I’ve worked at Vanguard since 1999. In that time, I’ve learned a few things: The nautical naming convention runs deep. For example, I’m not an employee, I’m a crew member. Most of the buildings on campus are named for naval vessels, and our cafeterias are galleys (not just on signs—people really call them “galleys”). I’ve also learned that our mission runs deep too.
Lowering the cost to invest directly aligns with our mission to take a stand for all investors, treat them fairly, and give them the best chance for investment success. And we’ve been abiding by that mission since we opened in 1975. When investors pay less to invest, they keep more of their returns. This increases their odds of investment success. A win for investors is a win for Vanguard.
As a Vanguard investor, maybe you’re wondering if you should make a change to your portfolio to take advantage of commission-free* ETFs. I may be a crew member (who eats lunch in the galley), but I’m a Vanguard investor too. I understand the questions you may have. Hopefully the points below will help you appreciate what commission-free ETFs could mean for you.
Please note, trading limits, fund expenses, and minimum investments may apply. See the Vanguard Brokerage Services commission and fee schedules for full details.
How the change can benefit you
Here are my thoughts around how Vanguard’s commission-free ETFs could potentially benefit an investor or prospective investor:
- Simplified ETF selection process. If you’re in the market for an ETF, there are certain factors you should consider before choosing a specific fund. These include expense ratio, transaction fees (aka, commissions), how the fund is managed, tracking differences, tax-efficiency, and the company that offers the ETF. With the elimination of commissions on most ETFs, we’re taking the commission factor off the table so you can focus on the other qualities of the funds you’re considering.
- Opportunity for streamlined investment management. This August, you’ll have access to almost all ETFs—from Vanguard and more than 100 other companies—commission-free when you invest online. If you currently hold other companies’ ETFs on different brokerage platforms in order to minimize trading costs, it may now be possible to hold all of your ETFs in one place without sacrificing cost savings.
- Save money on every ETF transaction. If you invest $700 in a non-Vanguard ETF with a $7 commission, 1% of your total investment goes toward the commission. The less you invest in any single transaction, the more of your investment goes toward the commission. For example, if you dollar-cost average and invest $350 in a non-Vanguard ETF twice a year, and you pay a $7 commission for each transaction, 2% of your total investment goes toward the commission. That’s less money that’s available to compound.
You’ll also save money when you rebalance your portfolio. Say you rebalance, on average, twice a year by selling non-Vanguard stock ETF shares for non-Vanguard bond ETF shares (or vice versa). If you make 2 ETF exchanges a year, you’re making 4 transactions to rebalance your portfolio each year. That means you’ll pay $28 in commissions (if each commission is $7) just to maintain your asset allocation.
We believe rebalancing is key to maintain your portfolio’s risk level. Our commission-free ETFs are one way we can help ensure that commissions don’t get in the way of doing what’s right for your portfolio.
Should you change your portfolio?
Our offer of almost 1,800 commission-free ETFs shouldn’t affect why you’re investing, how you feel about market volatility, or how much time you have before you need the money you invest. It also shouldn’t change whether ETFs are a good fit for your portfolio.
Only you can decide how (or if) you can benefit from this change. Look at your portfolio. Do your asset allocation and individual securities complement your goals, risk tolerance, and time frame? Are there any opportunities to reduce your investing costs? For example, if you invest in other companies’ ETFs on different brokerage platforms, now may be a good time to consolidate your investments and hold them all in just one place.
Should you change how you invest?
One of the qualities that makes Vanguard investors unique is their long-term outlook. Our research shows that ETF investors at Vanguard are primarily buy-and-hold investors who own ETFs as long-term investments.** The opportunity for free trades doesn’t mean you should trade freely, and having a greater selection of commission-free ETFs to choose from doesn’t change that.
If you’re a buy-and-hold investor, you ignore short-term market fluctuations and hold onto your investments for long periods of time. You believe they’ll gradually increase in value over a long period of time and understand that frequent trading could jeopardize your opportunity for long-term investment growth. This buy-and-hold mindset is also the reason we excluded inverse and leveraged ETFs from our commission-free lineup. These ETFs generally don’t support a long-term investment strategy.
Good news for all investors
If your portfolio includes ETFs from other companies (or you think you may invest in them in the future), commission-free ETFs can save you money. If you only invest in Vanguard ETFs (or don’t invest in ETFs at all), it’s still good news. It means investing today is a little less costly and complex than it was yesterday. And it means that as an investor, you have more flexibility and more opportunities to meet your financial goals than ever before.
*Commission-free trading of Vanguard ETFs applies to trades placed both online and by phone. Commission-free trading of non-Vanguard ETFs excludes leveraged and inverse ETFs and applies only to trades placed online; most clients will pay a commission to buy or sell non-Vanguard ETFs by phone. Commission-free trading of non-Vanguard ETFs also excludes 401(k) participants using the Self-Directed Brokerage Option; see your plan’s current commission schedule. Vanguard Brokerage reserves the right to change the non-Vanguard ETFs included in these offers at any time. All ETFs are subject to management fees and expenses; refer to each ETF’s prospectus for more information. Account service fees may also apply. All ETF sales are subject to a securities transaction fee. See the Vanguard Brokerage Services commission and fee schedules for full details.
**Source: Vanguard and GfK, 2018.
- Vanguard ETF Shares are not redeemable with the issuing fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.
- All investing is subject to risk, including the possible loss of the money you invest.
- Diversification does not ensure a profit or protect against a loss.