It has occurred to me that I might sound like a Vanguard shill or salesman to those of you who do not have experience with a number of mutual fund and brokerage companies, including Vanguard. I assure you that I receive no benefit of any kind in recommending Vanguard funds, other than the satisfaction of seeing my friends and family benefiting from using the best mutual fund company on the planet (there I go again!). So, what is so special about Vanguard?
I’ve invested at a number of other mutual fund and brokerage companies, including Fidelity, Schwab, Interactive Brokers, and Wells Fargo (WellsTrade), not to mention a number of brokerage firms I used many years ago. I still have accounts at some of these firms, but if I wanted to really simplify my investing life, I would just use Vanguard.
The most obvious reason to use Vanguard is that it has the broadest selection of low-cost mutual funds of any mutual fund company. Other companies may offer a few low-cost index funds that are competitive with Vanguard, but none offers the range of low-cost funds that Vanguard does.
For example, Schwab offers a few low-cost stock and bond index funds, but nowhere near as many as Vanguard. I used to recommend Schwab for young investors without the minimum $3,000 investment required for most Vanguard funds. Now that Vanguard has lowered its minimum investment to $1,000 for its Target Retirement funds, I now recommend that young investors just save up $1,000, then invest in a Vanguard Target Retirement fund.
Fidelity has some low-cost stock and bond index funds (Spartan funds), but the minimum investment for these funds is $10,000 (compared to $3,000 for most funds at Vanguard), and the breadth of low-cost fund choices is not comparable to that of Vanguard. Some of Fidelity’s Spartan funds are good choices if they are offered in your 401k or 403b plan, since the minimum investment does not apply (the minimum investments are met by the company by pooling the assets of the plan participants).
To see another blogger’s comparison of Vanguard, Fidelity and Schwab mutual funds, see the Oblivious Investor blog post The Best (Low-Cost) Index Funds. The post is somewhat old, so things have changed a bit since it was written, but you still might be interested in reading it. I just happened to find the Oblivious Investor blog post in doing a little web research for this blog post.
Vanguard has been offering low-cost index funds for much longer than its competitors; I trust them more. Some competitors are improving, but Vanguard still has a huge lead.
Vanguard’s unique ownership structure is the main reason it is able to keep costs so low. Vanguard is a not-for-profit company; it is owned by the Vanguard funds, which are owned by its clients (like you and me). Therefore Vanguard does not have to worry about making a profit for its shareholders or private owners, and can pass on any profits and cost savings to its clients. As stated by David Swenson, the highly-respected chief investment officer of Yale University, Vanguard’s interests are aligned with the interests of investors, and this is very rare for financial institutions.
By contrast, privately owned companies like Fidelity, or publicly-traded companies like Schwab and T. Rowe Price must generate profits for their owners. Those profits come directly out of the pockets of their clients. Their interest in making a profit is not aligned with your interest in keeping your investment costs low.
To read more about why low costs are so important, see my blog post Costs Matter.
Another reason to use Vanguard, especially for tax-advantaged accounts (e.g., IRA, Roth IRA, 401k/403b, etc.), is that it has what I consider to be the best all-in-one funds: the Target Retirement and LifeStrategy funds. The underlying funds held by most of these all-in-one funds are three, low-cost index funds representing a simple asset mix of three asset classes: total US stocks, total international stocks, and total US bonds. All-in-one funds from other companies are much more complex and more expensive, typically investing in many higher-cost, actively managed funds. Vanguard’s approach is simple, low-cost, and consistent with best practices in portfolio construction.
Vanguard makes it very easy to investigate its mutual funds. Simply navigate to the Vanguard website for personal investors, then click Research Funds & Stocks. This will take you directly to the Vanguard Funds page. There you will see various categories listed, such as Retirement, College, Any goal, and All mutual funds.
On the All mutual funds page you can filter your selection in many ways, such as Stocks (U.S.), Bonds, or International (stocks). Clicking on a fund name takes you directly to the Overview page for the fund, which displays some of the most important information about the fund. I especially like that the expense ratio (ER) is prominently displayed near the top of the Overview page; since keeping costs low is one of the primary things you can control in making your investment choices, knowing the ER of a fund is critical.
So yes, I write a lot about Vanguard mutual funds--because I think Vanguard is the best mutual fund company. If you want to invest in mutual funds in your IRA or taxable (individual, joint or trust) account, I recommend Vanguard. If your employer-sponsored retirement plan (401k, 403b, etc.) offers Vanguard funds, chances are they are among the best funds, if not the best funds offered. No, I am not a shill for Vanguard; I just want you to get the best deal possible when investing in mutual funds.