Vanguard Investor Review

Who is Vanguard Investor?

Vanguard Investor is part of the Vanguard Group Inc., an American registered investment advisor. Vanguard is the largest provider of mutual funds and the second largest provider of exchange-traded funds (ETFs) in the world.

Vanguard launched its fund platform in the UK in 2017.

Who Owns Vanguard?

Vanguard was founded in 1975 by John C. Bogle.

Today, Vanguard is owned by its member funds, which means that anyone who has purchased shares in a Vanguard fund is a Vanguard owner.

Vanguard Investor Product Range Overview

Vanguard offers the following products:

• Stocks and Shares ISA
• Junior ISA
• General Investment Account
• Personal Pension

Also consider: Best General Investment Account

Unfortunately, Vanguard Investor only allows you to buy Vanguard funds, of which there are around 75, which is great if you are a passive investor but less so if you are looking for shares in a specific company.

Their LifeStrategy funds provide investors with readymade investments to suit novice and passive investors. Each LifeStrategy fund holds between 6,000 and 20,000 shares and bonds from across the globe, effectively helping to reduce your exposure to risk and ensuring you can take advantage of the low costs available at Vanguard.

In 2019, Vanguard also launched the Vanguard Active UK Equity Fund, aimed at long-term investors seeking to invest in the shares of UK companies at a typically low cost whilst remaining actively managed.

Each fund delivers exposure to shares and bonds in a risk-weighted manner and aims to track the returns of an index. This is a simple and cost-efficient way to invest with automatic rebalancing, ensuring the maintenance of a specific asset allocation.

The thinking behind the LifeStrategy funds is that the weighting of bonds will help to dampen the volatility of shares, as bonds are able to sustain their value in times of recession better than equities. However, as a holder of these funds, I can attest that this isn’t always the case, as this certainly hasn’t been my experience over the past year. In fact, bonds have fallen in value more than shares in the past 12 months.

There are five of these funds in total, which I have gone into in more detail below:

• Vanguard LifeStrategy 20% Equity
• Vanguard LifeStrategy 40% Equity
• Vanguard LifeStrategy 60% Equity
• Vanguard LifeStrategy 80% Equity
• Vanguard LifeStrategy 100% Equity

Vanguard LifeStrategy 20% Equity

This fund is considered the lowest risk with a 3 out of 10 rating. It is made up of only 20% equities, with the remaining 80% being invested in bonds. Being the lowest risk rating of all the Vanguard funds, you might expect this fund to have ridden out the recent volatility reasonably unscathed. But this is not the case. In fact, the 20% equity fund has performed poorly, with a negative growth of -10.63% from 07/21 – 07/22 and -4.52% for 07/22-07/23 making this the worst-performing fund in the LifeStrategy range in the last two years.

However, as always, past performance is not an indicator of future performance, and this fund has performed well in the years leading up to the recent market turmoil, with a five-year return of 9.03%, illustrating why it is best to hold your investments for a minimum of five years.

Vanguard LifeStrategy 40% Equity

The 40% Equity fund has a medium risk rating, meaning it is likely to experience some volatility in the short term but should provide income over the long term.

This fund is weighted with 40% shares and 60% bonds, with most equities coming from the US and UK. In the last five years, it has returned 17.17%, which actually outperformed most of the funds in this sector; however, the most recent performance doesn’t look so rosy, with October 2021 to October 2022 seeing a loss of -15.8%.

Vanguard LifeStrategy 60% Equity

As the name would suggest, this fund is invested in 60% shares and the remaining 40% in bonds, which gives it a medium risk rating of 5. Since its inception in 2008, the fund has returned an average of 6.6% per year, which aligns with the performance of the index it tracks (the MSCI World Index).

For 2022, this fund returned 9.2%, which is decent, and 2021 saw returns of 10.3%. Of course, the markets are still volatile, and it would be a mistake to rely on historical returns for future returns.

Vanguard LifeStrategy 80% Equity

With 80% of this fund being shares and the remaining 20% being bonds, this is a much higher-risk fund, with the objective of higher returns for long-term investors who can stomach market volatility.

This is the only fund in the LifeStrategy range to consistently remain in the top quartile sector over the past five years, and since its inception in 2008, it has returned an average of 7.7% per year.

