As a broker, Vanguard is best suited for long-term or retirement savers, investors who prefer low-cost investment vehicles, and investors who are comfortable investing primarily through index funds and exchange-traded funds (ETFs).
For younger investors facing the common complexities of saving and investing, Vanguard has recently piloted a new all-digital advice service, Digital Advisor. For investors facing more complex financial situations, the broker also offers Personal Advisor Services, which features access to a Vanguard financial advisor. If you are looking to create a diversified, ETF-based portfolio that you will periodically rebalance—and not much else—then Vanguard is a good fit. If you are an active investor or trader, however, Vanguard's limited tools and asset selection will likely be a non-starter.
New and Notable
On October 25, 2022, Vanguard announced that it is broadening its fractional share trading offering, allowing retail clients to buy and sell Vanguard ETFs in dollars through a new trade path.
Since its founding in 1975 by John C. Bogle, Vanguard Brokerage has become synonymous with low-cost investing. From the onset, Vanguard was built to serve buy and hold investors with a long-term philosophy. It was not, and has never been, designed for frequent traders or short-term investors. Instead, Vanguard serves investors philosophically aligned with the firm's approach to investing, providing an intuitive, educational, and low-cost brokerage experience for this group.
Vanguard’s structure is unique in that the company is owned by its funds, which are owned by their shareholders—making it a firm truly built for investors. By removing outside owners and outside interests, there are no competing loyalties. In this review, we’ll look at where Vanguard ranks among the online brokers given its niche approach, and help you decide whether its features and philosophy are a good fit for your investing needs.
Pros & Cons
Useful investor education for long-term goal planning
Offers higher returns on idle cash than its competitors
An automated robo-advisor is integrated into Vanguard’s platform
Limited platform capabilities and features
Dated design and clunky user experience
Real-time streaming news is not available
- Vanguard has a wealth of retirement planning tools and resources on its website. Most of the investing education content is centered around helping you set financial goals and create a roadmap for how to achieve them. If you choose Vanguard as your broker, you will have access to various articles, videos, and podcasts that will inform you on the state of the market and help guide your long-term decisions.
- Vanguard puts you and your investment outcomes first by sweeping brokerage account cash balances into money market funds with a low expense ratio. Additionally, Vanguard will pay you 0.91% interest on idle cash utilizing the VMFXX Federal Money Market Fund. This interest rate is much higher than its competitors.
- Vanguard is committed to making advice more accessible and affordable. It has recently piloted a new all-digital advice service, Digital Advisor, which is designed for younger investors with basic goals of saving and investing. Digital Advisor complements Personal Advisor Services, which features access to financial advisors and is well suited for individuals facing more complex financial situations.
- Vanguard’s trading platform is basic as it was built for the passive buy-and-hold investor with simple requirements. From a passive investor’s standpoint, the focus on balance, holdings, and performance is useful, but active investors will find charting tools and other research capabilities limited or completely missing.
- The design of the main platform is dated and could benefit from improved navigation and overall user experience. The Digital Advisor offering seems to be getting the bulk of the design attention right now.
- Unlike most of its competitors, Vanguard does not offer real-time streaming news. This is likely because most of its target customers have a long-term philosophy, which makes real-time news less relevant. That said, this again emphasizes that clients have to commit to buy-and-hold or go somewhere else if they are inclined to be more active.
Although several areas of Vanguard's platform still fell dated, the company has been working on making certain enhancements. One area where Vanguard has made the experience more intuitive is is in the Opening of new Accounts. Notable enhancements include the ability to link a bank instantly through account aggregation technology, and a video tutorial that provides step-by-step education on opening an account. Certain functions are actually quite customizable. Specifically, as a Vanguard user, you will be able to adjust the accounts displayed, how you are greeted on the web/app, and the content on your feed within the mobile app.
Vanguard's mobile app is easy to use and trading is straightforward. It supports the same types of orders as the web platform. One caveat of the mobile app is that it does not stream data real time. Instead, the mobile trade path utilizes real-time quotes, while delayed quotes are displayed in other areas of the app.
