Author Topic: Vanguard vs. Brokerage Service  (Read 9627 times)

Delurn

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Vanguard vs. Brokerage Service
« on: January 03, 2013, 11:04:08 AM »
Hi All,

Just found this site and I am glad I did.  Had a quick question for you all though.  My financial institution has a brokerage service.  Is there any benefit to creating an account with Vanguard vs just investing in VFINX through the brokerage service?

Blackbomber

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Re: Vanguard vs. Brokerage Service
« Reply #1 on: January 03, 2013, 11:22:03 AM »
I don't know if Vanguard has a per-trade fee for investing in their own account, but your broker surely does. So if you want to invest a lump sum one time, then going through an already established broker account makes things simple. But if you want to make weekly or monthly contributions, AND if Vanguard doesn't have a per purchase fee, then it makes a lot of sense to set up an account with them.

matt_g

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Re: Vanguard vs. Brokerage Service
« Reply #2 on: January 03, 2013, 11:36:14 AM »
Open a vanguard account, no fees to buy their products as long as you meet their mins. 

$3,000 for VFINX.  As soon as you create your account, signup for e-delivery and that will waive the $20/yr account fee if you have less than $10k in your account.

P.S.  Once you have $10k, you can switch from Investor shares to admiral shares, saving even more money.  Why are you still reading this?  do you need more reasons to ditch your financial institution?  Native US telephone support... owned by its members...

Jamesqf

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Re: Vanguard vs. Brokerage Service
« Reply #3 on: January 03, 2013, 11:48:40 AM »
Similar no-fee policies apply at a lot of other mutual fund companies (e.g. T. Rowe Price), not just Vanguard.

Delurn

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Re: Vanguard vs. Brokerage Service
« Reply #4 on: January 04, 2013, 06:55:22 AM »
Thank you all!  I really appreciate it.

Will

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Re: Vanguard vs. Brokerage Service
« Reply #5 on: January 04, 2013, 07:55:35 AM »
Similar no-fee policies apply at a lot of other mutual fund companies (e.g. T. Rowe Price), not just Vanguard.

I know Vanguard gets all the good press, and they really do deserve it, but T. Rowe Price is really awesome too and under-appreciated!

Another Reader

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Re: Vanguard vs. Brokerage Service
« Reply #6 on: January 04, 2013, 08:53:27 AM »
Have you ever noticed how all of Vanguard's advertising is about how low the costs are?  There is never any mention of fund performance.  There's a reason for that....

Jack

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Re: Vanguard vs. Brokerage Service
« Reply #7 on: January 04, 2013, 09:06:21 AM »
Have you ever noticed how all of Vanguard's advertising is about how low the costs are?  There is never any mention of fund performance.  There's a reason for that....

What, that there's no point talking about the relative performance of index funds (that track the same index), since the expense ratio is the only difference?

Or are you saying that other places' actively-managed funds perform better than Vanguard's?

James

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Re: Vanguard vs. Brokerage Service
« Reply #8 on: January 04, 2013, 09:14:21 AM »
Have you ever noticed how all of Vanguard's advertising is about how low the costs are?  There is never any mention of fund performance.  There's a reason for that....

I took that as meaning actively managed funds perform better at other locations, which would be difficult to judge because I assume picking the manager is what is most important, not the company they work for.  In any case, we are talking about VFINX, not a fund with choices made by a manager.

I love the low costs of my admiral shares at Vanguard, and they have given great support in walking me through some complex issues, I highly recommend them.  Having said that, there are other good companies based on your needs, and I have no doubt some are better based on needs that are different than my own.

Another Reader

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Re: Vanguard vs. Brokerage Service
« Reply #9 on: January 04, 2013, 09:39:50 AM »
Vanguard is great for indexed funds and ETF's.  VFINX is a fine choice for an S&P index fund.  Their actively managed funds are so-so, and you can do much better if you shop wisely.  I don't love their customer service and I much prefer the research and other tools at Fidelity and Schwab. 

Jamesqf

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Re: Vanguard vs. Brokerage Service
« Reply #10 on: January 04, 2013, 11:56:26 AM »
Have you ever noticed how all of Vanguard's advertising is about how low the costs are?  There is never any mention of fund performance.  There's a reason for that....

