The stock market is a key part of any wealth-building strategy, and it’s important to have the right investment platform to reach your financial goals. While hip apps make it easier than ever to make free trades and practically gamify investing, when it comes to making the sorts of moves a financial advisor would suggest, you’ll need to have access to investment products like index funds, mutual funds, and exchange-traded funds (ETFs) as well as individual stocks.
When it comes to investing your money in the stock market or bonds, you’re going to need a brokerage account to handle these sorts of transactions. There are dozens of brokers to choose from, but one of the leading options that you’ll see brought up time and time again is Vanguard. Vanguard offers a trading platform that allows you to trade stocks and other investment products as well as set up a traditional IRA for retirement planning.
Vanguard has become popular, in part, thanks to the fact that it is the de facto low-cost investment platform among online brokers. That being said, there’s much more to Vanguard than just low fees. For both active traders and new investors, Vanguard has a lot of investment options and features to take advantage of. Keep reading for an overview of the brokerage as well as some of the pros and cons of using the platform for your investment portfolio or IRA retirement funds.
Vanguard is one of the largest investment firms in the world and offers over 400 low-cost funds to invest in through its platform. Many investors primarily use Vanguard for their retirement accounts; however, it is possible to actively trade on the platform as well. Vanguard prioritizes the well-being of its investors over all else and offers a lot of helpful resources on its website to help those new to investing and retirement accounts learn the ropes.
Vanguard is perhaps most well-known thanks to its founder, Jack Bogle. Jack Bogle’s core investment advice was that everyday investors would never be able to beat Wall Street, and so they were better off to invest in low-cost funds that would perform consistently over time. This led Bogle and Vanguard to pioneer the index fund, which is a way of tracking mutual funds based on the performance of a group of diverse arrays of funds all in one index.
While index funds are generally a passive investment strategy for long-term investors looking to mitigate risk, that isn’t to say that you can’t use the platform for other trades, too. Vanguard offers investors a chance to trade stocks, bonds, ETFs, mutual funds, and even handles options trades. As a low-cost option, all ETFs on Vanguard’s platform are commission-free, and you can invest in non-Vanguard funds on the platform, too.
Setting up an investment account on Vanguard isn’t a particularly long process; however, it’s involved and you must have some personal information readily available before you begin.
You’ll want to start by navigating to Vanguard’s website and clicking on the Personal Investors link on the right side of the screen.
From there, you’ll click on “Open An Account” in the top right corner of the screen. This will take you to a screen asking you if you’re looking to open a new account or roll over assets from a different brokerage.
Unless you have a retirement account from a previous job that you’d like to combine with your new Vanguard account through a rollover, you’ll want to click on the bottom that says “Start your new account.” It’s worth noting that you have a variety of investment accounts to choose from, including general investment accounts, retirement accounts, such as an IRA, and even a 529 plan to save for educational costs.
Vanguard then asks you how you’ll plan on funding your new account. In most situations, the answer will be via electronic bank transfer; however, if you’re funding it with a rollover or a transfer from a different financial firm, you’ll be able to denote that at this stage of the account application process.
Vanguard then double-checks whether or not you’re truly a new user or if you have an existing login. If you’re a new user, you’ll have to complete some more information to sign up.
Thankfully, Vanguard helpfully includes some things you’ll need before you open an account on their platform. Two details you’ll need beyond your personal information are your bank account and routing number, as well as information about your current employer. It’s worth noting that although the online application process only takes about 10 minutes, you won’t be able to officially start investing until your account has been funded, which can take anywhere from 3 to 7 days.
As you move through the registration process, Vanguard helpfully includes some frequently asked questions via a sidebar on their website. This allows you to better understand how the choices you make will impact your overall investment goals and the ability to achieve those goals using Vanguard as your brokerage account.
You’ll then need to input information about yourself. This includes your legal first and last name, as well as an email address where you can be reached, your birth date, citizenship status, gender, and social security number. All of the application process on Vanguard’s website is secure, so you don’t need to worry about putting in sensitive information or linking up your bank account with the platform.
How much does Vanguard cost?
From offering funds with low expense ratios to being transparent about pricing when there are fees, Vanguard is a lower-cost option than many brokerages. That being said, there are still some costs associated with using Vanguard as your brokerage.
For starters, Vanguard charges an annual $20 account service fee if you choose to receive paper statements and prospectuses. However, if you decide to use online statements via email instead, that fee is waived. All Vanguard ETFs® are commission-free to trade, and rates on other securities are competitive and can be found on Vanguard’s website. Additionally, if you’re trading options, you’ll pay $1 per options contract.
If you’re cost-conscious as an investor, Vanguard is a leader in low-cost expense ratios, commissions, and other investment fees. Especially if you’re trying to maximize your nest egg over the long-term, being able to trust that your brokerage won’t be leaching money with costly fee structures when your retirement can be a great reason to pick Vanguard over competitors.
No account minimums
You can open an account with Vanguard for as little as $0. That being said, most funds require a minimum investment of at least $1,000. Otherwise, you’ll just be adding money to your money market fund where it will wait to be put to use investing in a specific mutual fund, ETF, or other security.
A variety of securities available
While Vanguard’s ETFs are likely what you’ll want to be spending most of your time and energy on, that’s not to say they’re the only thing you can invest in on the platform. Vanguard offers a variety of stocks, bonds, mutual funds, and ETFs—all delivered with the same focus on low-costs and fees.
Good retirement calculators
A lot of Vanguard’s investors are using the brokerage for retirement, and as such the calculators and estimation tools offered by Vanguard can help you get a clear picture of where you’re headed and what you need to retire comfortably. From determining how much money you’ll need in retirement to see how minor tweaks to your investment strategy impact your overall goals, Vanguard has plenty of resources to give you peace of mind.
