Vanguard Brokerage Review – Low-Cost Investments for Retirement

Vanguard Brokerage Services is a super-affordable online brokerage for self-directed investors.

Backed by Vanguard, a market leader in low-cost mutual funds and exchange-traded funds (ETFs) for more than 40 years, it’s one of the best digital platforms for confident and novice investors alike to build diversified portfolios without excessive commissions and fees.

In addition to Vanguard mutual funds and ETFs, Vanguard Brokerage Services users can add non-Vanguard ETFs and funds, stocks, CDs, bonds, and options to a range of tax-advantaged accounts (such as IRAs and 529 education savings plans) and taxable brokerage accounts.

Key Features of Vanguard Brokerage Services

Vanguard Brokerage Services is the company’s self-directed brokerage account platform. It shares the Vanguard brand name and reputation with two other platforms for everyday investors:

• Vanguard Personal Advisor Services, a low-cost portfolio management and financial planning solution for investors who prefer to let professional financial advisors manage their investments daily.
• Vanguard Digital Advisor, a low-fee, low-minimum robo-advisor that builds and rebalances diversified portfolios using low-cost Vanguard funds.

Unlike either of these options, Vanguard’s self-directed brokerage has no account minimums. You can open and fund your account in any amount and begin investing on your own immediately.

Vanguard Brokerage Services offers a wide range of account types and financial instruments to clients in all four investor tiers (based on the amount held in qualifying Vanguard assets). Higher-tier investors enjoy breaks on fees and access to managed portfolio services not available to lower-asset clients. More on the tier breakdown shortly.

Here’s what else you can expect from Vanguard’s self-directed brokerage.

Available Account Types

Vanguard customers have access to the following account types:

• Taxable brokerage accounts for general investing
• Traditional IRAs, Roth IRAs, rollover IRAs, and simplified employee pension IRAs (SEP IRAs)
• Uniform Transfer to Minors Act (UTMA)/Uniform Gift to Minors Act (UGMA) accounts for minor beneficiaries
• Savings incentive match plan for employees IRAs for smaller employers
• 401(b), Roth 401(k), and traditional 401(k) employer-sponsored retirement plans
• 529 education savings plans (officially known as “the Vanguard 529 Plan”)

Investor Tiers and Fees

Vanguard segments self-directed brokerage clients into four investor tiers. Commissions and fund expenses are uniform across all tiers.

But investors with at least $50,000 in qualifying Vanguard assets (Voyager tier and higher) qualify for portfolio management through Vanguard Personal Advisor Services. They automatically avoid the $20-per-year service fee charged on common account types like taxable brokerage accounts and most IRAs.

Assets that count toward tier status include:

• Vanguard mutual funds
• Vanguard ETFs (index funds and sector funds)
• Certain Vanguard annuities
• Assets held in a Vanguard 529 Plan
• Certain small-business accounts

Assets that don’t qualify for tier status include:

• Stocks
• Bonds and CDs
• Non-Vanguard mutual funds
• Non-Vanguard ETFs

Vanguard’s investor tiers break down as follows:

Under $50,000 in Qualifying Assets (Personal Investor)

Personal Investor clients enjoy commission-free trades. Vanguard Brokerage Services waives the $20 annual account service fee for clients with at least $10,000 in qualifying assets (account balance) or who opt into Vanguard’s e-delivery service, which electronically delivers all official communication and documentation. This includes e-delivery of privacy notices, trade confirmations, prospectuses (official investment offering documents), and account statements.

$50,000 Up to $500,000 in Qualifying Assets (Voyager)

Voyager clients qualify for portfolio management through Vanguard Personal Advisor Services, the annual fees of which begin at 0.30% of assets under management. Vanguard Brokerage Services also automatically waives the $20 annual account service fee regardless of e-delivery status.

$500,000 Up to $1 Million in Qualifying Assets (Voyager Select)

Voyager Select clients enjoy the same benefits as Voyager clients plus discounts on operating fees and expenses charged by certain Vanguard funds.

$1 Million and Over in Qualifying Assets (Flagship)

Flagship clients enjoy the same benefits as Voyager Select clients plus optional trust services.