Vanguard recently redesigned its main menu and support center, all while improving the website's mutual fund purchase flow. Despite these improvements, the trading experience on the Vanguard website is still a bit outdated. All pages that involve trading utilize real-time quotes, as do the security profile and research pages. However, market and security information on the website display delayed quotes. For example, the portfolio balances and holdings and security look-up pages both display delayed quotes.
Again, given that caters to passive investors, it does make sense that real-time quotes are not auto-refreshed. Instead, the quotes are updated as you move through a trade flow. This means that quotes are not necessarily updated before submitting an order as it can take several clicks to place a trade. One positive is that tax lots can be selected prior to placing an order online.
Vanguard does not enable conditional orders, trailing stops, nor will they allow you to enter multiple orders simultaneously. If you’re an active investor or frequent trader, this process is highly inefficient, further hammering home that Vanguard is not for traders.
Overall, the trading experience works for the target buy-and-hold investor slowly putting together a portfolio. For other types of investors expecting a responsive and customizable platform, the trading experience falls predictably short.
Mobile Trade Experience
Even after a redesign meant to keep Vanguard in tune with the needs of its mobile clients, the app remains light in terms of common industry features. Similarly to Vanguard's website, quotes for stocks and ETFs on the app show a delayed price until you get to order entry.The mobile app allows you to customize your "My Feed" which displays account information, news, blogs, transaction history, and performance, among other information.
Range of Offerings
As a Vanguard client, you will be able to trade a decent range of assets, including the following:
- Stocks and ETFs long; limited short sales
- Mutual funds (In addition to the 144 Vanguard funds available.)
- Bonds (Corporate, Municipal, Treasury and CDs)
- Vanguard Personal Advisory Services and Vanguard Digital Advisor
- Foreign securities transactions
Vanguard’s ethos is centered on a long-term investing philosophy, so the broker’s range of order types are limited to those best suited for buy and hold investors. The only order types you can place are market, limit, stop, and stop-limit orders. Vanguard does not support conditional orders or trailing stops, and they do not allow you to stage orders for later entry.
Vanguard's order routing technology is basic, just like its trading platform. It does not have a smart order routing technology, you cannot backtest or automate a trading strategy, and you will not be able to route your own orders. Although its approach to routing is basic, Vanguard will score some points with investors because it does not accept payment for order flow on equity and ETF orders.
Vanguard reports price improvement of $2.31 per 100 shares. According to the broker, it conducts a regular and rigorous review of quality that looks at each and every client order. More than 95% of marketable orders for Vanguard ETFs up to 2,000 shares, have been executed at the midpoint, which is considered the best price.
Vanguard does not offer a trade simulator. Again, this is not surprising considering it was built to discourage trading and instead encourage long-term, low-cost investing.
Vanguard joined the zero-commission brokerage movement in January 2020, well after other brokers. This is likely due to the fact that many Vanguard trades were already being executed without commission due to its extensive no-commission ETF offerings. Vanguard's costs are as follows:
- Vanguard charges no commissions for online equity, ETF, or Vanguard mutual funds trades. There is no limit on the number of shares that can be traded at the base commission.
- There is no per-leg commission on options trades. Per-contract commissions are $1, which is significantly higher than other online brokers.
- Investors with account balances over $1 million get an allotment of 25 free options trades per calendar year and those with $5 million or more get 100 per year. This allotment of free trades is shares with other commission eligible transactions (25 total across options and transaction fee mutual funds, for example).
- For clients with less than $1 million in Vanguard ETF and mutual fund assets, it costs $20 to trade a transaction-fee mutual fund online and an additional $25 broker-assisted fee if you trade by phone instead of online.
- Clients with more than $1 million in Vanguard ETF and mutual fund assets are allotted 25 of $0 trades, and then it costs $8 to trade a transaction-fee mutual fund online and by phone.
- Vanguard's live broker fee is an additional $25 per trade. Clients with more than $1,000,000 in their accounts can access live brokers for free.
- Margin interest ranges from 11.50% for balances under $20,000 to 8.25% for balances of at least $500,000, but less than $1,000,000 as of October 2022.
- Fixed income transaction fees vary. U.S. Treasuries are commission free, while CDs, corporate bonds, and municipal bonds incur a $1 per $1000 in face value fee for secondary market transactions. Mortgage-backed securities have a $35 per trade commission.