What, that there's no point talking about the relative performance of index funds (that track the same index), since the expense ratio is the only difference?

Or are you saying that other places' actively-managed funds perform better than Vanguard's?

Yes, at least in my limited experience.  I have my 401K money with Vanguard, personal money with TRP.  Vanguard is still well below its pre-08 high point, TRP recovered some time ago.  Now some of this may be because I'm limited in the particular Vanguard funds I can invest in (due to prior employer's plan choices), but I don't think a few fractions of a percent difference in expenses is critical.

I also share a low opinion of Vanguard's web tools.  I've tried to e.g. graph performance of particular funds (something TRP gives me by default) only to get blank screens...

eyePod

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Re: Vanguard vs. Brokerage Service
« Reply #11 on: January 04, 2013, 12:21:56 PM »
Similar no-fee policies apply at a lot of other mutual fund companies (e.g. T. Rowe Price), not just Vanguard.

But the expense ratios are generally higher when dealing with TRowe than Vanguard.  Haven't actively managed funds been proven to be no better than the general index funds?

eyePod

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Re: Vanguard vs. Brokerage Service
« Reply #12 on: January 04, 2013, 12:24:19 PM »
Yes, at least in my limited experience.  I have my 401K money with Vanguard, personal money with TRP.  Vanguard is still well below its pre-08 high point, TRP recovered some time ago.  Now some of this may be because I'm limited in the particular Vanguard funds I can invest in (due to prior employer's plan choices), but I don't think a few fractions of a percent difference in expenses is critical.

It's not critical, but it really takes money out of your pocket (used an online calculator here and compared the TRowe 2050 targeted account vs the Vanguard one):

Amount invested : $10,000
Annual return : 7.00%
Projected expense ratio is : 0.17%
What if the expense ratio is : 0.78%
 
Your investment returns over 30 years will be $11,456 less if the actual expense ratio is 0.61 percentage point(s) more than the projected.
 
    
Projected expense ratio
Actual expense ratio
 
    0.17%   0.78%   
 
Net market value after           Difference
1 year   $10,683   $10,622                  ($61)
5 years   $13,914   $13,522                  ($392)
10 years   $19,361   $18,284                  ($1,077)
15 years   $26,940   $24,723                  ($2,217)
20 years   $37,486   $33,429                  ($4,057)
30 years   $72,577   $61,121                  ($11,456)


You're out 11.5k for very similar returns.  Remember, the returns they show you on their little graph are ignoring the ERs.

Another Reader

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Re: Vanguard vs. Brokerage Service
« Reply #13 on: January 04, 2013, 12:40:27 PM »
If actively managed funds had been "proven" to underperform index funds 100 percent of the time, I don't think there would be many actively managed funds around.  The facts are about 20 percent of managed fund do outperform and the rest are run by folks taking advantage of that fact to sell you or your plan administrator on the idea they might be able to do the same.

Shopping for mutual funds is no different than shopping for a car or a doctor.  You have to research the choices to insure you find the best ones.  If you don't have the time or inclination, then Vanguard index funds or ETF's are an inexpensive and low maintenance way to go.

chucklesmcgee

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Re: Vanguard vs. Brokerage Service
« Reply #14 on: January 04, 2013, 12:44:03 PM »
Have you ever noticed how all of Vanguard's advertising is about how low the costs are?  There is never any mention of fund performance.  There's a reason for that....

Because most of their funds are index funds which if they substantially outperformed similar index funds they'd probably be terrible index funds since they wouldn't be tracking their designated index very well?

Another Reader

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Re: Vanguard vs. Brokerage Service
« Reply #15 on: January 04, 2013, 12:50:12 PM »
Because most of their actively managed funds are poor performers.  A number of them are managed by third party advisors because they don't have the talent or culture to do it internally.  Remember, index funds and ETF's are a relatively recent development.  Vanguard got on the bandwagon early and did very well with them.

etselec

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Re: Vanguard vs. Brokerage Service
« Reply #16 on: January 04, 2013, 02:02:14 PM »
If actively managed funds had been "proven" to underperform index funds 100 percent of the time, I don't think there would be many actively managed funds around.  The facts are about 20 percent of managed fund do outperform and the rest are run by folks taking advantage of that fact to sell you or your plan administrator on the idea they might be able to do the same.

