The Vanguard Group, or simply Vanguard, is one of the most recognizable financial entities in the business world.
This can be attributed to it having the largest selection of mutual funds and holds the second-largest collection of exchange-traded funds (ETFs).
Besides offering mutual funds and ETFs, it runs a brokerage and offers trust and asset management, and a host of financial services.
Introduction to The Vanguard Group
Jack Bogle started it in 1975 to make financial services more accessible to individual investors.
He set out to create an entity that would allow retail investors to invest in stock market indexes like the S&P 500 – passively managed funds – because he had realized that a majority of actively managed funds failed to beat the market. Those that did eroded investors’ returns through fees and commissions.
The Vanguard Group was created to help individual investors build wealth by keeping its client base informed on the state of the market while helping them make sound financial decisions.
It educates its audience through articles, podcasts, videos, and other forms of media.
It also avails a range of tools to help its clients plan their finances. These tools allow people to plan for their retirement, compare funds, and set goals. They also enable people to plan for major expenses like college tuition.
Who owns Vanguard?
Vanguard is owned by its clients. It is owned by the funds that it manages, therefore, the clients who have stakes in those funds own it in principle.
How Vanguard was formed?
John Bogle first flirted with the idea of passive fund management when he conducted a study for his undergrad thesis. He discovered that many mutual funds were outperformed by stock market indices and those that weren’t, ate into investors’ returns through management fees.
It was when he was employed by Wellington Management Company that he formed a passive fund that would track the S&P 500 index. He named it Vanguard.
After a rocky start, Vanguard got its break when it was merged with another fund (offered by Wellington Funds) bringing its asset value close to $100 million.
Vanguard launched a couple of mutual funds and index funds and within a few years, it was the largest mutual fund company in the world. Its growth was boosted by economic growth and the fact that it did not charge high management fees.
Types of Accounts offered by Vanguard
Vanguard offers the following account options:
- Individual Accounts
- IRA accounts: You can open a traditional IRA account.
- Roth IRAs: If you prefer the post-tax contributions to traditional pre-tax contributions (offered by traditional IRAs), you can open a Roth IRA account with Vanguard.
- Fixed and variable income annuities: They charge some of the lowest fees in the market for these types of accounts
They also give you the option of inexpensively converting a 401(k) into a traditional IRA.
Vanguard offers 52 ETFs and 121 mutual funds (these figures may be incorrect by the time you read this, so I urge you to confirm with the official site first if you are interested).
They also offer hundreds of other funds created by other companies.
Their funds cover a wide range of industries, including the money market, real estate, bond, and stock, just to mention a few.
Although they are known for their passively managed funds, they also offer an assortment of actively managed funds.
Pros of the Vanguard Group
- It provides you with a free portfolio analysis tool called Vanguard Portfolio Watch. It gives you a neat summary of your costs and asset allocation. This helps with the overall management of your portfolio.
- It does not charge brokerage fees for the stocks and ETFs it offers as long as you place your order online. This trend to charge $0 for online transactions was set by a majority of online brokers; Vanguard hopped on the bandwagon in January 2020. In getting rid of these charges, it eliminated the confusion that was created by complex pricing systems that had clients wondering what they’d be charged for different transactions.
- Its funds have low expense ratios making them cost-effective and thus suited to retail investors.
- It offers a large number of mutual funds and ETFs. For example, it offers more than 14,000 mutual funds; therefore, if you are looking to invest in a mutual fund or ETF, chances are you will find it at Vanguard.
- It does not have a minimum deposit. You can open an account and keep it without funding it immediately.
- It is a leading advocate of investor education: It helps people plan their finances by educating them and providing them with planning and analytical tools. It offers podcasts, videos, articles, and other resources to keep its clients informed. It also encourages its clients to invest with a long-term mindset.
- It offers timely and helpful customer service.
Cons of the Vanguard Group
- It is not built for active investors who want to complete a large number of transactions regularly.
- It charges an annual fee for accounts that hold less than $10,000 in Vanguard assets.
- It has set a high minimum investment amount for mutual funds.
- It has a complex commission structure for options. (This is similar to the aforementioned structure that it eliminated for ETFs and Stocks.)
Vanguard is tailored for people who have a large account balance and are looking for an array of low-cost funds to invest in the long term – a retirement account fits this description perfectly.
It rewards people who prefer its funds and ETFs to those offered by other companies. For example, Vanguard Portfolio Watch only monitors its funds and excludes the rest.
You also better not be looking for a platform to regularly trade stocks because it will be a major pain using its platform, and it lacks good research tools for that matter.