Vanguard Brokerage was introduced in 1983 by its late founder, John C. Bogle to enable clients to complement their mutual fund holdings with stocks and bonds. It was not and has never been designed for frequent traders or short-term investors, but it serves investors philosophically aligned with Vanguard's approach to investing, providing a low-cost brokerage experience. The firm's philosophy for new investors is to offer guidance and digital experience incentives that are thoughtful, informed and measured in their approach, not incentives that reward speculation and trading-for-the-sake-of-trading. Vanguard dominates the managed account business, but this is not much of a factor when it comes to active trading.
We'll look at where Vanguard ranks among online brokers given its limited scope, and we'll help you decide whether its features and philosophy are a fit for your investment needs. Aside from this Vanguard broker review, we've also reviewed the Vanguard Personal Advisor Services robo-advisor and the entry-level Vanguard Digital Advisor.
- Automatically sweeps brokerage account cash balances into its Vanguard Federal Money Market Fund, a high-yield fund with a low expense ratio
- Does not accept payment for order flow for equity trades
- Account-holders with large balances qualify for additional services, such as a dedicated phone support line
Who Vanguard Is For
Vanguard is aimed squarely at the buy-and-hold investors who don't need streaming data, dynamic charts, and indicators to make its investment decisions. The firm continues to see strong growth in ETF ownership, so it focuses on improving the ETF investing experience. In 2019, Vanguard introduced its Select ETFs, a curated list of 13 ETFs intended to provide investors with the building blocks to create a well-diversified portfolio. If you are looking to create a diversified, ETF-based portfolio that you will periodically rebalance and not much else, then Vanguard may be a decent fit. If you are an active investor or trader, however, your time is better spent looking elsewhere.
Good education resources for long term planning
Good returns on idle cash
Customer requests fuel update process
No streaming real-time data
Watchlists not shared across platforms
Limited news feeds
U.S. citizens only can open accounts
- Educational articles focus on planning for retirement and other distant goals.
- High-yield, low-cost money market funds generate a relatively high return on uninvested cash.
- Updates to the website and mobile apps focus on resolving customer requests.
- Most of the pricing data displayed on the website and mobile app is delayed by 15 minutes. There is no streaming real-time data.
- Watchlists are not shared between the website and mobile apps.
- Limited news feeds and research available.
- Only U.S. citizens or permanent residents can open an account with Vanguard.
Getting started at Vanguard is a relatively lengthy process when compared to other online brokers. Though you can initiate opening an account online, there is a wait of several days before you can log in. Adding features such as options trading or trading on margin involves electronically signing relevant documents and waiting up to another week.
Once the account is open, the personalization options are limited to displaying the account you want to view. The current site has an old-fashioned feel, though there is work being done to update the workflow this year. You can trade stocks, ETFs, and some fixed income products online; all other asset classes involve calling a broker to place the order.
Vanguard's mobile app is simple to navigate and buying and selling is straightforward. However, there are few features for doing research on investments other than the most rudimentary data. Watchlists, a key feature that other brokers have made available across all platforms, aren't available through Vanguard's app.
From a trading perspective, the Vanguard website is, frankly, outdated. There is a redesign in progress that will make the screens more modern looking, but that will bring it up to about 2013 standards when compared to other brokers. Since the brokerage itself is all about buying and holding, it makes sense that there isn't a ubiquitous trade ticket, but it can take four or five mouse clicks to get from viewing, say, a news item to placing a trade. This makes the idea of placing multiple trades over multiple sessions painful, further emphasizing that Vanguard isn't intended for traders.
Vanguard's data is delayed by 20 minutes outside of a trade ticket. Within the trade ticket, you will see a real-time quote. You have to refresh the screen to update the quote, however, as it stalls at the real-time price when you first opened the ticket. You will also have to set the order parameters each time you enter an order—there is no way to customize trading defaults such as order type or order size. Finally, you are also unable to stage orders or enter multiple orders simultaneously through Vanguard's platform. Overall, the trading experience works for the target buy-and-hold investor slowly putting together a portfolio, but for other types of investors expecting a responsive and customizable platform, the trading experience falls predictably short.
