Vanguard Mutual Funds: Smart Investment Or Risky Business?

Vanguard is one of the largest and most well-respected investment firms in the US, with a range of low-cost mutual funds that offer investors options for strong performance and market diversification. Vanguard is famous for having launched the first index mutual fund for individual investors. With a focus on low-cost investing, Vanguard is a good choice for long-term investors, but active traders may find the firm falls short. Vanguard's average expense ratio is 0.08% – the industry average is 0.57%. Vanguard has more than 130 mutual funds to choose from, including money market funds, bond funds, stock funds and target date funds.

Vanguard's low-cost model

Vanguard is known for its low-cost model, which has long been celebrated for its low fees and straightforward index-investing approach. The company's average expense ratio—the cost paid for administrative and operational expenses—is 0.10%, compared to an industry average of 0.57%. Vanguard's average mutual fund and ETF (exchange-traded fund) expense ratio is 82% lower than the industry average.

However, some consumers have noted that Vanguard's low-cost model comes at the cost of poor customer service. There have been complaints of incorrect IRA beneficiary designations, resistance to customized beneficiary designations, and mistakes in asset transfers. Vanguard has also introduced new account closure fees, and transfers to other brokerages now incur a $100 processing fee.

Despite these drawbacks, Vanguard's low-cost model can be a good option for investors looking for long-term, hands-off investments with minimal fees.

Vanguard's large fund selection

Vanguard is one of the largest and most well-respected investment firms in the U.S., with over $6.2 trillion in global assets under management. The company offers a wide range of low-cost mutual funds, providing investors with strong performance and market diversification. Vanguard's unique structure, with no outside owners, means that it can pass more savings directly to investors.

Vanguard has more than 130 mutual funds to choose from, spanning various asset classes, including:

• Money market funds: These are relatively low-risk investments that focus on short-term securities issued by U.S. corporations and government agencies.
• Bond funds: Bond funds carry more risk than money market funds but can provide stability alongside stock investments.
• Stock funds: Stock funds allow investors to put money into domestic or international companies of all sizes and across different industries.
• Target date funds: These funds invest in a mix of stocks, bonds, and other securities. As the target date approaches, the fund becomes more conservative to reduce risk.

Vanguard's mutual fund offerings include both passive index funds and actively managed funds. The company is known for its low costs, with an average expense ratio of 0.10%, significantly lower than the industry average of 0.57%.

• Vanguard Russell 1000 Growth Index Fund (VRGWX): This fund has very low costs, with a 0.07% annual expense ratio, and tracks some of the largest growth stocks in the U.S. It has outperformed the S&P 500 over the past decade.
• Vanguard FTSE Social Index Fund (VFTNX): This fund focuses on large and mid-cap stocks that meet environmental, social, and corporate governance (ESG) criteria. It avoids companies in industries like adult entertainment, alcohol, tobacco, gambling, weapons, and nuclear power.
• Vanguard Growth & Income Fund (VGIAX): This fund offers a combination of dividend income and growth of principal, making it a classic core holding for retirement portfolios. It holds around 890 stocks and has outperformed the S&P 500 over the past 10 years.
• Vanguard Target Retirement 2050 Fund (VFIFX): This target date fund is managed by professionals who shift the portfolio towards more stable investments like bonds and cash as the target date nears. It has a low expense ratio and currently holds about 90% of its assets in stocks.
• Vanguard High-Yield Corporate Fund (VWEAX): VWEAX is Vanguard's top-performing bond fund over the past decade, focusing on high-yield, intermediate-term fixed-income securities. It aims for consistent income while minimising the risk of defaults.
• Vanguard High-Yield Tax-Exempt Fund (VWALX): This fund is a top-performing municipal bond fund, offering a high level of income exempt from IRS taxes. While it invests in lower credit-quality holdings, it maintains at least 80% of its assets in investment-grade municipal bonds to manage volatility.
• Vanguard Explorer Fund (VEXRX): The Vanguard Explorer Fund focuses on smaller-cap stocks, providing diversification to portfolios that primarily hold larger stocks. It has delivered impressive average annual returns over the past decade, making it Vanguard's top-performing diversified U.S. small-cap fund.
• Vanguard Wellington Fund (VWELX): Established in 1929, the Wellington Fund is Vanguard's oldest mutual fund. It is a balanced fund, with about two-thirds of its portfolio in stocks and the rest in bonds. It falls into the moderate allocation category, aiming for a balance between growth and volatility.

Vanguard's basic trading platform

Vanguard's trading platform is basic and lacks the analytical and educational tools offered by other brokers that support stock trading. It is designed for long-term retirement investors rather than active traders.

The platform is simple to use, with a focus on balance, holdings, and performance. However, active investors will find the charting tools and other research capabilities limited or missing entirely. Vanguard's platform is best suited for those who want to create a passive portfolio that they will periodically rebalance, rather than for active investors or traders.

Vanguard's mobile app is also easy to use and allows users to trade mutual funds, ETFs, and stocks, as well as monitor account activity and analyze performance. However, investors needing to execute more complex trades will need to do so on the web browser.

The company has recently made improvements to its platform, including a new dashboard landing page and updated tools, but it still lags in terms of user experience when compared to top competitors.

Vanguard's high investment minimums

Vanguard's investment minimums are relatively high compared to other brokers. For example, most Vanguard retirement funds and the Vanguard STAR Fund have investment minimums of $1,000, while other Vanguard funds carry minimums of $3,000. Some funds have even higher minimums of $50,000 or $100,000. These high investment minimums can be a barrier for beginner investors who may not have a large amount of capital to start with.

The high investment minimums at Vanguard are likely due to the company's focus on long-term, hands-off investors who are looking for low fees. By requiring higher minimum investments, Vanguard can keep its fees low while still generating sufficient revenue to cover its operating expenses.

It's important to note that Vanguard's investment minimums vary depending on the specific fund. For example, the minimum investment for a Vanguard ETF is as little as $1 through their fractional share program. Additionally, the minimum investment for non-Vanguard mutual funds and ETFs can also vary by fund.

While Vanguard's investment minimums may be higher than some other brokers, it's worth considering the benefits that Vanguard offers. Vanguard is known for its low-cost funds, with expense ratios well below the industry average. This makes Vanguard an attractive option for investors looking to minimize fees and maximize their returns over the long term.

Overall, Vanguard's high investment minimums may be a consideration for investors, particularly those just starting out. However, the company's low-cost funds and trusted name make it a popular choice for retirement investors and high-net-worth individuals.

Vanguard's customer service

Vanguard also provides dedicated phone support for institutional investors, financial advisors, and investors outside the United States, with varying hours for each group. Additionally, they offer a Support Center with online resources and FAQs for those who prefer self-service options.

For technical issues with the Institutional Trading Web Site, a specific phone line is available. Vanguard also provides Spanish-language support and text telephone services for hearing-impaired investors.

Frequently asked questions