2022 saw returns of 10.4%, and in 2021, the fund returned 11.1%.

Vanguard LifeStrategy 100% Equity

This fund is for investors who are willing to assume more risk with 100% of their investments in equities. This is considered high risk, with a rating of 7 out of 10. However, over the previous 5 years, this fund has fallen below the sector average, although the returns have still been reasonable, with 2022 returning 10.9% and 2021 returning 11.6%.

Due to the nature of the assets it holds, this fund would only be suitable for investors with time to ride out market volatility.

These include:

Target retirement funds: These are ready-made portfolios that are designed to mature automatically as you get closer to retirement age. There are thousands of individual bonds and shares in each fund, and the weighting is adjusted to grow your wealth while preserving your retirement savings.

Index and active funds: This includes the LifeStrategy range and can be filtered by region, risk level, and management type.

ETFs: The ETFs at Vanguard offer a basket of assets designed to track an index. They are a low-cost way of diversifying your portfolio in a highly liquid environment.

ESG Funds: These are a type of EFT that are designed to invest solely in companies that have good environmental, social, and governance practices. This is so individuals can invest in line with their principles, and some studies have even shown that investing in this way can outperform traditional funds in the long term.

The following is a breakdown of how different funds at Vanguard have performed over the past 10 years:

Vanguard FTSE 100 Index Fund

This fund tracks the performance of the FTSE 100 index, which in turn tracks the performance of the 100 largest companies listed on the London Stock Exchange. The fund has returned an average of 7.1% per year over the past 10 years.

Vanguard FTSE 100 Index Fund – source: Morningstar

Vanguard US Equity Index Fund

This tracks the performance of the US stock market and has returned an average of 10.2% per year over the last 10 years.

Vanguard US Equity Index Fund – source: Morningstar

Vanguard Global Bond Index Fund

Tracking the performance of the global bond market, this fund has managed to return an average of 3.9% per year for the past 10 years.

Vanguard Global Bond Index Fund – source: Morningstar

Also consider: My guide to the best FTSE 100 ETFs to buy in 2024

How does Vanguard manage its funds?

There are two main ways that Vanguard manages its funds, including

Passive management: Typical passive management is the approach at Vanguard, as the funds often track an index. This means that rather than picking and choosing individual stocks, the fund manager simply buys and sells the bonds and stocks that make up the index.

Index sampling: Index sampling is how Vanguard tracks its indexes. This allows the manager to buy a representative sample of stocks or bonds in the index rather than buying each stock or bond individually. This is how Vanguard keeps its fund costs so low.

There is also the option of adding money and selecting your funds at a later date if you need more time to make a confident decision.

The Vanguard ISA also permits the full 2020 annual ISA allowance, however, there is no traditional cash ISA available.

As always, Vanguard has made this a low-cost option with no charges for switching holdings, dealing, making payments, or exit fees. Your account can also be totally managed online for convenience, and you can withdraw your funds whenever you like.

For parents looking to invest in Vanguard, they also offer a Junior ISA with the option of a ready-made portfolio or choosing your funds yourself. Unlike the stocks and shares ISA, there is no access to these funds until your child turns 18, but you are free to transfer to another provider at any time.

There is important information available on the Vanguard website regarding the key features of the Vanguard ISA, which you should read before considering transferring an ISA to Vanguard.

There are various options, such as transferring an existing SIPP across or investing £100 per month with a £500 lump sum to get your investments off the ground.

There are over 75 funds to choose from, including the ready made Vanguard Target Retirement Fund, consisting of thousands of bonds and shares in one package in order to effectively manage your exposure to risk.

Customers can choose a fund that matches their year of retirement and Vanguard will take care of the rest, ensuring your investments are constantly changing as you draw closer to retirement age, decreasing shares and increasing bonds in order to achieve stability.

However, this is balanced out by the low fees on offer at Vanguard, which would impact your bottom line favourably over time.

Due to the fact that Vanguard is aimed at investors who can withstand a long-term holding period, it is an important consideration that the total expense ratio is generally lower on ETFs than for equivalent mutual funds, and therefore, over time, these lower costs will favourably impact your bottom line.

