Since its founding in 1983 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.
- Vanguard excels at low cost investing, making it ideal for long-term buy and hold investors and retirement savers.
- Due to their niche, Vanguard’s platform is somewhat limited. From a passive investor standpoint, however, Vanguard’s focus on account balance, holdings, and performance is appropriate.
- Vanguard has a Digital Advisor offering designed for younger investors, which compliments its Personal Advisor Services that provides access to financial advisors for clients with more complex financial situations.
- Like many of its competitors, Vanguard joined in the rush to cut equity and base options commissions to zero. Unlike some of those competitors, Vanguard does not accept payment for order flow for equity, ETF, or options trades.
Who Vanguard Is For
Vanguard was built exclusively for buy and hold investors who may not need robust charting capabilities or expansive research tools and data in order to make investment decisions. 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.
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 0.03% 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.
Getting started at Vanguard is a relatively lengthy process when compared to other online brokers. Although you can initiate opening an account online, there is a wait of several days before you can login and view your account. The design of the platform feels dated and would benefit from improved navigation. Nonetheless, the platform can be customized according to your interests. 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. Accounts can also be added to custom groups to view performance and additional information.
Vanguard's mobile app is easy to use and trading is straightforward. Although it supports the same types of orders as the web platform, the mobile app does not support the same asset classes. The asset classes missing on mobile include options contracts, international stocks without OTC registered symbols, fixed income, and non-Vanguard mutual funds. Another 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.
Since the broker is focused on long-term investors, there are limited features for doing research and there are no drawing tools available in the charting functionality on the mobile app.
The trading experience on the Vanguard website is 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
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. No other data, such as the day's change or volume, is displayed in the mobile view. There is also a complete lack of charting on Vanguard's mobile app.
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 130 Vanguard funds available, clients can hold over 14,175 mutual funds, of which 6,565 are available for purchase. More than 3,100 non-Vanguard mutual funds have no transaction fee when traded online.)
- Bonds (Corporate, Municipal, Treasury and CDs)
- OTCBB (Penny Stocks)
- Single leg and multi-leg options
- Vanguard Personal Advisory Services and Vanguard Digital Advisor
- International: purchasing shares on an international exchange must be done via live broker. Vanguard does not list available exchanges.
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, 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. Moreover, multi-order trades for products other than mutual funds are not currently supported.
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 on stock orders of $0.0159 per share. According to the broker, it conducts a regular and rigorous review of quality that looks at each and every client order. In 2020, its net price improvement per share for odd lots was $0.0446 and its net price improvement per share for orders sizes 1-1,999 is $0.0236. More than 96% of marketable orders for Vanguard ETFs up to 2,000 shares, which comprise about 26% of its trade flow, have been executed at the midpoint of the spread or better (i.e., with no spread cost) in 2020.
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 OTCBB 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.
- An order for 50 options contracts is $50.
- For clients with less than $500,000 in Vanguard ETF and mutual fund assets, it costs $20 to trade a transaction-fee mutual fund online and $50 per trade by phone. For clients with $500,000 to $1M in Vanguard ETF and mutual fund assets, it costs $8 to trade a transaction-fee mutual fund online and $40 per trade by phone. Clients with more than $1M in Vanguard ETF and mutual fund assets are allotted $0 trades. For clients with $1M to $5M in Vanguard ETF and mutual fund assets, after the first 25 trades (which are $0), it costs $8 to trade a transaction-fee mutual fund online and by phone. For clients with more than $5M in Vanguard ETF and mutual fund assets, after the first 100 trades (which are $0), it costs $8 to trade a transaction-fee mutual fund online and by phone.
- Margin interest ranges from 8.5% for $10,000 balance to 7% for over $100,000 as of Jan. 2021.
- Fixed income transaction fees vary.
- 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.
- 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.
- 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 makes money from and for you.
- Interest paid on cash: Similarly to other brokers, Vanguard generates interest income from the difference between what you are paid on your idle cash and what they earn on your cash balances. Vanguard pays a higher than average interest rate of 0.03% to you and automatically sweeps uninvested cash into a money market fund.
- Payment for order flow (PFOF): There are plenty of brokers that use payment for order flow as an additional revenue stream. 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 router attains net price improvement of $0.0159 per share. For options orders, Vanguard generates $0.0614 in price improvement per contract.
- Portfolio margin: Portfolio margining typically works best for customers who trade derivatives that offset the risk in its equity positions. Vanguard doesn't want customers who are traders, let alone derivatives traders, so it does not offer portfolio margining.
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. There are three canned screeners, but you will have the ability to create your own and save for future use. 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 from MT Newswires and Associated Press is available.
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.
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.
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 one actively managed fund with an integrated strategy that includes companies making strides toward ESG practices.
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.
Although there are capital gains reports, you will not be able to calculate the tax impact of a future trade. However, you will have access to Turbo Tax for additional tax reporting. You are able to calculate internal rate of return as well as time-weighted rate of return.
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.
- The time you spend on hold with Vanguard will depend on the level of service for which your account size qualifies.
Security and Reliability
- Apple users can log in with biometric (face or fingerprint) recognition.
- Vanguard carries excess Securities Investor Protection Corporation (SIPC) insurance provided by Lloyd's of London and London Insurers with an aggregate limit of $250 million
- The maximum for any single customer is $49.5 million with a cash limit of $1.75 million per customer.
- Vanguard did not have any platform outages in the past 4 years.
- Vanguard has not reported any significant data breaches through April 2021.
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.
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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