- There is a $20 annual account service fee for accounts under $10,000 in Vanguard funds that is waived if you select e-delivery for account statements.
- 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 domestically as well as internationally.
How This Broker Makes Money From You and for You
As fee compression for equity and option trades sweep the brokerage industry, online brokers must find ways to build a profitable business model. The fees and commissions listed below are a few of the ways Vanguard may make money from and for you.
- Interest paid on cash: Vanguard pays a higher than average interest rate of 0.81% to you and automatically sweeps uninvested cash into a money market fund. All the interest earned on your idle cash is paid to you. Many other brokers pocket the spread between what they earn on idle customer cash versus what they pass on—this is not the case with Vanguard.
- Payment for order flow (PFOF): There are plenty of brokers that use payment for order flow as an additional revenue stream, but Vanguard is not one of them. Essentially, brokers that participate in payment for order flow are being compensated for directing your equity and options orders to specific trading exchanges. Vanguard does not engage in PFOF.
- Stock loan programs: Vanguard uses the stocks held within its funds to participate in the stock loan program. The modest returns from lending securities within funds are realized within the fund, and thereby passed on to investors. Because of this established within-fund lending program, there is not a separate stock loan program outside of the funds on an individual investor portfolio level.
- Price improvement: Vanguard’s order routing attains net price improvement of $2.31 per 100 shares, which benefits you the investor.
- Margin interest: While using margin might not be part of the typical Vanguard investing philosophy, they do offer margin and make money on the interest collected for borrowing the funds to investors.
- Expense ratios: Vanguard earns money from the expense ratios of its own mutual funds and EFTs. Expense ratios are the fees paid by investors for investing in the fund. Vanguard's expense ratios are known to be very low, but with so much funds invested they add up to be a source of income for Vanguard.
Account and Research Amenities
Although Vanguard is a large broker, they have limited research and account amenities one would expect from a large broker. Vanguard was built for the target buy-and-hold client, and has dispensed with almost everything non-essential in the process.
Vanguard has a stock screener, but it is limited in functionality. Stocks cannot be screened for technical indicators and screens cannot be turned into a watchlist. Vanguard does have a stock comparison tool that allows investors to compare two stocks across a variety of metrics.
ETF and Mutual Fund Screener
Vanguard offers an ETF specific screening tool as well as a mutual fund screening tool, enabling you to compare characteristics of ETFs and mutual funds side by side.
Vanguard does not offer an options specific screening tool.
Fixed Income Screeners
Vanguard offers a fixed income screening tool that has a list of all CDs and bonds available for retail investors. As a Vanguard client, you can build a bond ladder but cannot use it to execute simultaneous buy orders.
Vanguard’s charting functionality was built by FactSet. Although charts are customizable, there is no technical analysis available and the capability is limited.
Tools and Calculators
With Vanguard, you can strengthen your financial toolbox with plenty of do-it-yourself resources. The majority of this broker's tools are centered around retirement planning. For instance, Vanguard has a retirement planning worksheet, retirement income calculator, required minimum distribution estimator, and a “when to retire” tool. It also has an investor questionnaire to guide you through creating a diversified portfolio, aligning your risk tolerance with your retirement goals.
Since college planning is a common goal, Vanguard offers an education savings calculator, college cost estimator, 529 plan tax deduction calculator, as well as a 529 plan comparison tool.
Trading idea generator
Vanguard does not have a trade idea generator.
Although real-time streaming news is not available, news articles and analysis are posted on the website.
Vanguard offers daily market reports as well as third-party research provided by Argus and Market Grader. They are free for registered clients.
Idle cash at Vanguard is automatically swept into money market funds with a low expense ratio.
Fractional Dividend Reinvestment Plan (DRIP)
As a Vanguard user, you will not be able to specify a dividend reinvestment at the time you purchase a dividend paying stock. Instead, once the security is purchased and settled, you can then make the decision to reinvest or receive cash. Additionally, Vanguard does offer you the option to make the decision at the account level, which drives selections for all new purchases, or you can make the selection on a security by security basis. DRIP purchase are also done with fractional shares when a full share cannot be purchased.
