Money Matters

What is a Vanguard Brokerage Account?

With a Vanguard brokerage account, you can invest in stocks, ETFs, penny stocks, mutual funds, and more. Is a Vanguard account right for you?

If you’re looking to invest your money, Vanguard is one of the top investment management companies in the world. Their offerings include low-cost mutual funds, exchange-traded funds (ETFs), Roth IRAs, retirement accounts, college savings accounts, and more, alongside advice from financial advisors. They offer approximately 440 low-cost traditional funds and ETFs for you to take advantage of, whether you’re an individual, a financial professional, or a representative of a corporation. 

Vanguard was created to provide a low-cost brokerage experience, offering financial guidance to its clients. This article will tell you what Vanguard brokerage services are and how you can utilize them. 

How Does a Vanguard Brokerage Account Work?

The process

When you open a Vanguard account, you can choose an individual account in your name only, or a joint account with multiple equal owners. There are other types of taxable accounts available as well. You then select your investments, choosing from more than 150 Vanguard mutual funds and 70 Vanguard ETFs. You can find a list here.

You can complement your portfolio with funds and ETFs from other companies, as well as individual stocks, CDs, and bonds. You can find a list of the investment products offered by Vanguard here.

Then, you provide Vanguard with your bank account information, including routing numbers for an electronic or wire transfer. You can also transfer funds from another investment company. Finally, you review and sign your application, and you're ready to go!

The logistics

Vanguard’s range of offerings includes stocks and ETFs, OTCBB (also known as penny stocks), mutual funds, bonds (including corporate, municipal, treasury, and CDs), simple single leg-options, multi-leg options via live broker, the two robo-advisors Vanguard Personal Advisor Services and Vanguard Digital Advisor, and international trading. 

There is no commission fee when trading Vanguard ETFs and Vanguard mutual funds. To avoid commission fees on non-Vanguard products, it is recommended to buy online, as buying over the phone carries a fee. 

Trading individual stocks on Vanguard costs $7 per trade, and commissions go up the more you trade. There are discounts and free trades if you have a larger account. 

What Are the Benefits?

Low costs

Vanguard has lower expense ratios on its index funds and ETFs than the industry average. Jack Bogle, Vanguard’s founder, is the pioneer of index funds, so it’s no surprise that Vanguard’s most popular funds are index mutual funds and ETFs with small expense ratios.

Vanguard has an average expense ratio of 0.10%, compared to a 0.45% average expense ratio across all mutual funds and ETFs. The average no-load mutual fund cost is 83% less than the industry average. 

Another monetary benefit is Vanguard's $0 stock trading commission. There is no commission charge for online equity, ETF, or OTCBB trades.

Wide variety

Vanguard has numerous investment options with notoriously good returns. As of now, they offer 31,000 no transaction-fee mutual funds and an expanded lineup of low-cost mutual funds and ETFs.

Vanguard also offers admiral shares, a class of mutual funds that have extremely low expense ratios, 41% lower than the company’s standard fund share class.

Tools and resources

Vanguard offers planning tools and resources, information on their investment options and goals, and much more. The company website has numerous articles and features, designed to help investors build their knowledge base. 

Vanguard's retirement planning tools are expansive. They offer an asset allocation questionnaire to guide you toward a diversified portfolio that matches your risk portfolio. You can compare Roth IRAs to other plans or calculate the required minimum distribution from an IRA. There are calculators and resources available regardless of what stage of the retirement process you’re in.

Automated advice

There are two services worth diving into..

  1. Vanguard Personal Advisor Services: This robo-advisor provides portfolio rebalancing, access to personal financial advisors, and other premium benefits. However, you do need at least $50,000 in your account to qualify.
  2. Vanguard Portfolio Watch: The Vanguard Portfolio Watch automatically examines your portfolio to see how it compares to a set criteria. This tool ensures that your assets are diversified, with minimal risk. It includes your holdings as well as Vanguard assets. It gives you a breakdown of what funds you own through different factors, including company size or investing style, and recommends places where you ended more exposure or where you should purchase to even out your exposure. 

Overall, Vanguard has a great reputation. For many, it is the platform of choice for low-cost, low-risk investments, like retirement accounts and buy-and-hold investments. If you’re looking for a platform that allows fee-free fund investing, passive investing, and long-term investing, Vanguard is the platform for you. 

However, if you are an active trader, you might want to consider Vanguard’s shortcomings, outlined below.

What Are the Drawbacks?

Difficult for active trading

Vanguard has a very basic trading platform that does not have the analytical tools typically offered for stock trading. If you are an active trader, you might become frustrated with the lack of complexity on the platform.

Be warned that the pricing data displayed on the website or mobile app is delayed by about 15 minutes. Additionally, watchlists are not shared between the website and mobile apps.

Lacks some offerings

While Vanguard offers access to most asset classes, they do not have forex and cryptocurrency.