Vanguard clients with more than $5 million in qualifying assets are eligible for an even higher tier of service: Flagship Select, a personalized wealth management relationship that includes one-on-one service from a Vanguard Personal Advisor, customized wealth and estate planning (including legacy and philanthropy planning), and strategic tax advice.

Vanguard ETFs

Vanguard issues approximately 2,000 index, sector, and fixed-income ETFs. According to Vanguard, 82% of all Vanguard funds and 94% of actively managed Vanguard funds beat the returns of their peer-group averages during the decade that ended Dec. 31, 2020.

All Vanguard ETFs trade commission-free, none have front- or back-end loads, and none require round-number minimum investments (although you must have sufficient funds to purchase at least one whole share).

Most ETFs’ annualized expense ratios top out at 0.15% or less, although a handful exceed that threshold.

Vanguard Mutual Funds

Vanguard issues well over 100 active mutual funds covering a range of asset classes and investing strategies:

• Money market funds
• Tax-exempt funds (generally state and municipal bonds)
• Taxable bond funds (U.S. and international)
• Balanced funds, including target-date retirement funds for easy retirement planning
• U.S. stock funds (small-, mid-, and large-cap)
• International stock funds
• Sector and specialty funds (such as health care and real estate)

Vanguard mutual funds never carry front- or back-end loads. Expense ratios generally top out at 0.40%, with most falling substantially under that mark.

Most Vanguard mutual funds require a minimum investment of $3,000, but target-date retirement funds’ minimums come in at just $1,000.

Non-Vanguard ETFs

Vanguard’s brokerage isn’t a completely closed shop. Vanguard Brokerage Services clients have access to a few dozen non-Vanguard ETFs, all of which carry no transaction fees, have low expense ratios, and waive investment minimums.

Although Vanguard pushes its own ETFs through a handy tool that lets you compare external investment options to in-house products, it’s nice to be able to shop around.

Non-Vanguard Mutual Funds

Vanguard also has several hundred non-Vanguard mutual funds in its inventory. Like non-Vanguard ETFs, most have low expense ratios and waive transaction fees.

Transaction fees on the handful of funds that charge them top out at $20 per trade for Personal Investor and Voyager clients and $8 per trade for Voyager Select clients.

Flagship and Flagship Select clients pay no mutual fund transaction fees on the first 25 trades.

Stocks

Vanguard brokerage clients can purchase individual stocks during regular market hours — generally, 9:30am to 4pm Eastern on nonholiday weekdays. Extended-hours trading isn’t available.

CDs and Bonds

Vanguard brokerage clients can purchase individual fixed-income instruments (chiefly bonds and CDs) during market hours — generally, 8am to 5pm Eastern on nonholiday weekdays. Extended-hours trading isn’t available.

Options

Vanguard offers low-cost options trading for all brokerage clients. Options trades are commission-free, but there’s a $1-per-contract fee on all executed trades for Personal Investor, Voyager, and Voyager Select clients.

Flagship clients pay no contract fees on the first 25 trades.

Cash Account (Settlement Fund)

Each Vanguard brokerage client has a cash account that Vanguard calls a “settlement fund.” It’s basically a cash management account with a variable yield on par with FDIC-insured savings accounts at online banks.

This account invests the bulk of its cash in the Vanguard Federal Money Market Fund (VMFXX), a liquid money market basket. Clients are free to keep as much cash in this account as they wish, making it a useful hedge for risk-averse investors.

Advantages of Vanguard Brokerage Services

Vanguard Brokerage Services stands out by waiving commissions on most trades, forgoing account fees for most clients, and offering access to a wide range of account types and investment products, including Vanguard mutual funds and ETFs with very low fees.

