Is a Vanguard Roth IRA Account Right For You?

January 25, 2016 — 5:00 PM EST

With over $7.6 trillion in assets as of March 31, 2015, the individual retirement account (IRA) has become the most popular investment vehicle for retirement saving in the marketplace. The wide availability of IRAs through banks, investment companies and brokerages along with a broad array of investment choices such as bonds, stocks, mutual funds and certificates of deposit (CDs) make them easily accessible to anyone with earned income.

Vanguard has been an innovator in the area of bringing investment opportunities to the average investor by providing a vast menu of low-cost, low-minimum, high-quality mutual funds and exchange-traded funds (ETFs). Most Vanguard mutual funds have minimum initial investments of only $3,000, while a few have minimums of just $1,000. Vanguard has used its diverse lineup of products to become of one of the biggest IRA providers in the world.

Since virtually every Vanguard fund and ETF qualifies to be held in a Roth IRA account, it's important to look at many factors within the company and the funds themselves to determine if Vanguard is indeed a suitable place to hold a Roth IRA account.

The Advantages of Low Fees

One of the first things that investors should be looking for in an IRA investment is its fee structure. That means looking at the expense ratio for mutual funds and ETFs as well as the commission fee schedule if the investors plan to buy stocks or bonds.

On the mutual fund and ETF side of the business, Vanguard is well-known as one of the lowest-cost providers in the industry. The Vanguard 500 Index mutual fund, along with its sister fund, the Vanguard S&P 500 ETF, have expense ratios of just 0.05%, making them two of the cheapest investment options available. Moreover, Vanguard's low-cost strategy applies to most of its other index and actively managed fund choices, as many charge less than 0.25% annually. Vanguard recently announced that it will be further lowering the expense ratios on 21 of its ETFs.

Vanguard's brokerage platform also continues with the low-cost theme. Online trades start at a commission of $7 and can be free for investors who meet minimum balance requirements. Brokerage accounts at Vanguard also carry a $20 annual maintenance fee, which can be waived for investors who choose to receive statements electronically.

Fund Performance History

In the world of investing, investment dollars usually follow strong performance. While past performance doesn't guarantee future results, it usually means that a fund has performed well enough in the past to attract investor dollars.

Morningstar rates funds on a five-star scale based on performance relative to peers with similar investment objectives. Vanguard's bread and butter lies in its family of large stock mutual funds but it claims outperformers across all market caps. As of July 31, 2015, Vanguard's domestic stock mutual funds average 4.1 stars on Morningstar's five-star scale while maintaining some of the lowest expense ratios in the marketplace. Vanguard's fixed income offerings have similar strong ratings, with its domestic bond lineup and municipal bond group sporting average ratings of 3.7 and 4.1 stars, respectively.

Vanguard's Corporate History

The length of time that an investment company has been in business is not necessarily an indicator that its funds will outperform. However, it suggests that investors have chosen to do business with the company for a long time, which is usually the result of satisfaction with the performances of their investments.

Vanguard was launched in 1975. Its former chairman, John Bogle, is credited with creating the first index mutual fund and spawning the popularity of indexing as a low-cost means of achieving returns that are often higher than those of actively managed funds. Vanguard retains its reputation as an indexing and low-cost industry leader, and it now manages over $3 trillion in total assets.

The Bottom Line

The combination of a large variety of investment options across most sectors and investing styles along with the company's continued commitment to keeping expenses low and more money in investors' pockets make Vanguard an ideal choice for investors looking to open or transfer a Roth IRA account.