Shopping for mutual funds is no different than shopping for a car or a doctor.  You have to research the choices to insure you find the best ones.  If you don't have the time or inclination, then Vanguard index funds or ETF's are an inexpensive and low maintenance way to go.

Right - some managed funds do outperform. The thing is, those funds don't stay the same forever - a fund that has outperformed for the last ten years might start underperforming at any time. Maybe the brilliant manager leaves and is replaced by someone less brilliant, or maybe the fund has been buying lots of one kind of stock and then that industry takes a big hit.

So the fact that there exist stellar managed funds doesn't mean it's a good idea to buy one, because even if you do a lot of research, you still can't predict the future. And the high expense ratios mean that your fund manager would need to do better than average - a lot better - to beat the cheap index fund.

Another Reader

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Re: Vanguard vs. Brokerage Service
« Reply #17 on: January 04, 2013, 02:16:36 PM »
You don't have to predict the future.  If you keep on top of things, you will see the change in management and the lagging performance.  You also need to be very careful not to lose a lot of money.  Sometimes you have to sell some of your holdings and buy them back at more opportune times. 

If you don't have the time, interest, or inclination to actively manage your fund portfolio, automatic investment in passive index funds is probably the best alternative.  And you can always hedge by doing some of both.

chucklesmcgee

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Re: Vanguard vs. Brokerage Service
« Reply #18 on: January 04, 2013, 02:26:00 PM »
A number of them are managed by third party advisors because they don't have the talent or culture to do it internally. 

Ah yes, their index funds are lacking two completely undefinable qualities which determine successful active investments: talent and culture. It's talent and culture which explains why actively managed funds continue to beat the indexes year after year...oh wait...they don't beat the indexes. Bet those indexes really have got some good talent and culture going for them!

Another Reader

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Re: Vanguard vs. Brokerage Service
« Reply #19 on: January 04, 2013, 02:46:28 PM »
Quit drinking so much Kool Aid.  It's bad for you.  My point is that Vanguard is not confident in their internal ability to actively manage in all asset classes, so they go outside for management of some of their funds.  It's the prudent thing for them to do, although the results are not always good.   

The stock market is not random.  Its movements result from human behavior - reactions to things that are often not predictable.  An unpredictable operating universe is not the same as random motion.

I own a number of funds that have consistently outperformed.  I'm not always right by any means.  Some veer off course and have to be sold.  And I do hedge with some index investing.

What about those Ivy league endowment managers?  Some of them have been pretty darn consistent outperformers for decades.  Tell them they can't beat the market - it's their JOB to do that.

eyePod

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Re: Vanguard vs. Brokerage Service
« Reply #20 on: January 04, 2013, 03:05:58 PM »
If actively managed funds had been "proven" to underperform index funds 100 percent of the time, I don't think there would be many actively managed funds around.  The facts are about 20 percent of managed fund do outperform and the rest are run by folks taking advantage of that fact to sell you or your plan administrator on the idea they might be able to do the same.

People will not win the lottery theoretically 100% of the time yet they still play.  Yet they're as popular as anything.  People will pay for an illusion of growth.  People buy those damn magnetic bracelets which "cure" balance issues.  There's also tons of fortune tellers out there.  Just because someone is getting paid doesn't mean that their products are worthwhile or useful.

Here's some really good discussion about actively managed funds over at https://jlcollinsnh.wordpress.com/2012/04/25/stocks-part-iii-most-people-lose-money-in-the-market/ (Bold below is quoted from his blog):

3.  We believe we can pick winning mutual fund managers.

Actively Managed Stock Mutual Funds (funds run by professional managers as opposed to Index Funds) are a huge and highly profitable business.  Profitable for the companies that run them.  For the investors, not so much.

So profitable are they, there are actually more mutual funds out there than there are stocks.  You read that correctly.  Yeah, I’m amazed too.

There is so much money at stake, investment companies are forever launching new funds while burying the ones that fail.  The financial media is filled with stories of winning managers and funds, and advertising from them.   Past records are analyzed.  Managers are interviewed.  Companies like Morningstar are built around researching and ranking funds.

The fact is only 20% of fund managers will beat the Index over time.  80% will fail.  100% of them will charge you high fees to try. There is no predicting which will be in that rarefied 20%.

