After years of investing with TradeKing, optionshouse and Capital One Investing,* I’ve finally opened an account with the almighty Vanguard. Why didn’t I use Vanguard before? Well, Vanguard charges enormous trade commissions for stocks and non-Vanguard ETFs ($20 after the first 25 trades).
But now that I’ve quit most of my stock trading and switched to Vanguard index funds (VOO, VYM and VTI), getting a Vanguard account was a no-brainer. Why? Well, because buying Vanguard funds with Vanguard is free! To give you an example, here’s how much I’d save with Vanguard (versus TradeKing) if I bought Vanguard funds just twice a month:
|Per Month||Per Year|
|TradeKing Commission ($4.95 per trade)||$9.9||$118.8|
Okay, I guess $119 isn’t that much on an annual basis, but that’s still $119 that I don’t need to spend. And we’re all about being more efficient and not doing things we don’t have to right? Yup.
Plus, I don’t plan on investing just twice a month. I also anticipate taking advantage of steeper drops in the market, just like what happened with Brexit.** You see, when your broker charges you a commission, you have to pay that commission every time you cost-average*** (i.e., invest more after losing some money from your initial investment). So whereas before, I was conscious of the commissions every time I cost-averaged, now, I can cost-average as many times as I want without worrying.
In addition, I can now invest as much or as little as I want without thinking about how big the commission is in proportion to my investment. For example, if I invested only $500 with TradeKing, I would’ve paid a commission equal to 1% of my investment! That’s higher than the interest rate on most of today’s savings accounts. So when my sister told me she only had $1,400 to invest, I encouraged her to open an account with Vanguard. With her new account, she made two purchases of VOO during Brexit (cost-averaging the second time), and now her balance is already up by $42!
So in conclusion, I highly recommend Vanguard to anyone who invests primarily in Vanguard funds.**** Just remember to turn on e-delivery for statements and other documents, or Vanguard will charge you a $20 annual fee for accounts below $10,000. Of course, it doesn’t hurt to have both Vanguard and an additional broker account if you want to invest in stocks and non-Vanguard ETFs too.
*Note that some of the links on this page are referral links. If you click and sign up for an account, I may receive a referral commission.
**Perhaps an interest rate hike by the Federal Reserve or a 2016 Trump win could trigger another market crash.
***Cost-averaging is a great way to maximize your returns when you’re not sure when the market will bottom out.
****In addition to the $0 commissions on Vanguard funds, you’ll also get some of the lowest expense ratios out there.