1. No Commissions on Most Trades. Vanguard does not charge commissions or transaction fees on stock, ETF, Vanguard mutual fund, CD, and U.S. Treasury bond trades. Options trades carry a small per-contract fee but are otherwise commission-free as well.
2. Account Fees Are Easy to Avoid. Vanguard’s $20 annual account fee for clients with under $10,000 in qualifying Vanguard assets is easy to avoid on taxable accounts, IRAs, and UTMA/UGMA accounts. All you have to do is opt into Vanguard’s e-delivery service.
3. No Minimum Deposit Required to Open an Account. Vanguard doesn’t require a minimum deposit to fund general investing accounts, although Vanguard mutual funds typically do have investment minimums ($1,000 and up). To open a mutual fund-only account, you must deposit at least $1,000 at the outset.
4. Access to Thousands of Very Low-Cost Funds. Between Vanguard’s ETFs and mutual funds and the competing non-Vanguard funds also available on the platform, Vanguard brokerage clients have access to thousands of very low-cost ETFs and mutual funds. That’s a significant advantage over many robo-advisors, which tend to limit investor choice to a relative handful of favored funds.
5. Access to Non-Vanguard Funds. Vanguard Brokerage Services’ expansive fund inventory includes non-Vanguard ETFs and mutual funds. Impressive as it is, Vanguard isn’t the alpha and omega of investing. Plenty of other fund issuers are worth patronizing; Vanguard offers access to at least 100 of them.
6. Access to a Wide Range of Account Types. Vanguard brokerage clients can open a wide range of accounts, from plain-vanilla taxable brokerage accounts to specialized retirement plans like 403(b) plans and tax-advantaged education savings accounts. Whatever you’re investing for, chances are good you can find a suitable vehicle here.
7. High Yield on Cash Accounts. VMFXX serves as the settlement account — basically, a cash management account — for all Vanguard brokerage clients. Although its yield is subject to change with prevailing benchmark rates, it consistently beats most competing cash management accounts’ yields.
8. Backed by a Trusted Brand. Vanguard is a venerable institution that’s built up a great deal of goodwill since its inception in the 1970s. Many casual investors don’t realize, for example, that the now-ubiquitous index mutual fund is an original Vanguard innovation. Vanguard’s impressive asset growth — from less than $1 trillion in 2009 to over $6 trillion in early 2020, according to the company history — is a testament to public trust in the company and a source of reassurance for new Vanguard brokerage clients.

Disadvantages of Vanguard Brokerage Services

Vanguard Brokerage Services is not ideal for expert-level investors seeking the flexibility of extended-hours trading or access to alternative investments like cryptocurrencies.

1. Short Extended-Hours Trading Windows. Vanguard Brokerage Services only offers extended-hours fund or stock trading from 4pm to 5:30pm Eastern, Monday through Friday. This window is much more restrictive than some competing brokerages’.
2. No Direct Forex or Cryptocurrency Trading. With no direct forex or cryptocurrency access, Vanguard’s self-directed brokerage isn’t suitable for investors seeking exposure to certain alternative asset classes. Trading in forex and crypto isn’t appropriate for novices anyway, but more experienced investors with sophisticated financial goals could find this deficiency problematic.
3. No Human-Managed Portfolios Option for Investors With Less Than $50,000 in Qualifying Assets. Vanguard’s portfolio management services, offered through Vanguard Personal Advisor Services, are reserved for investors with at least $50,000 in qualifying Vanguard assets. If you’re young or lack ample savings, this minimum could be prohibitive. That said, Vanguard Digital Advisor Services has a lower minimum ($3,000) and partly replicates the Personal Advisor Services experience with semi-custom asset allocation.

How Vanguard Brokerage Services Stacks Up

Vanguard Brokerage Services is a very good choice for long-term investors who want to take advantage of Vanguard’s immense reserve of low-cost mutual funds and ETFs while investing in non-Vanguard securities as well. 

It’s not the only DIY investment platform for buy-and-hold types, though. Here’s how it stacks up against Fidelity Investments, another popular financial institution with lots of low-cost funds available through self-directed and managed investment accounts.

Final Word

Vanguard Brokerage Services is a low-cost online stock broker for investors (not active traders) with the confidence and free time necessary to build and manage customized, self-directed portfolios.

With no commissions on most trades and thousands of low-cost Vanguard and non-Vanguard funds to choose from, the possibilities for Vanguard brokerage clients are virtually endless.

And if there ever comes a time when you decide self-directed investing isn’t for you, Vanguard Personal Advisor Services or Vanguard Digital Advisor await.