Mobile Trade Experience
As with Vanguard's website, quotes for stocks and ETFs on the app show a delayed price until you get to order entry. No other data, such as the day's change or volume, is displayed in the mobile view. There is a complete lack of charting on Vanguard's mobile app. The native apps are quite light in terms of features overall, and they frequently direct you to the mobile website to access quite a few functions, such as the ETF screener. Here again, the user interface can best be described as outdated.
Range of Offerings
Vanguard clients can trade a decent range of assets. Outside of stocks, ETFs, and some of the fixed-income products, however, you will have to call your orders into a broker rather than entering them online. Vanguard customers can invest in the following:
- Stocks and ETFs long; limited short sales
- OTCBB (Penny stocks)
- Mutual funds (Vanguard does not carry load funds. All Vanguard funds are commission-free as are over 3,500 non-Vanguard funds.)
- Bonds (Corporate, Municipal, Treasury, CDs)
- Simple (single leg) options
- Multi-leg options via live broker
- Vanguard Personal Advisory Services and Vanguard Digital Advisor, the firm's robo-advisories, are not integrated into the brokerage.
- International (Canada, Europe, Australia, New Zealand, and South Africa all via live broker)
When it comes to order types, Vanguard's self-imposed limitations are once again at the forefront. The only order types you can place are market, limit, and stop-limit orders. There are no conditional orders or trailing stops. Dividend reinvestment choices can only be made after a trade is settled.
Similar to the trading platform itself, Vanguard's underlying order routing technology isn't fancy. It has a single focus: price improvement, and it achieves its goal in this area. Vanguard reports price improvement on stock orders of $0.85 cents per share, which is extremely high. We could not independently verify this figure. Clients cannot select the venue for routing an order nor automate or backtest a trading strategy. There is also no trade simulator available, which is not surprising with how the live platform works to discourage trading as opposed to long-term investing.
Vanguard joined the zero-commission brokerage movement in January of 2020, well after other brokers. This may be because most of its trades had already been executed without commission prior to that due to its extensive no-commission ETF offerings.
- Vanguard charges no commissions for online equity, ETF, or OTCBB trades.
- There is no per-leg commission on options trades. Per-contract commissions are $1, which is significantly higher than other online brokers.
- An order for 50 options contracts is $50.
- Covered call trade of 500 shares plus five contracts would cost $5.
- Mutual fund commission for funds outside the No Transaction Fee program is $50 ($40 for clients with $500,000–$1 million). Clients with over $1 million in their accounts pay no commission.
- Fixed income: $2 per $1,000 face value for accounts under $500,000. $1 per $1,000 face value for accounts $500,000–$1,000,000. Free for accounts over $1,000,000.
- Margin interest ranges from 9% for $10,000 balance to 7.5% for over $100,000 as of Jan. 2020.
- $20 annual account service fee for very small accounts (under $10,000 in Vanguard funds).
- No fees for inactivity, account closure or transfer, exercise/assignment, receiving wires, sending checks, or paper statements and trade confirmations. There is a $10 fee for outgoing wires.
- Live broker fee is $20–$50 per trade, depending on the asset class. Clients with more than $1,000,000 in their accounts can access live brokers for free.
How This Broker Makes Money From You and for You
With most fees for equity and options trades evaporating, brokers have to make money somehow. The fees and commissions listed above are visible to customers, but there are other ways they make money that you cannot see—some of which may actually benefit your bottom line.
- Interest on cash: Like most brokers, Vanguard generates interest income from the difference between what you are paid on your idle cash and what they can earn on customer cash balances. Vanguard pays out a high percentage of the interest it earns to its clients, sweeping uninvested cash into a money market fund.
- Payment for order flow: Quite a few brokers generate income by accepting payment from market makers for directing its customer's equity and options orders to those trading venues. This is called payment for order flow. Vanguard does not accept payment for order flow for equity transactions. The firm accepts $0.18 per contract for options transactions, which is very low.