Who is Vanguard best for?
If you’re planning on holding your investment portfolio for a while, Vanguard is a great option. Some people may not be all-in on Bogle’s passive investment strategy; however, for those who want a slow-and-steady approach to investment management, it’s hard to imagine a better platform to use. Bogle himself believed that there were only three index funds an investor needed for the long term, each a Vanguard fund: one for US stocks, one for international stocks, and one for bonds.
The cost-conscious investor
Low-fee investing is at the heart of what Vanguard does. As a result, cost-conscious investors who want to maximize their returns without forking over too much of their earnings to the brokerage they’re using will find a lot to like in Vanguard’s commission-free ETFs.
If you’re someone who wants to take a hands-on approach to investing and actively manage a wide portfolio of stocks, you can certainly do it with a Vanguard account. That being said, Vanguard does fall a bit short when it comes to tools to track different stocks in real-time and chart your gains and losses in the same way that other brokerages allow. Buy-and-hold investors will get a lot more use than active day traders with Vanguard.
Low net-worth investors
Because of the investment minimums Vanguard requires, if you’re just starting and don’t have a lot of money to put into your portfolio, Vanguard can be a bit cost-prohibitive. While it’s true that you can still open an account and contribute a few hundred dollars a month to it before reaching the $1,000 minimum required for something like a Vanguard Target Date Retirement Fund, it can be discouraging to have to wait that long if you’ve finally decided to get the ball rolling and open an IRA.
Pros & cons
Lots of low-cost funds. The area where Vanguard truly excels is in offering a variety of low-cost funds. With low expense ratios and fees, you get to keep more of your investment returns with a Vanguard brokerage account.
Relatively robust. Asset allocation in Vanguard allows for a good mixture of stocks, bonds, and other securities, with ETFs and mutual funds being the most common building blocks of a solid portfolio on Vanguard.
Easy to set up an account. Setting up an account with Vanguard is pretty straightforward and generally takes less than 10 minutes, assuming that you already have information about your bank account and employer on hand.
User interface can be confusing. While the signup process on Vanguard is pretty user-friendly, the dashboard for investing can be a bit daunting and is much more basic. You’ll want to spend some time with the help resources to understand where to go to set up your portfolio since there’s a higher learning curve than with other brokerages.
Minimums can be discouraging. While Vanguard’s Target Date Retirement Funds have lower minimums, getting to the $1,000, $3,000, or $5,000 necessary to start purchasing funds for your portfolio can take some of the wind out of your sails (which is unfortunate as Vanguard’s logo is a ship!)
Not a ton of analytical tools. Many brokerages offer detailed analytical tools to track stock performance for active traders. Vanguard’s tools are basic, even as they provide great calculators for estimating your retirement needs.
Vanguard vs. Fidelity vs. e*Trade vs. TD Ameritrade
Vanguard isn’t the only brokerage on the market. Here’s how it stacks up to a few competitors, including Fidelity, e*Trade, and TD Ameritrade.
$0 for most stocks/ETFs, $1 for options
No, but you can reinvest dividends
$0 for most stocks/ETFs, $0.65 for options
$0 for most stocks/ETFs, $0.50-$0.65 for options
$0 for most stocks/ETFs in US, $0.65 for options
Yes (BTC Futures)
Fidelity has a lot of the same features as Vanguard, and even offers lower costs on options trading. That being said, if you’re looking to invest in cryptocurrency, you’ll need to have an account with another trading platform or set up a brokerage with TD Ameritrade.
While E*TRADE offers even lower cost options trading based on volume than any other platform in the comparison chart, they fall short in some other areas. It doesn’t allow for crypto trading or fractional shares, which may be a dealbreaker for some investors.
TD Ameritrade is the only brokerage in the comparison chart that allows for crypto trading, but that’s limited to Bitcoin futures. That being said, TD Ameritrade stacks of nicely in other areas, including offering robo-advisor services, fractional shares, and a mobile app.
Yes! Vanguard’s working on the release of a new app in the next few weeks, Vanguard Beacon. Current investors can find the app and it’s available for download now for a test run via Apple or Google Play Store.
What types of ETF trades can I place using Vanguard?
Vanguard allows for a few different kinds of ETF trades using its platform, including limit orders, stop orders, market orders, and stop-limit orders.
Do I have to pay taxes on my earnings?
Yes. If you withdraw any earnings on your investments made in Vanguard, you will have to pay capital gains tax on them. Vanguard will send you the appropriate tax forms at tax season, but it’s always a good idea to consult with your tax professional for any questions about how different decisions will impact your taxes.
The bottom line
Founded by Jack Bogle, Vanguard is a well-respected brokerage offering a lot of value without asking for a lot from investors in terms of fees. For cost-conscious investors, Vanguard is an excellent platform with enough features to meet your needs. Its low fees and target-date funds make it an easy platform to use for retirement accounts and other long-term investment strategies. While it’s a brokerage that skews towards passive investment strategies, you can handle active portfolio management on the platform, too.
Setting up an account with Vanguard is straightforward (even if the portfolio dashboard is a bit confusing), and there are plenty of helpful resources on Vanguard’s website to help you get the hang of managing your portfolio. With robo-advisors recently introduced in 2020 and a new mobile app on the way, the future is bright for Vanguard, illustrating that they do stay up-to-date on what their investors are looking for from a brokerage.
Which brokerage you choose to open an account with is up to you, but it’s worth noting that Vanguard also makes rollovers from previous brokers or employers exceptionally straightforward. With great support and resources, Vanguard’s commitment to their investors outshines some of its shortcomings, assuming those shortcomings aren’t features you intend to use frequently.