Sammie Ellard-King
I’m Sammie, a money expert and business owner passionate about helping you take control of your wallet. My mission with Up the Gains is to create a safe space to help improve your finances, cut your costs and make you feel good while doing it.
Quickfire Roundup:
The Vanguard Group is a registered investment advisor based in the United States that is the largest mutual fund provider and the second-largest Exchange-Traded Fund in the world, Blackrock being the biggest.
They have over seven trillion US dollars in assets under management with clients worldwide. We look into investing with Vanguard and whether it’s worth it for aspiring investors.
Due to its size and reputation as providing an excellent value relative to its low fees, Vanguard is a perfect advisor for many newer or less experienced investors.
Vanguard is owned by the funds it manages, so if you open an account with them and become an investor, technically, you also own part of Vanguard.
This structure allows them to charge such low fees and still attract top talent to its firms.
There are, of course, many high-quality firms out there to invest with, and each one comes with its strengths and weaknesses.
Vanguard is a superb choice for anyone looking to get into the investing game, especially those who wish to invest in mutual funds, index funds or ETFs. Many employers in the US also use Vanguard for their empower-sponsored plans.
When looking at ‘is Vanguard worth it?’ if you are thinking of investing and do not know where to begin, Vanguard makes a great choice.
Table of Contents
The Four Principles
Vanguard’s first principle is to Think About Goals. This is an excellent principle for anyone to base their investment decisions on. The first step in making an investment decision is to consider your personal preference and financial goals.
Then base your decision on how well it will put you in a position to achieve that goal.
Are you investing for the short term or long term? What is your risk tolerance? What will the money be used for when you’ve made it?
These are all questions that clients need to answer before investing with Vanguard, and we agree this is a very sound principle.
Their second principle is Keep Costs Low. While often there can be value in paying higher fees for a higher level of service, Vanguard believes in keeping its costs to its clients very low.
One big reason for this is their ownership structure where their clients are the owners, and they do not necessarily need to make a significant profit to consider themselves successful.
Especially in the long term, a slight drop in fees can compound into a large sum of money for you as the client.
Their third principle is Stay Balanced. Again, any investor would be wise to live by this principle. Vanguard makes it very easy for investors to pick the right mix of stock, bonds and other asset classes to keep a balanced portfolio.
Their final principle is to Be Disciplined. They are not the kind of advisors to tell their clients to go all-in on risky stocks or anything like that. They believe that slow, steady gains over a long period are the keys to real wealth, and one cannot argue based on their results.
Vanguard Investment
Options
Vanguard investing for beginners investment options are first class and perfect for those who choose not to engage in more sophisticated trades.
Their funds are meant to be simple, easy to understand, have low fees, and still perform adequately.
For those saving for retirement, Vanguard has a great selection of Target Date Funds. These are particular types of funds meant for people planning to retire around a specific year.
For example, for an investor born in 1990, today are in their early thirties and will probably retire around the year 2055.
Their Target Retirement Fund 2055 would therefore be a perfect option for this investor. This fund is managed especially for those retiring in that year. Since we are over thirty years away from retirement, that fund would be investing in fairly aggressively growing stock to take advantage of the time.
As retirement gets closer, the fund manager will slowly change the strategy to incorporate less risky stocks and some bonds.
The fund is meant to be held through to retirement, so in 2055, much of the holdings would be in cash-like asset classes so redemptions can occur seamlessly regardless of market conditions.
Get access to the Vanguard funds in an ISA
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Index Funds
Vanguard offers a selection of Index Funds that have a well-deserved reputation for being among the very best in the industry.
Index funds simply follow an index tied to a benchmark such as the Vanguard FTSE, Eurozone Government Bonds, Vanguard S&P 500 ETF and many others.
Index funds offer investors a way to diversify their portfolios easily and at a low cost. Vanguard has index funds with some of the lowest fees in the industry, making it a great choice for any investor.
