5 Things to Know About Investing With Vanguard

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Vanguard screenshot
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When it comes to investing, money expert Clark Howard favors investment companies that hold costs down for their customers and don’t pad their pockets with commissions or other heavy fees.

The Vanguard Group is one company that meets all those criteria.

Investing With Vanguard: Here’s What You Need to Know

The Valley Forge, Pennsylvania-based outfit practically invented passive investing. But how much do you really know about Vanguard? Read on to find out…

Investing with Vanguard: Table of Contents

Vanguard Has a Unique Client-Owned Structure

Vanguard was founded in 1975 by the late John C. Bogle. Rather than trying to pick individual stocks, Bogle advocated an “own the whole market” approach and pioneered index funds.

But that’s not all Bogle and Vanguard did for investors. A cornerstone of the company is its unique ownership structure.

Vanguard is like a co-op for investing that’s owned by its shareholders, similar to how a credit union is a co-op for banking. There are no outside shareholders with interests at stake. If you own a Vanguard fund, you become a part owner of Vanguard!

Vanguard's unique client-owned structure
Vanguard’s unique client-owned structure

How to Invest With Vanguard

Unlike a lot of its competitors, Vanguard has no physical office locations. Forgoing storefront locations is just another way the company holds down expenses and passes the savings on to investors.

So there are two main ways to get started with Vanguard as an investor:

No matter whether you want to open a Roth IRA or a target-date retirement fund, we’ve got full step-by-step instructions on how you do that with Vanguard here and here.

Vanguard’s Investment Minimums

Before you can get started thinking about investing with Vanguard, you’ll want to know how much money it will take to open an account.

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Of course, the amount it takes to open a Vanguard investment account varies by financial product.

Investment
Minimum Required
Exchange-traded funds The price of one share (varies)
Target date retirement funds and Vanguard STAR Fund $1,000
Most other Vanguard index funds $3,000
Most actively managed funds $50,000*
Certain sector-specific index funds $100,000

* Admiral class shares only; Investor class shares of actively managed funds have minimums starting at $3,000.

Target date retirement funds — which only take $1,000 to get started with — are one of Clark Howard’s favorite investments.

“With target date funds, you don’t have to do a thing other than invest your money,” Clark says. “It’s the ultimate in ‘set it and forget it’ investing and could be the best and easiest investment choice you ever make.”

The beauty of target date funds is that you simply pick the year that’s closest to your expected date of retirement and pop your money in. Then you’re done. You don’t have to pick any further investments.

The fund manager adjusts the mix of stocks and bonds in the fund as you age — all without you lifting a finger.

Vanguard Target Retirement Funds

  • Investments: A combination of stocks, bonds and cash equivalents
  • Years available: 2025, 2030, 2035, 2040, 2045, 2050, 2055, 2060 and 2065
  • Expense: Between 0.13% and 0.15%
  • Minimum investment: $1,000

Low Fees Are a Hallmark of Vanguard

The name Vanguard is synonymous with low fees. That’s because rather than relying on a Wall Street brainiac to pick stocks, one of Vanguard’s classic products is broad market-based index funds.

With index funds, you buy little slices of hundreds or thousands of companies in one neat package. And because there’s no fund manager to pay, the costs associated with index funds are tiny — sometimes as low as 0.04%!

In fact, on average, Vanguard’s expenses are 83% lower than competitors.

“In 2018 our funds’ asset-weighted average expense ratio (representing the average paid by our investors) was 0.10%,” Vanguard notes online. “That was far lower than the industry’s corresponding average of 0.58%.”

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Here’s a look at how Vanguard’s low fees stack up against some of the competition, according to Morningstar.

Investment Company
Asset-Weighted Average Fees (%)
Vanguard 0.09
State Street 0.17
BlackRock/iShares 0.30
Dimensional Fund Advisors 0.34
Fidelity 0.48

Vanguard Personal Advisor Services Is the Company’s Roboadvisor Service

Vanguard Personal Advisor Services is the company’s answer to roboadvising, which has taken the investing world by storm.

This service uses a combination of computer models and human advisors to manage your money. Account management fees begin at 0.30% per year, but there’s a high bar to get started — you need a $50,000 minimum.

vanguard personal advisor services homepage
Vanguard Personal Advisor Services homepage

In a Consumer Reports tally of the best investment companies for small investors, Vanguard Personal Advisor Services came in at #8. Vanguard itself claimed the #2 spot behind Edelman Financial Services.

Final Thought

Vanguard offers low fees and easy-to-understand investments for people who want to simplify the investing part of their financial lives.

However, if you like to be able to go to a physical office to discuss your portfolio face-to-face with someone, then Vanguard’s lack of office locations may be a deal-breaker for you.

Whatever the case may be, Vanguard’s unique client-owned structure is a hard one for Wall Street to stomach. Many financial types have long brushed them off as that cutesy little place in Pennsylvania saying, “Oh, they’re not really Wall Street.”

But that kind of attitude just amuses Clark Howard.

“Thank goodness they’re not Wall Street because every choice they make is about you as their customer and shareholder-owner!” the consumer champ says.

Have questions about your investments? Our investing guide should be your first stop.

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If you need more detailed advice specific to your situation, contact Clark’s Consumer Action Center. It’s a FREE help line open Monday-Thursday from 10 a.m. – 7 p.m and Friday from 10 a.m. – 4 p.m. EST. We have volunteers available to answer YOUR concerns! Call Team Clark @ 404-892-8227.

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