Summary: The largest provider of mutual funds worldwide, there perhaps is perhaps not a safer counterparty to do business with when considering these types of funds. The service is demonstrably cheaper than many others, although returns can be volatile depending on the products you have chosen. The choice of products is also relatively small, although their blended products are already broadly diversified. As such it is worthy of consideration by just about everyone.
Here is how Vanguard compares to other investments:
|Platform||Link||Target Rate (%)||My XIRR (%)||Status||Live Rating|
JANUARY 2020 UPDATE: No change.
DECEMBER 2019: A strong month thanks to equity rebounds due to general election.
NOVEMBER 2019 UPDATE: No change.
OCTOBER 2019 UPDATE: No change.
SEPTEMBER 2019 UPDATE: No change.
AUGUST 2019 UPDATE: Pretty much even level performance.
JULY 2019 UPDATE: Strong performance continues.
JUNE 2019 UPDATE: Very strong performance, perhaps driven by bond and equity demand – something that the LifeStrategy products do quite well.
MAY 2019 UPDATE: Weak performance by portfolio but to be expected.
APRIL 2019 UPDATE: Another good month for equities.
MARCH 2019 UPDATE: Another good month for indices and hence the portfolio.
FEBRUARY 2019: Indices around the world have begun to recover and as such this was a good month.
What is Vanguard?
Vanguard will be a name more familiar to investors overseas than the UK. It is the largest provider of mutual funds in the world, and only relatively recently started offering these funds to UK customers. With over 5 trillion dollars worth of assets under management, their size is more than considerable.
Mutual funds (and their variant, exchange-traded funds) have really changed the markets and made investing possible for all. In previous times, investing in the market was expensive and difficult as communication flows of information were much slower. For those not inclined to do their own research, mutual funds offered a great alternative: the hard work could be given over to someone else, in exchange for a fee, of course!
These fees could sometimes be quite expensive and a real drag on returns, but the sheer size of Vanguard’s investment has allowed a much lower fee schedule to exist, which has really opened the doors to private investors. Over time, the nature of the funds have evolved. One key draw-back of the mutual fund system is that investors have little control of what it is invested in, and now thousands of funds exist and by spreading their investments across these, investors can gain a greater amount of, if not full control.
Here is a table showing Vanguard’s key features:
|Investment Type||Equity, Fixed Income|
|Fees||Dependent; typically 0.15-0.5%/yr|
|Available in ISA?||Yes|
|Active on forum?||No|
Are Vanguard profitable?
Vanguard’s stats are impressive: assets under management surpassed the $5 trillion mark. The structure of Vanguard is remarkable as it is a private company and not publicly owned. Ownership instead is heavily weighted towards the funds it invests in, and technically is a non-profit (as profits are returned to holders of these funds). At such a large amount of assets under management it is easy to see that even a tiny fraction of a service charge percentage allows a large nominal amount of fees to be collected.
It should be noted that many funds (including some of Vanguard’s own) can be traded on exchanges just like normal shares. Therefore you can gain exposure to them even if you don’t have a Vanguard account by simply purchasing the relevant product with your broker.
Vanguard operate their own site for users wishing to buy their funds – which also limits you to only Vanguard (other providers are also available). This operates much like any other P2P or investment site out there – you can open an account, provide identification, and then upload your account with money in order to purchase funds.
Selecting a fund is straightforward. For now, Vanguard offer a few types: Blended, Equity, Fixed Income funds. The names may look a little confusing, but the premise is that an Equity fund will target share purchases, a Fixed Income fund will target bonds, and a Blended one will purchase both. These types of investment have different advantages and disadvantages, and the choice of which will depend on your personal circumstances. Fixed income bonds provide a greater certainty of income, although equities provide a greater potential amount of income, albeit at higher risk.
Vanguard have split these types of products out further: in both bonds and equities you can invest in different geographical areas such as Europe, Developing Markets, Asia, America and so on. Again, each area has specific advantages and disadvantages.
Mutual funds are very well regulated and as such each will produce a standardised information sheet containing among other things a risk rating and previous performance.
It is worth noting that the price of mutual funds can fluctuate heavily, much depending on market sentiment at the time. Even someone with quite a balanced portfolio could suffer volatility in their valuations as poor sentiment tends to affect all asset prices.
How are funds protected?
Importantly, Vanguard are covered by the Financial Services Compensation Scheme, which covers users up to £50,000. Mutual funds are also subject to regulations and transparency, especially with regard to fees.
Whilst this is no guarantee of capital protection due to poor market performance as far as platform security is concerned I believe this ranks as highly as any bank.
Pros of Vanguard
There are many things to like about Vanguard:
Low fee schedule: The ongoing service charges for their products are about as low as you will find. For example, their popular LifeStrategy funds offer no entry/exit fees, no performance charges, and a service fee of 0.22%. That is much lower than something like Moneyfarm (which charges 0.7% on a sliding scale).
Good diversification: Unlike others there is a good selection of products to choose from. The blended funds are quite similar to a simple robo-style product, and for those wanting more risk, both equity and fixed income products can be selected and targeted geographically.
Good past performance: Although past performance is no indicator of the future, it is clear that thus far the Vanguard model has worked, and they invest successfully on behalf of investors.
High level of confidence: FSCS protection and the backing of the Vanguard name means the level of platform risk is greatly reduced.
Cons of Vanguard
There are also some bad things about Vanguard:
Increased complexity: The experience may be slightly more hands on than a robo-style firm such as Moneyfarm. Each fund has its own risks, which you can read about in the information sheet. There may also be good times to sell out of certain investments, for instance if their valuations are very high.
Volatility: Fund prices are broadly correlated with the stock markets, and a global slowdown would see a values decrease. If you need to access your money at this time you may be faced with a loss.
Taxation: Some of the Vanguard products are pension in style, but users may be better off in an actual pension due to tax rebates.
Lack of Choices: Although Vanguard have made some effort to offer a range of opportunities for diversification, it still pales in comparison to the large number of other exchange-traded funds you can purchase.
My Vanguard Investing Strategy
I consider Vanguard as a safe investment, which ranks far above all P2P investment types, but below other assets such as cash, FSCS protected bank accounts/savings and premium bonds. Using the money pyramid principle, the bulk of your assets should be in solid foundations.
A specific strategy depends on your tolerance for risk. Some general tips I have:
Consider the LifeStrategy Products: I much prefer manually picking stocks but the LifeStrategy products are a good backup in case it turns out I cannot beat the market, as they offer a combination of stocks and bonds.
Time Horizon is Important: Vanguard should not be treated as a savings account, for instance for money for a house deposit. If the market turns against you, you could very quickly lose a decent chunk of the cash in the short term. Over the longer term however, losses are less likely.
Diversification: It is important to read into the key investor information to find out where monies are invested. It is good to diversify between many different countries and even industries if possible.
Watch Taxation: For larger amounts invested outside of an ISA, funds are still liable for dividend tax and capital gains tax if limits are exceeded, so some planning may be required to minimise these.
Vanguard will hit most peoples needs, although this isn’t a short-term investment. The chance of better returns obviously increases over the long-run, but at the same time needs to be weighed up against the chance of volatility. With a slight lack of options it is also worth considering the investment here together with other ETFs to get a fully diversified portfolio.
Disclaimer: This article represents my own opinions and should not be substituted for investment advice. Please research before you invest with any firm. Typically P2P investments are not covered by the Financial Services Compensation Scheme (FSCS) in the way bank deposits are, and there are no guarantees that you will receive the returns advertised (or even a return at all).