Vanguard IRA and Roth IRA Review

Vanguard is one of the largest investment management companies in the world, with more than $3 trillion in total assets in 2015. The company, with its broad menu of high-performing, ultra-low-cost fund options, is also one of the largest retirement account providers in the industry. Offering more than 300 funds across virtually all sectors, regions and sizes, Vanguard is generally considered an ideal place for most investors to open individual retirement accounts (IRAs) and Roth IRAs. However, there are many factors to consider when assessing the company's place as a leading retirement provider.

Low Expense Ratios

Many of Vanguard's mutual funds and exchange-traded funds (ETFs) offer the lowest expense ratios in their asset classes. The average expense ratio of a Vanguard fund is just 0.18%, and some of its index funds carry expense ratios as low as 0.05%. This compares favorably to the industry average expense ratio of roughly 1%. Vanguard's biggest competition in the low-cost space is likely the Charles Schwab Corp. (NYSE: SCHW), which offers more than a dozen funds with expense ratios under 0.1%.

Investor Satisfaction

In a 2016 Consumer Reports survey, respondents chose Vanguard as one of the highest-rated investment companies measured by overall investor satisfaction. Vanguard rated in the top 10% among small investors, defined as those with under $500,000 invested. Large investors also ranked the company highest of the 30 companies measured in the survey. Vanguard received high scores in the low cost and return on investment categories.

In 2015, Morningstar identified top funds looking at factors such as low costs, below-average risk, above-average returns and high stewardship rankings of the fund's provider. Of the 50 best funds named, 10 were Vanguard funds, including the Vanguard Wellesley Income Fund ("VWINX") and the Vanguard Dividend Growth Fund ("VDIGX").

Fees and Minimums

Vanguard's fee structure is attractive overall, but may be less suitable for some, depending on how investors manage their retirement portfolios. Active traders who wish to trade individual stocks and securities may more frequently find low-cost brokerage options such as E*Trade Financial Corp. (NASDAQ: ETFC) more cost-effective. However, Vanguard offers discounts on brokerage trade commissions with larger balance accounts.

Investors can open IRA accounts in a number of Vanguard funds with a $1,000 initial investment. The minimum investment for Vanguard ETFs purchased through the company's brokerage platform is one share. The company charges a $20 annual account maintenance fee for IRA accounts. However, this fee is waived for investors who sign up for paperless statements.

Vanguard's Weaknesses

Investors who wish to trade individual stocks or funds with a smaller account may find Vanguard less attractive. Vanguard charges a $20 per-trade commission after the first 25 trades on smaller balance accounts, which is more than double the cost of many discount brokerages. Many fund providers, such as Fidelity and Schwab, waive minimum initial investment requirements if investors set up an automatic monthly investment. Vanguard doesn't offer this option, making many of the funds that require $3,000 minimum initial investments out of reach for smaller investors.

Conclusion

Vanguard's IRA and Roth IRA accounts remain highly rated options for most long-term buy-and-hold investors. Many of the company's fund offerings, including its family of target-retirement-date funds, make ideal core portfolio holdings, thanks to their combinations of low costs and strong historical performance. The target-date funds offer the additional advantage of automatically becoming progressively more conservative as retirement approaches.

Some competitors, such as Schwab, provide low-cost, no-minimum IRA accounts that can serve beginning investors well, while discount brokerage firms may be a more attractive spot for frequent traders. Vanguard's combination of high-quality funds, low costs and a substantial library of investor education materials makes it a top choice for retirement investors.