Exchange-Traded Funds (ETFs)
Exchange-Traded Funds are similar to index funds except that they can be traded mid-day. Index Funds and Mutual funds can only be traded at the end of the day after they close out at the closing prices of their underlying assets.
ETFs can trade mid-day to take advantage of intraday price swings. That typically is not why these funds are selected, but it is more of a difference in how they are structured.
They also tend to offer a larger investment option selection than index funds, which is why they are so popular.
Many ETFs are based on certain sectors of the economy, so an investor can, for example, buy a diversified basket of stocks that make up the financial sector.
This is usually much safer than just trying to pick the one or two best financial stocks. ETFs are very popular among investors who want access to the stock market but do not want to put in the time required to safely invest in individual companies.
One ETF that we especially like is the Vanguard Total Stock Market Index ETF (VTI).
This unique ETF invests in the entire US stock market and differs from the S&P 500 or FTSE 100 indexes as the VTI also includes small and medium cap companies, not just the large caps.
Adding the small and medium caps allows for a more significant rate of return over the long term. It is so diversified enough that there isn’t excessive volatility.
According to J. L. Collins in his book The Simple Path to Wealth, this is the fund that is the basis for investing.
Life Strategy Funds
One unique feature of investing with Vanguard is their LifeStrategy Funds.
These funds are perhaps the most popular one-stop-shop offering for investors who want diversification across a broad range of stocks and bonds without the need to buy several portfolios.
These are a group of five funds that range from the most aggressive being 100% stocks, to the second most aggressive being 80% stocks and 20% bonds, all the way down the safest being 20% stocks and 80% bonds.
For those seeking diversification among sectors and asset classes, this group of five funds can offer an entire suite of solutions at a very low cost.
Finally, Vanguard does offer a selection of Active Mutual Funds focusing on both stocks and bonds. The funds are generally much more simple than most fund families, but that is the appeal of Vanguard Funds.
An investor who wishes to keep things simple will be able to have all of their needs more than adequately met with Vanguard’s selection of funds.
Vanguard Personal Pension (SIPP)
For those in the UK, Vanguard offers a unique way that investors can save for retirement by creating their own pensions. This plan allows investors to make their own investment choices and offers a slew of tax incentives as well.
The drawback is one must wait until they are age 55 to touch the savings, but if it is meant for retirement, it probably would not be used until that age anyway.
Stocks and Shares ISA
The Vanguard Stocks and Shares ISA is another great way for those in the UK to invest in a tax-efficient manner. Investors can take advantage of existing tax laws and contribute up to £20,000 a year into this account free from capital gains tax and income tax.
This is another very effective tool to grow your wealth without worrying about taxes or fees when coupled with Vanguard’s low-cost funds.
Fund Selection Tool
The options available to investors can seem overwhelming, primarily since Vanguard caters to the newer, less experienced or less savvy investors.
Their website features a great selection tool to help clients quickly pick funds when investing with Vanguard.
simply clicking options such as what region of the globe they wish to invest in, their risk tolerance and asset class, an investor can quickly narrow down their search to a few funds that fit their criteria.
It is laid out in an easy-to-understand and intuitive way that any investor can easily figure out.
How does Vanguard Make Money?
Vanguard makes money by charging a small fee on each of funds it makes available. When looked at in comparison to its peers their pricing is very reasonable which is what makes them such an attractive option.
Is Vanguard Worth It?
Overall, Vanguard has all the tools required to meet most investors’ needs who simply want to make their fund selections and let time and compound interest work their magic.
In addition to their low fees and wide selection of funds and prepackaged portfolios, they also offer some fantastic educational tools on their website.
If you are new to investing or do not have the time or energy to learn about individual stocks, investing with Vanguard is a fantastic option.
When answering is Vanguard worth it, we certainly think so!
If you’re interested in reading about investing small amounts into funds like the VTI we have a fantastic blog post you can check out here.