Every fund prospectus carries this phrase:  “Past results are not a guarantee of future performance.”  It is the most ignored sentence in the whole document.  It is also the most accurate.

Here’s little “trick” the mutual fund companies employ.  When one of their funds under-performs they’ll simply quietly close it and fold the assets into something doing better.  The bad fund disappears and the company can continue to claim its fund are all stars.  Cute.

There’s lots of money to be made with actively managed funds.  Just not by the investors. Want to hear me rant more about this?  Here you go:

http://jlcollinsnh.wordpress.com/2012/01/06/index-funds/

Jamesqf

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Re: Vanguard vs. Brokerage Service
« Reply #21 on: January 04, 2013, 03:18:56 PM »
It's not critical, but it really takes money out of your pocket (used an online calculator here and compared the TRowe 2050 targeted account vs the Vanguard one):

OK, so I've had money in the Vanguard 401K for a long time.  It's a previous employer's plan, so (since I've been self-employed for quite a while) I have not added money or changed allocations for maybe a decade.  Just before the '08 crash, the total was just over $190K; now it's about $165K.  Not real impressive performance.

Can't do quite the same static analysis for TRP (easily, anyway), 'cause I keep putting money in (and occasionally taking a bit out), but a rough calculation shows that the mix I have there had completely recovered to their pre-08 peak by mid-2011, and are now up a good bit from that.  Specifically, I'm currently invested in four TRP funds.  Here are their 5 year returns:

  1.45% - PREIX (S&P 500 index)
  0.53% - PRIDX (International Growth)
  6.52% - RPSIX (Income fund)
  5.52% - PRWCX (Managed fund investing in companies with good dividends, P/E ratios, etc)

Now I'm not claiming those are great returns, but they're a lot better than the roughly -13% on Vanguard for the same period.  Also, the actively-managed funds have done  better than the index fund over a 10-year period (and I invest for the long term).

Quote
Remember, the returns they show you on their little graph are ignoring the ERs.

I don't think so, as what I'm graphing is the total value of the account over time, and expenses have been subtracted from that already.

chucklesmcgee

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Re: Vanguard vs. Brokerage Service
« Reply #22 on: January 04, 2013, 03:22:14 PM »
The stock market is not random.  Its movements result from human behavior - reactions to things that are often not predictable.  An unpredictable operating universe is not the same as random motion.
I never claimed the stock market was random. But it is unpredictable. Which is why you cannot beat the average.

Quote
I own a number of funds that have consistently outperformed.  I'm not always right by any means.

That doesn't prove anything. A billion monkeys picking stocks for 10 years will have thousands beating the index year after year. My position doesn't require that no one beats the average, or no one beat the average consistently. Just that no one consistently beats the average above chance.

Quote
What about those Ivy league endowment managers?  Some of them have been pretty darn consistent outperformers for decades.  Tell them they can't beat the market - it's their JOB to do that.
A large portion of those endowments are invested in non-market assets or assets not available to market investors. The market being unpredictable doesn't make it impossible to outperform the market if one is invested outside of the market. Angel investments, venture capital investments, micro-loans, specific property purchases could all well beat the market- because they aren't the market. But active investing in the stock market can't be expected to consistently outperform index fund investing.

eyePod

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Re: Vanguard vs. Brokerage Service
« Reply #23 on: January 04, 2013, 03:33:29 PM »
It's not critical, but it really takes money out of your pocket (used an online calculator here and compared the TRowe 2050 targeted account vs the Vanguard one):

OK, so I've had money in the Vanguard 401K for a long time.  It's a previous employer's plan, so (since I've been self-employed for quite a while) I have not added money or changed allocations for maybe a decade.  Just before the '08 crash, the total was just over $190K; now it's about $165K.  Not real impressive performance.

Can't do quite the same static analysis for TRP (easily, anyway), 'cause I keep putting money in (and occasionally taking a bit out), but a rough calculation shows that the mix I have there had completely recovered to their pre-08 peak by mid-2011, and are now up a good bit from that.  Specifically, I'm currently invested in four TRP funds.  Here are their 5 year returns:

  1.45% - PREIX (S&P 500 index)
  0.53% - PRIDX (International Growth)
  6.52% - RPSIX (Income fund)
  5.52% - PRWCX (Managed fund investing in companies with good dividends, P/E ratios, etc)

Now I'm not claiming those are great returns, but they're a lot better than the roughly -13% on Vanguard for the same period.  Also, the actively-managed funds have done  better than the index fund over a 10-year period (and I invest for the long term).

