The Benefits of Investing with Vanguard

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
Vanguard Commission $0 $0
TradeKing Commission ($4.95 per trade) $9.9 $118.8
Savings $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.

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