Vanguard Brokerage Review
Matt is a Certified Financial Planner® and investment advisor based in Columbia, South Carolina. He writes personal finance and investment advice, and in 2017 he received the SABEW Best in Business Award.
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Vanguard is well-known for its low-cost mutual fund and ETF offerings, but this review will focus on the company's brokerage platform. In addition to its proprietary funds, Vanguard customers can trade stocks, ETFs, non-Vanguard mutual funds, and more.
Read on as we dive into the pros and cons of Vanguard's online brokerage. 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.
Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor.
Vanguard remains a top option for passive investors with excellent zero-commission options for index funds and ETFs.
$0 per trade
Zero-commission trading: Vanguard was one of the last holdouts in the zero-commission revolution, but the company has scrapped its stock trading commissions for online trades.
Mutual fund costs: This is perhaps the biggest reason to use Vanguard as your broker. Vanguard's proprietary mutual funds and ETFs are some of the lowest-cost products of their kind. In addition to being able to buy and sell Vanguard's excellent family of mutual funds with no transaction fee, Vanguard offers thousands of other mutual funds on a no-transaction-fee (NTF) basis. Plus, its mutual fund commission of $20 for all other funds is on the lower end of the spectrum relative to peers.
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.
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.
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.
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.
Trading platform: Vanguard's trading platform isn't feature-packed. It's mainly designed for long-term investors who need to place an occasional order to buy or sell a stock. There's no platform designed for frequent traders, and investors 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.
|Stocks and ETFs||Options||Mutual Funds|
|$0||$1 per contract||$20 (thousands for free)|
Buying Mutual 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 about 3,400 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.
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. 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.
Vanguard's trading platform isn't designed for frequent traders. 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.
|Margin Balance||Interest Rate|
|Up to $19,000||8.50%|
|$20,000 - $49,999||8.00%|
|$50,000 - $99,999||7.50%|
|$100,000 - $249,999||7.00%|
|$250,000 - $499,999||6.50%|
|$500,000 - $999,999||5.25%|
|$1 million or more||4.75%|
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.
Alternatives to consider
There's no broker that's perfect for every investor, and Vanguard is certainly not an exception.
Specifically, if you want to frequently buy and sell stocks, or use complex options strategies in your portfolio, you might be better off with a broker that offers a full-featured trading platform such as TD Ameritrade. TD Ameritrade not only has lower commissions for options, but its thinkorswim trading platform is packed with valuable trading features to help serious traders construct and execute on trading strategies.
This brokerage is right for you if:
- 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 amutual fund investor, and you specifically want to be able to buy Vanguard mutual funds with no commissions.