolio on a quarterly basis. More particularly, your portfolio will be rebalanced when your portfolio deviates from the target allocation by more than five percent in any position.

This is less frequent than is typical for other robo-advisors, that might rebalance more frequently or even on a continuous basis. But on the positive side, less frequent rebalancing keeps investing expenses lower.

Fees

Vanguard Personal Advisor uses a sliding fee scale based on the size of your portfolio. The basic annual management fee is 0.30 percent on accounts below $5 million. But it drops on larger account sizes as follows:

• 20 percent on accounts between $5 million and $10 million.
• 10 percent for accounts between $10 million and $25 million.
• 0.05 percent for accounts greater than $25 million.

The fee structure of 0.30 percent on balances below $5 million is competitive in the robo-advisor space, which typically ranges between 0.25 percent and 0.50 percent.

But Vanguard Personal Advisor has a big price advantage on larger portfolios, especially when compared with traditional human investment advisors, who typically charge between one percent and 1.5 percent to manage larger portfolios.

Vanguard Personal Advisor invests in both ETFs and mutual funds

Vanguard Personal Advisors uses both ETFs and mutual funds, which is more than just cosmetic. Most robo-advisors use strictly index-based ETFs. They’re certainly lower in cost than mutual funds, and generally more tax-friendly. But they do little more of an attempt to match the performance of the underlying markets.

The inclusion of mutual funds in Vanguard Personal Advisors means this robo-advisor is at least partially attempting to outperform the market.

This mix will provide you with an opportunity to get better-than-average returns, while at the same time providing at least some downside protection offered by the index funds.

Accounts over $500,000 are appointed an Individual Investment Advisor

Part of the way robo-advisors keep their fees so low is by minimizing human contact. But if you have at least $500,000 with Vanguard Personal Advisors you’ll be appointed an individual investment advisor.

Not only is this a significant departure from the typical robo-adviser, but it offers the human touch at a much lower management fee then what you will pay for traditional human investment managers. The fee of 0.30% (or less) is just a fraction of what you will pay for traditional human investment advice.

This gives Vanguard Personal Advisors a major competitive advantage among large investors.

Vanguard Personal Advisor customer service

Phone and live chat with live financial advisors are available Monday through Friday, from 8:00 AM to 8:00 PM, Eastern time. Email communication is available on a 24/7 basis.

Vanguard Personal Advisors tax strategies

There’s good news and bad news here. The good news is that Vanguard Personal Advisors uses tax-advantaged investing to manage your portfolio. That’s a strategy in which money is held in accounts based on tax consequences.

For example, income generating assets, like fixed income investments and high dividend paying stocks are held in tax-sheltered retirement accounts. Meanwhile, capital gains generating assets are held primarily in taxable accounts. There they can take advantage of the benefit of more favorable long-term capital gains tax rates.

The bad news is on the tax-loss harvesting front. The strategy has become very popular among robo-advisors, and many offer it as an automatic service. However, while Vanguard Personal Advisors does offer tax-loss harvesting, it’s only provided on a case-by-case basis, where thought to be most beneficial.

Vanguard’s broker fees and pricing are more complicated than other brokerage platforms. Generally speaking, pricing is most favorable if you have a larger account balance.

• Annual broker service fee: $20. Waived if you hold at least $10,000 in Vanguard funds and ETFs, or you are a Voyager, Voyager Select, Flagship, or Flagship Select client.
• ETFs: trade more than 75 Vanguard ETFs and 1,800 from over 100 companies for no fee when trades are placed online.
• Vanguard mutual funds: Over 140 Vanguard mutual funds are commission-free when you trade online. However, there is a $50 early redemption fee on all funds redeemed within 60 days of purchase. Vanguard’s mutual funds carry some of the lowest expense ratios in the industry, averaging just 0.12% per year.
• Non-Vanguard mutual funds: More than 6,000 non-Vanguard mutual funds are available with low transaction fees. The fees are $20 per trade for accounts below $500,000; $8 per trade for accounts between $500,000 and $1 million; $0 for the first 25 trades (then $8 per trade thereafter) on accounts between $1 million and $5 million; and $0 for the first 100 trades (then $8 per trade thereafter) on accounts over $5 million.
• Options: Just as is the case with other types of investments, options have tiered pricing based on the size of your account:
• CDs and bonds: $2 per $1,000 face amount ($250 maximum) on accounts to $500,000; $1 per $1,000 face amount ($250 maximum) on accounts over $500,000.

Best for long-term investors

Vanguard is best suited to long term investors, who are primarily interested in investing through mutual funds and ETFs. The platform is not nearly as good for trading individual securities.

This is mostly because the trading fees Vanguard has on individual securities are no better than the middle of the range among major brokerage firms.

Best for large investors

Vanguard seems best suited to large investors—those with portfolios in excess of $500,000.

Those are the investors who will get the lowest fees on trading and on the robo-advisor management fee.

The fact that Vanguard is very friendly to large investors helps to explain why Vanguard Personal Advisor is the largest of all robo-advisors, and why Vanguard has well over $5 trillion in assets under management.