Whether I’m opening an
IRA, brokerage account, or
529 savings account, or I’m simply choosing investments
within a 401(k) or other investment account, I have thus far
exclusively chosen Vanguard for my personal
investments and I almost always recommend that my clients use them
To be sure, I’d be perfectly comfortable using accounts and
funds offered by plenty of other companies. Providers like
Betterment, Schwab, Fidelity, iShares, TD Ameritrade, and others
can all be good choices.
Some of those other providers even offer funds that cost less
than what Vanguard offers, which is hugely important given that
cost is the best predictor of future returns.
Still, Vanguard is almost always my first choice, and the main
reason why comes down to trust.
Why I Trust Vanguard
Two of the first actions ever taken by Vanguard illustrate
perfectly why they have earned my trust.
John Bogle founded Vanguard in 1975 with
a unique ownership structure. Rather than being publicly owned,
or being owned by a small group of partners, the company was owned
by its mutual funds, which in turn were owned by the people
purchasing shares in those mutual funds. That ownership structure
was purposefully chosen so that business profits could be passed on
to regular investors in the form of lower fees, rather than going
to third-party shareholders.
The next year, in 1976, Vanguard launched the First Index
Investment Trust, which was the first
index fund ever made available to regular investors. This fund
eventually became the Vanguard 500 fund, which is now one of the
biggest and least expensive mutual funds in the world.
Those two events set a precedent that has been followed
throughout the years. They signaled a commitment to minimizing
fees, a commitment to
index investing, and a commitment to maximizing the benefits
for the everyday investor.
And that, really, is why I trust Vanguard over every other
investment provider. Because they’ve followed through on that
commitment year after year, I trust them to do the right thing.
Those other investment providers? Again, many of them can be
used well, and in some cases can be used to minimize fees even
further. But I don’t have the same trust in any of them that I do
Let’s take Fidelity as an example. They recently introduced
the industry’s first ever zero-fee, zero-expense ratio mutual
funds, which is a big deal and is not something that Vanguard
offers. They also offer many other index funds that are competitive
with Vanguard in both price and quality.
But they also offer high-priced, actively managed mutual funds.
They also charge you $50 to close an IRA, something that costs
nothing at Vanguard. And they offer two types of
target-date retirement funds, some of which are index-based and
low cost, and some of which are not index-based and cost much
With Vanguard, I trust that there’s no bait and switch. With
some of those other providers, I know that at least part of the
reason they’re offering these low-cost funds is to get you in the
door with the hope that they can eventually sell you something more
Given that investing is a long-term endeavor, that trust matters
to me. While nothing is ever certain, I’m confident that Vanguard
will continue to put my interests first.
The Downsides to Vanguard
Despite all the positives, there are some downsides to Vanguard
that are worth mentioning.
The biggest is the fact that Vanguard mutual funds have
relatively high minimum investment requirements. Their
target date retirement funds all require $1,000 to get started,
and almost every other mutual fund requires at least a $3,000
initial investment, though their ETFs do not have a minimum
In contrast, many other investment providers either don’t have
a minimum investment or have a much lower bar to clear. Fidelity,
for example, offers many funds with no minimum investment
requirement, and Betterment
also allows you to get started without any minimum balance.
If you’re just starting out and
don’t have much to invest, you may be better off using
another investment provider, at least for a while.
The other downside is simply the fact that you can, in some
cases, find lower cost investments elsewhere. The difference is
usually very small, but it can be a little more significant if
you’re investing smaller amounts of money.
Fidelity’s new zero-cost mutual funds are a good example,
though not the only one. Their Total Market Index Fund is free,
compared to 0.14% per year for Vanguard’s Total Stock Market
Index Fund (VTSMX) on investments up to $9,999 and 0.04% per year
once your balance reaches $10,000.
On a $5,000 investment, that 0.14% difference means that you
would pay an extra $7 per year to use Vanguard’s fund. That’s
certainly not going to make or break your investment return, but
it’s still something to be aware of.
It All Comes Back to Trust
None of this is to say that Vanguard is always the right choice
or that you personally should always invest your money with
Vanguard. There are many factors that go into choosing an
investment provider and it’s impossible for me to tell you what
the right choice is for your personal situation.
But when it comes to my personal investments, and typically
those of my clients as well, Vanguard is the company I trust more
than any other. They were founded with the mission of serving
everyday investors and they have stuck by that mission ever
And when it comes to my family’s financial future, that trust
means the world to me.
Matt Becker, CFP® is a fee-only financial planner and the
founder of Mom and Dad
Money, where he helps new parents take control of
their money so they can take care of their families.
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Source: FS – All-News2-Economy
Why I Trust Vanguard With My Investments