- Stock loan programs: These programs generate revenue for brokers when the stock held in your account is loaned to another trader or hedge fund, usually for the purposes of selling that stock short. Vanguard does not share the revenue it generates from loaning stock with its customers.
- Price improvement: Vanguard's order router attains an average of $0.85 per 100 shares traded. For options, Vanguard generates $0.0182 in price improvement per contract.
- Portfolio margin: Vanguard does not offer portfolio margining, which can lower the amount of margin needed based on the overall risk calculated. Typically, portfolio margining works best for customers who trade derivatives that offset the risk inherent in its equity positions, and Vanguard does not encourage options trading.
- Vanguard does not offer portfolio margining
- Vanguard does not offer a stock loan program
- Vanguard clients can earn approximately 0.1% less than the Federal Funds rate on uninvested cash
- Cash is automatically swept into a money market fund
- Vanguard clients can enroll dividend-paying stocks in a DRIP program
Vanguard offers very limited screeners. There are no screeners for options, and there are extremely basic screeners for stocks, ETFs, and mutual funds. Fixed income products are presented in a sortable list.
Tools and Calculators/Trading Idea Generator
Vanguard offers several tools focused on retirement planning. There is an asset allocation questionnaire to guide you toward a properly diversified portfolio matching your risk profile. You can also compare 529 (education) plans and calculate the required minimum distribution from an IRA. The features that could be described as trading tools or trading idea generators are limited to finding Vanguard-managed funds.
News and Research
News for individual stocks provided by MT Newswires and the Associated Press. All available research is proprietary.
Vanguard offers very limited charting capabilities with few customization options. No technical analysis is available.
Ways of analyzing your portfolio through Vanguard are limited to realized and unrealized gains and losses. There is little in the way of tax analysis, though you can import your transactions to tax prep programs that use the TurboTax format. Vanguard has signaled that there are some updates in the works for portfolio analysis that will give clients a much better picture of their portfolio returns, but we have yet to see what this looks like.
The focus of Vanguard's investing education content is on helping clients set financial goals and then figure out how to reach them. Most of the education offerings are presented as articles; approximately 250 new pieces were published in 2019. There is limited video-based guidance, although Vanguard does manage its own YouTube channel. Unfortunately, those videos are not embedded on the website. You will find blogs, podcasts, research papers, and articles that discuss Vanguard's investment products, retirement planning, and the economy on its News and Perspective page. Vanguard offers no live events.
- Phone support (customer service and brokers) is available from 8 a.m.–8 p.m. Monday through Friday.
- There is no online chat capability, though you can send a short secure message via the website, which will be answered in the order received.
The time you'll spend on hold with Vanguard depends on the level of service for which your account size qualifies; in essence, the bigger the account, the shorter the time on hold. Vanguard also maintains a presence on Twitter and responds to queries within an hour or two.
- Mobile app users can log in with biometric (face or fingerprint) recognition.
- Vanguard carries excess SIPC insurance provided by Lloyd's of London and London Insurers with an aggregate limit of $250 million to pay amounts in addition to those returned in a SIPC liquidation. The maximum for any single customer is $49.5 million with a cash limit of $1.75 million per customer.
- Through Nov. 2019, there were no significant data breaches at any Vanguard location reported by the Identity Theft Research Center.
Vanguard dominates the managed account business, but this is not much of a factor when it comes to active trading. Vanguard customers will likely use the platform to purchase Vanguard funds, both exchange-traded and mutual, but will otherwise not be very engaged in the markets. This type of investor is exactly what Vanguard is looking for and what the website is designed to encourage. Vanguard's strength is maintaining an array of low-cost ETFs and mutual funds. It also gives you the ability to sweep uninvested cash into a higher-paying money market fund while you are pondering what to do with it.
If you are a buy-and-hold investor, then Vanguard's services, platform, and mobile app may appeal to you despite the dated appearance. They aren't fancy, but they can help you build and maintain a diversified portfolio—one that will no doubt feature many of Vanguard's industry-leading funds. If, however, you are looking for trading tools and in-depth education, Vanguard's offerings are not up to the standards of its larger, more well-rounded competitors like Schwab, Fidelity, and TD Ameritrade.
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