Additionally, you can only buy partial shares on mutual funds, not individual stocks or ETFs. However, if you have a dividend reinvestment set up, you can reinvest into fractional shares of mutual funds, ETFs, or stocks.

Fees and minimums

Fund minimums: There is no minimum to open a Vanguard account, but there are minimum investments of mutual funds. Most Vanguard retirement funds have minimum investments of $1,000, and some go as high as $3,000, which can be too high for beginner investors. However, mutual fund minimums are common among other investment platforms as well.

Options trades commissions: Vanguard has a complex commission structure for its option trading, with several tiers correlating with your investments in Vanguard’s ETFs and mutual funds.

  • If you have less than $1 million in Vanguard funds, options trades will cost $1 per contract
  • From $1 million to $5 million, your first 25 options trades in a year are free, with the rest of the trades costing $1
  • From $5 million and up, the first 100 options trades are free, with $1 following. 

These fees are near the industry high; the average industry price is $0.65 per contract. It’s also important to remember that this tiered system refers not just to how much you have in brokerage, but how much you have invested in its funds.

Account service fee: There is a $20 annual fee, but you can circumvent that by signing up for email delivery of account statements and fund prospectuses. 

No new account bonus: Vanguard, unlike many other brokers, does not offer its customers a bonus for opening a new account.

What Are Non-Vanguard Investment Options?

If you are an active trader, you might find Vanguard’s competitors more attractive. Here are five other investment companies, and who they are recommended for:

1. Charles Schwab

Charles Schwab has technology suited for active traders and self-directed investors, along with clients needing financial advice and portfolio management. Their benefits include its StreetSmart Edge platform, which has a deep level of customizability, and a robust ETF screener. Their mobile web platforms and mobile apps offer the same functionality as their website. Charles Schwab has also acquired TD Ameritrade as of August 2020.

The drawbacks of Charles Schwab are that it does not sweep uninvested cash into a money market fund, and their base interest rate is low. The ETF screener on their website (as compared to StreetSmart Edge) is basic. If you trade derivatives, most of the tools are on the StreetSmart Edge platform, but equities traders will refer to technology on the website. 

2. Fidelity

Fidelity has commission-free US stocks and ETFs, great trading platforms and research, and offers both U.S. and international stocks. Fidelity is recommended for investors who want solid research and sophisticated trading platforms.

Its drawbacks are high mutual fund fees and margin rates, slower account verification, and a slow live chat. 

3. Chase You Invest

Chase You Invest is a platform best for beginner investors and buy-and-hold investors. It has commission-free U.S. stocks, ETFs, funds and bonds, with fast digital account opening. The company was established by J.P. Morgan, so it has a strong foundation.

The drawbacks of Chase You Invest are that it is only available to U.S. citizens, and therefore only includes the U.S. stock market. It also has only basic research tools and a limited product portfolio.

4. Ally Invest

Ally Invest was created by the parent company of Ally Financial Inc. Its benefits include low trading and non-trading fees, easy digital account opening, and educational resources. It is also considered safe due to its long track record and regulation by financial authorities. The platform is recommended for investors looking for low fees in the U.S. stock market.

Again, Ally Invest is available only in the U.S., which is one of its main drawbacks. It provides Forex trading, but only through a separate account. It is also less secure, without a 2-step authentication process.

5. Merrill Edge

Merrill Edge was founded by Bank of America, and because of BofA’s long track record and reputation, it’s considered a safe investment option. It discloses its financials and is well-regulated. The platform is recommended for its low fees, quick account opening, and simple platforms.

Its drawbacks are that it has no demo account, and there are limited options to deposit or withdraw. It is also limited to U.S. clients and products.

The Bottom Line

Vanguard’s primary target audience is retirement investors with a relatively high account balance; if you fit these parameters, Vanguard is a great option for you. However, if you’re an active trader who needs a more powerful trading platform, or if you don’t meet the account minimum, you might want to look into non-Vanguard options. 

In any case, you should discuss your options with your financial advisor, and decide what brokerage account will best fit your needs. Vanguard offers personal investment advisor services as well. If you’re still curious about Vanguard, many publications publish a Vanguard Review each year to keep their readers up to date about how Vanguard brokerage services are changing, growing, and improving.

The information provided herein is for general informational purposes only and is not intended to provide tax, legal, or investment advice and should not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation of any security by Candor, its employees and affiliates, or any third-party. Any expressions of opinion or assumptions are for illustrative purposes only and are subject to change without notice. Past performance is not a guarantee of future results and the opinions presented herein should not be viewed as an indicator of future performance. Investing in securities involves risk. Loss of principal is possible.

Third-party data has been obtained from sources we believe to be reliable; however, its accuracy, completeness, or reliability cannot be guaranteed. Candor does not receive compensation to promote or discuss any particular Company; however, Candor, its employees and affiliates, and/or its clients may hold positions in securities of the Companies discussed.