Vanguard Review: A Clear Winner for Long-Term and Mutual Fund Investors

Vanguard is best suited for beginner and seasoned investors alike who are seeking access to an array of low-cost vast mutual fund and ETF offerings, all packaged into a simple-to-use brokerage platform. Read on as we dive into the pros and cons in this Vanguard review. We'll look at some of the important facts, figures, and features, and help you decide if it's the best online broker for you.

This stock broker is a good fit for: Investors seeking a low-cost stock broker to invest in stocks, ETFs, and mutual funds, among other common investments. Traders may want to look elsewhere, since this isn't Vanguard's bread and butter.

Top perks

Zero-commission trading

Vanguard was one of the last holdouts in the zero-commission revolution, but the company has scrapped its stock and ETF trading commissions for online trades. You'll only pay a commission on broker-assisted trades ($25), which is still quite standard in the industry.

Low cost ETFs and mutual funds

This is perhaps the biggest reason to use Vanguard as your broker. Vanguard's proprietary mutual funds and ETFs have some of the lowest expense ratios. In addition to being able to buy and sell Vanguard's excellent family of mutual funds with no transaction fee, Vanguard offers more than $3,000 other mutual funds on a no-transaction-fee (NTF) basis.

No account minimums

Vanguard has no minimum deposit requirement to open a brokerage account. That said, the platform doesn't allow you to trade fractional shares of stock, so you'll need at least enough to cover one share of whatever stock or ETF you want. And if you plan on buying mutual funds, keep in mind that most have their own minimum initial investment requirements, which are typically in the thousands of dollars.

International market access

This is both a good and bad feature. Unlike many online brokers, Vanguard allows investors to buy stocks directly on foreign stock exchanges. However, doing so comes with a steep $50 commission.

Research access

Vanguard provides third-party stock research reports from Standard & Poor's, Thomson Reuters, and First Call. This can help beginners find good investment candidates and can also be a great tool to help learn the basics of stock analysis.

Lots of account types

Vanguard offers individual and joint brokerage accounts, traditional and Roth IRAs, SEP-IRAs, SIMPLE IRAs, solo 401(k)s, and 529 college savings plans.

Great CD rates

Vanguard offers the ability to buy FDIC-insured CDs in its brokerage accounts. Not only do these have no fees or commissions, but they have some of the best APYs of any CDs on our radar. Plus, they are available in terms ranging from one month to more than 10 years.

What could be improved

Options commissions

Most online brokers still charge a per-contract fee for options trading. Although it used to cost a lot more than Vanguard's $1 per contract charge, these days, most of its peers charge much lower fees. However, it's worth noting that the options commission is waived for a certain number of trades for accounts with over $1 million invested in Vanguard ETFs and mutual funds. For example, an account with $1 million in Vanguard funds would get 25 free options trades before commissions start.

Fractional shares

Some online brokers allow investors to buy fractional shares of stock. In other words, if you have $500 and your favorite stock is $1,000 per share, you could buy 0.5 shares. Vanguard doesn't allow this.

Active trading platform

Vanguard's trading platform isn't as feature-packed for traders as other trading platforms out there. It's mainly designed for long-term investors who need to place an occasional order to buy or sell a stock. Traders looking for a complex platform would probably be better served elsewhere.

Virtually all of the major online brokers offer commission-free online stock trades, and Vanguard is no different. Its per-contract options commission is a bit on the high end, but its mutual fund commission is quite competitive. And as noted earlier, both the options and mutual funds commissions can be waived for accounts with more than $1 million invested in Vanguard funds.

As mentioned earlier, mutual funds are perhaps the best reason investors might choose Vanguard over any of its rivals.

For starters, Vanguard's mutual funds are highly regarded as some of the lowest cost index fund products for long-term investors. Vanguard mutual funds have some of the lowest expense ratios in the industry, and low-cost index investing was one of the motivations for founding the company in the first place. If you choose Vanguard as your broker, you'll be able to buy any of Vanguard's mutual funds without paying a commission.

In addition, Vanguard offers thousands of other (non-Vanguard) mutual funds on a commission-free, or no-transaction-fee (NTF) basis. And if a particular mutual fund you're interested in is not on Vanguard's NTF list, its standard mutual fund commission of $20 is on the lower end of those charged by its peers. For accounts with over $1 million in Vanguard funds, the standard commission is $0 for a certain number of mutual fund trades, and just $8 thereafter.

In addition to the commissions we've already discussed, Vanguard charges some other fees you might run into:

• Account service fee: Vanguard charges a $20 annual account service fee. However, the service fee is waived for some of Vanguard's clients with large account balances, or those who hold at least $10,000 in Vanguard ETFs and mutual funds in their account, or who choose to have their statements and documents electronically delivered. In other words, it isn't terribly difficult to get out of paying this fee.
• Foreign securities fee: If you purchase a stock on a foreign exchange (not an American depositary receipt, or ADR), it comes with a $50 processing fee.
• Wire fee: Vanguard charges a $10 fee for an outgoing wire, which is actually rather low. Wire fees in the $30 range aren't uncommon. And, this is waived for investors with at least $1 million in Vanguard funds.

Vanguard's trading platform isn't as robust as other stock trading platforms from trading-first brokers. If you regularly move in and out of stocks or like to make complex options trades, Vanguard is probably not the best choice for you.

On the other hand, Vanguard has plenty of functionality and features such as research reports that will be more than sufficient for long-term investors. And, Vanguard's mobile app is highly rated on the Apple App Store and allows you to trade and check your portfolio on the go.

While we aren't huge fans of margin investing, there are some cases when using margin can be useful. With that, here's a look at Vanguard's margin rates. To put those numbers in context, the words I'd use would be "about average." This is a similar margin structure to most other online brokers. If you frequently use margin, there are lower-cost options, but for most people who use margin occasionally or not at all, these rates should suffice.

Access to third-party stock research can be a valuable tool for investors, especially beginners. It can help you find good investment opportunities, determine how volatile you can expect your investments to be, and learn the basics of stock analysis. Vanguard provides third-party stock research reports from Standard & Poor's, Thomson Reuters, and First Call, which should be more than sufficient for most long-term investors.

• You are a long-term investor -- especially a retirement investor -- who wants to place an occasional buy or sell order and isn't a frequent trader.
• You only want to use options on occasion, if at all.
• You are a mutual fund investor or an ETF investor, and you specifically want to be able to buy Vanguard mutual funds with no commissions.