Quote
Remember, the returns they show you on their little graph are ignoring the ERs.

I don't think so, as what I'm graphing is the total value of the account over time, and expenses have been subtracted from that already.

I'm not sure what you're talking about for Vanguard 5 year returns but the Vangaurd S&P Index return is 1.57% (Better than yours with which Yahoo says has a 5 year average return of :   1.13%).

Jack

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Re: Vanguard vs. Brokerage Service
« Reply #24 on: January 04, 2013, 08:32:53 PM »
OK, so I've had money in the Vanguard 401K for a long time.  It's a previous employer's plan, so (since I've been self-employed for quite a while) I have not added money or changed allocations for maybe a decade.  Just before the '08 crash, the total was just over $190K; now it's about $165K.  Not real impressive performance.

That unimpressive performance isn't the fault of "Vanguard" (in general), it's the fault of the particular allocation of Vanguard funds you picked. If what you own is some random actively-managed fund that sucked (and I suspect it is), then your experience has no bearing whatsoever on the merit of Vanguard's index funds (which is what the rest of us who like Vanguard care about).

Jamesqf

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Re: Vanguard vs. Brokerage Service
« Reply #25 on: January 04, 2013, 09:01:45 PM »
That unimpressive performance isn't the fault of "Vanguard" (in general), it's the fault of the particular allocation of Vanguard funds you picked. If what you own is some random actively-managed fund that sucked (and I suspect it is), then your experience has no bearing whatsoever on the merit of Vanguard's index funds (which is what the rest of us who like Vanguard care about).

Now that may be true of index funds, but as I think I said, I am not a major fan of index funds.  I keep a part (about 20-25%) of my invested assets in one, on the not keeping all one's eggs in one basket principle (the same reason I chose TRP rather than Vanguard for my personal investments), but I wouldn't put all my money in one.

That also applies to the "can't get better returns than the index" theory.  I think the reason people claim this is true is that they compare index fund returns to averaged returns of ALL funds, overlooking the fact that there are a lot of different investment paradigms out there, running the gamut from fad following to buying big chunks of a buddy's stock.  From what I've seen, though, sticking to value investments yields better returns than index funds over time.  Has for me, anyway.

Jack

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Re: Vanguard vs. Brokerage Service
« Reply #26 on: January 04, 2013, 09:34:20 PM »
Now that may be true of index funds, but as I think I said, I am not a major fan of index funds...

So you think the fact that Vanguard's strengths are irrelevant to your particular strategy makes it fair for you to claim that Vanguard is bad in general?

Jamesqf

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Re: Vanguard vs. Brokerage Service
« Reply #27 on: January 05, 2013, 10:55:58 AM »
Have I claimed that Vanguard is bad?  (Other than having a really crappy website, of course.)  No, what I see is the Vanguard fan club here claiming that all the other mutual fund companies are bad, when in fact many are equally good - a little better at some things, maybe, a little worse at others, but about the same on average.
« Last Edit: January 05, 2013, 04:17:50 PM by Jamesqf »

Another Reader

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Re: Vanguard vs. Brokerage Service
« Reply #28 on: January 05, 2013, 11:06:09 AM »
+1 for Jamesqf.  Vanguard got lucky with index funds.  They are very good at them.  The website has been improved, but it lacks a lot of the features others have included.  Their actively managed funds are not competitive.  Vanguard has almost become a cult.  It doesn't deserve the pedestal treatment.  If it suits your needs, great.

sheepstache

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Re: Vanguard vs. Brokerage Service
« Reply #29 on: January 05, 2013, 11:24:16 AM »
Questioning the Vanguard love is a fair sentiment, but a little confusing in a thread where the OP has already decided on a Vanguard fund and just wants to know the best way to buy it.  You don't need to be a fanboy/girl to advise them that purchasing with Vanguard directly is a much better deal.  I mean if the guy had said he was going to buy a Fidelity fund I'm sure a couple people would have chimed in about liking Fidelity.