SRI/ESG Research Amenities (H4)
Environmental, social and governance (ESG) investing has gone mainstream thanks to better information and an increased interest from investors seeking to make an impact through their investment decisions. Vanguard has a dedicated area on its website for socially responsible investing (SRI) and ESG investing. Most of its funds are indexed and follow an exclusionary strategy that omits companies that don’t meet certain ESG criteria. Vanguard currently has two actively managed funds and four index funds in this space.
Portfolio reports and analysis are updated in real time on the Vanguard website. It is customizable and you will have the ability to aggregate holdings from outside accounts. Realized and unrealized capital gains and losses are reported in real-time, as well as margin, buying power and account balances. You can also view your unrealized long-term and short-term capital gains. Vanguard does have a sector allocation analysis tool that flags when you are over-exposed to a given sector, and this tool takes in additional data from other financial accounts you sync to Vanguard.
Although there are capital gains reports, you will not be able to calculate the tax impact of a future trade. They do generate tax forms like online brokers commonly do. You are able to calculate internal rate of return as well as time-weighted rate of return. The re-skinned Portfolio Watch tool allows users to test any portfolio rebalancing changes they are considering.
Vanguard predictably lacks the capability to add notes to a trade or maintain a trading journal.
Vanguard has a long history of providing education to investors. The focus of their content is on helping you set financial goals and creating a plan of action on how to reach them. You will find educational resources such as blogs, news articles, social media, commentary, research papers, videos, as well as webcasts on investment products, retirement, industry news, financial planning, and the economy. In addition to an investing glossary, Vanguard also offers life stage planning tools, which are both useful for do-it-yourself and beginner investors. As previously mentioned, Vanguard does not offer a paper trading platform.
- Phone support is available from 8 am–8 pm, Monday through Friday.
- Vanguard does not offer live chat with a customer support representative for prospective clients on your website, platform or mobile app.
- Vanguard does not have chat bot capability, but it has an easy task search function within its client support center.
- As a Vanguard Personal Advisor Services client, you will have unlimited access to financial advisors.
- Vanguard has service levels based on account size that allow you to unlock greater customer support with easier access to the best financial professionals at the company.
Security and Reliability
- Apple users can log in with biometric (face or fingerprint) recognition.
- Vanguard accounts are protected by SIPC which offers up to $500,000 of insurance for securities and $250,000 of coverage for cash should the broker fail.
- Vanguard likely carries an excess of SIPC policy as is common that provides greater levels of coverage in the millions, but this information is not shared by them.
- Vanguard did not have any platform outages.
- Vanguard has not reported any significant data breaches.
Vanguard has not faced any major regulatory filings as of late. As far as transparency is concerned, it has a dedicated webpage to provide clarity on its pricing structure and fees. You will be able to find information on the costs of mutual funds, ETFs, stocks, options contracts, fixed income as well as trading on margin. You will also be able easily find information on costs as it pertains to client services such as wire transfers.
Available Account Types
Vanguard offers all the common account types as well as specific accounts for college savings, small business retirement accounts, and more. Vanguard's account line up includes:
- Individual and joint brokerage accounts
- Corporate investment accounts
- 529 savings plans
- Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) accounts
- Traditional individual retirement accounts (IRAs)
- Roth IRAs
- Spousal IRAs
- Simplified employee pension (SEP) IRAs
- Savings Incentive Match Plan for Employees (SIMPLE) IRAs
- Small plan 401(k)
- Individual 401(k)
Vanguard dominates the passive investing market for good reason. The whole ethos of the company is built around low-cost, buy-and-hold as the solution for the average investor. If you are a Vanguard customer, you likely use the broker to purchase Vanguard funds—and you probably hold Vanguard funds even if you aren't a Vanguard customer. Committing to Vanguard as your online broker essentially means committing to passive investing. If you do this, you reap the most benefits from Vanguard's basic—but very affordable—offering.
Vanguard's competitive advantage is maintaining an array of low-cost ETFs and mutual funds. If you are a buy-and-hold investor, then Vanguard's services, platform, and mobile app will appeal to you despite the limitations. The platforms are not as user friendly or up to date as Vanguard’s competitors, but they can help you create a low-cost and diversified portfolio for the long-term. If you are looking for robust trading tools for active investing, Vanguard is quite clearly telling you to look elsewhere.
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