The other main issue with the Vanguard Investors platform is its failure to offer a mobile app to its customers. However, as investing in Vanguard is more suited to passive investors, perhaps this is not a bad thing, as there is little advantage to constantly checking your investments with this kind of strategy. That being said, in this day and age, most tech-savvy investors would expect an app.

In terms of usability, we found the platform to be really user-friendly and easy to navigate, with adequate security and decent search functionality. However, it did lack price alerts, which would be a great addition to the Vanguard Investor offering.

Vanguard’s ESG funds include:

• Index funds that exclude companies that are involved with certain practises, such as weapons or tobacco, or those that breach international principles.
• Actively managed funds investing in companies with leading or improving ESG practises.

There are, however, a number of financial services tools available that focus on retirement planning, including a pension calculator, educational tools, an investing personality calculator, asset mixer tools, and a calculator to provide you with the total cost of investing.

The education section at Vanguard can only be described as limited, primarily in the form of articles with some video offerings discussing investment products, retirement planning, and the general economy. However, as Vanguard has positioned itself as a buy-and-hold solution, it stands to reason that their investors won’t need streaming data and dynamic charting facilities.

Vanguard is free of any fees when it comes to transferring out, switching funds, withdrawing money, and closing accounts. Their annual account fee is just 0.15% per year on investments up to £250,000, capped at £375. This is less than half of the industry average, which highlights the great value Vanguard is offering. As a comparison, Hargreaves Lansdown is charging 0.45%, and you can expect to pay 0.35% at Fidelity.

For accounts of over £250,000, there is no annual account fee.

For fund charges, Vanguard yet again comes in far lower than the industry average, with ongoing charges that range from 0.06% to 0.08%.

Breakdown of fund fees

Vanguard vs alternative providers

Guide to opening a Vanguard Investor account

Opening an account with Vanguard is relatively quick and can all be done online.

You will need your name, address, mobile phone number, debit card details, bank account details, National Insurance Number, and Date of Birth.

Verification is usually done instantly but can take up to five business days if additional verification is needed.

Guide to transferring your investments to Vanguard Investor

Vanguard offers a free transfer service for ISAs and retirement funds. They do require you to fill out an ISA transfer form, which can be found on their website, and it is important to note that transferring a cash ISA across to Vanguard will automatically turn it into a stocks and shares ISA.

Most transfers take up to 30 business days, but this depends on your existing provider and can vary.

Vanguard Investor Customer Service Review

Vanguard offers phone support, Monday through Friday from 9 a.m. to 5 p.m.; however, the amount of time you spend waiting on hold is reliant on the size of the account you hold with them, so for smaller account holders, this could be a disappointment. They don’t offer any live chat facilities, which is a letdown.

Investors looking for a low cost model will also be rewarded with Vanguard’s highly competitive fee structure, making it the ideal provider for retirement savers and long term investors.

For anyone new to investing, Vanguard offers really low costs and is perfect for investors considering a long term solution.

Fidelity vs Vanguard

These are two popular investment giants, both offering a wide range of index funds and actively managed funds. In terms of fees, the two platforms are comparable, both are well known for their low cost investment services.

In reality, there is little to set these two options apart, although you may find the research tools at Fidelity a little more comprehensive. The major difference is that UK investors are able to access individual stocks at Fidelity in addition to the ETFs and Mutual Funds.

Vanguard vs InvestEngine

If you are interested in accessing the LifeStrategy funds, I would recommend that you consider InvestEngine as an alternative to Vanguard, as there are no platform fees here, meaning it would actually cost you less than investing in the same fund with Vanguard themselves. To put this into perspective, investing £10,000 in 10 ETF trades per year for 10 years with 5% annual investment growth would cost £231 at Vanguard and £0 at InvestEngine for the exact same fund.

While Vanguard has a somewhat dated platform, InvestEngine is much newer to the market and provides a very slick, easy to use experience. There is also a healthy welcome bonus at InvestEngine of £25 when you invest £100.

Is Vanguard worth it?

Of course, you must consider your own personal needs and investment goals, but needless to say, Vanguard is a highly competitive provider with a wide range of funds at excellent prices. Yes, it would be cheaper to invest via InvestEngine, but you won’t get the same number of funds there or the security of being with a long established provider.