Pros and Cons of Vanguard Brokerage account

In my previous Vanguard Review article, I have described my experience using Vanguard Brokerage Services (VBS) in details. If you want to buy Exchange Traded Funds (ETFs), you should consider opening a Vanguard Brokerage account. Opening Vanguard account is fast and easy. Setting up an electronic transfer between my bank checking account and vanguard account is also quick. Buying and selling Vanguard ETF using VBS is free, though there is a limit of 25 trades per year for each ETF. Also there is advantage to trade stock online as well as buy mutual fund online (including index fund)

So why and why not do you open the Vanguard Brokerage account. The following article will go in depth on advantages & disadvantages opening a Vanguard Brokerage account:

1. Free trades on 46 Vanguard ETFs as well as Vanguard mutual funds.

I can select various selections of ETFs whether it is a bond ETF or stock ETF. Bond ETFs selections include treasury bonds, corporate bonds, and hybrid bonds. For equity ETFs, Vanguard also offers international ETF such as European ETF, Emerging Market ETF as well as Domestic ETF. You can also buy many mutual funds from Vanguard, most of the mutual fund is index fund.

2. Easy to open an account

I opened my account 2 months ago. It only took me 10 minutes to fill the account application as Vanguard website described. ACH transfer setup is also easy and quick. Once the application process was done, you can trade etf online as well as trade stocks online by wiring your money.

3. Low expense ratio ETFs and mutual funds

As described above, there is very low expense ratio for most ETFs. Compare to other ETF provider, Vanguard ETFs are very competitive in term of expense ratio. Low expense ratio is very important especially for small investor like me. The highest expense ratio ETF is FTSE All-World ex-US Small-Cap (ticker: VSS) with 0.40% expense ratio.

4. Friendly customer service

I haven’t really deal with any issue with my account. I called the customer service when I just opened my account asking about my electronic transfer. The customer service is very friendly and knowledgeable.

5. No limit balance to buy ETF shares.

I can buy the ETF with $150 as long as the stock/ ETF lot is not fractional. For example, VTI costs $57.27. With $150, I can only buy 2 shares of VTI for $114.54 or I can buy 3 shares of VTI for $171.81.

1. $20 account service fees

There is a $20 per year maintenance fees for less than $50,000 account balance. This is more me being picky. If you look at the big picture, $20 is very little. With low expense ratio of each ETF, this fee can take care by itself. However if you are a small investor (<$500), this fee do hurt your bottom line.

2. Very difficult to navigate the hidden trading system

I find vanguard trading system is complicated to navigate. Although I’m computer savvy, I find it is difficult to trade through the Brokerage system. The trading system is hidden somewhere in the website. The trade was done through Buy & Sell dropdown menu under Vanguard Brokerage Services > Trade ETFs and stocks. Most stock broker trading system is easily accessible, while Vanguard trading system is more hidden. Unless you notice it early, you will miss the trading system.

3. Only Vanguard ETF is free & limitation of 25 trades per ETF

For most people, 25 trades per ETF a year is more than enough. However if you are actively trade (buy and sell) the ETFs, 25 limitation can limit the trade activity.

4. Long hold for money transfer

I believe this is due to my account is cash account. Any money ACH transfer from my bank will be held for 10 business days. This can be a hassle if one needs to trade right away. Compare to my fidelity brokerage account, this is almost twice longer. In my Fidelity account, the holding period is only 5 business days.

5. Difficult to get a margin account with low account balance

It is not easy to get a Margin account. I applied for a Margin account and rejected due to low balance and low income. I thought this is very strange. I applied margin accounts with various brokerages such as fidelity, just2trade, zecco, and lightspeed; I never get any rejection at all. My thought is Vanguard might not want people to have a margin account to actively using their brokerage to trade their ETFs or other stocks. As you know, with margin account anyone can just trade with just sell fund. So VBS is more suitable to long term investor or buy and hold investor.

6. No after hour trading

If you prefer to trade after hour, vanguard doesn’t offer any AH account currently. You might need to choose other brokerage such as just2trade

 I would recommend buy and hold investor to consider Vanguard brokerage as their primary broker to buy/sell ETF. If you are a trader, Vanguard brokerage might not be suitable for you. You might want to consider other low commision brokerage such as lightspeed, IB, or just2trade. Please consider Zecco hence there is 10 free trades for balance >$25,000.

Disclaimer: I have no affiliation with Vanguard other than I use their brokerage to trade ETFs. Please do your own research for additional details. All information is as updated as August 9, 2010. Please trade responsibly!