Vanguard has long been one of my favorite investment brokers. Their customer-owned (versus shareholder-owned) structure has allowed them to deliver at-cost funds and ETFs to their customers for many years. Not only are their house-brand managed Vanguard ETFs and index funds commission-free to buy and sell, but they also have extremely low management fees compared to other investment firms that typically have shareholders and profit incentives.
Where Vanguard has always historically fallen a bit behind other discount online brokers in the cost department is if you want to buy and sell non-Vanguard ETFs and/or stocks.
As you can see by the below chart of Vanguard’s trading fees, unless you have over $500,000 invested in Vanguard funds and ETFs, you’re going to pay a minimum of $7 for each trade (buy and sell). That’s not horrible, but it’s not great either. There are many discount brokers out there that offer cheaper trades on stocks and ETFs.
So I was very happy to see last week’s news that, in August, Vanguard is going to be increasing their number of commission-free ETF’s from the 77 that Vanguard manages to nearly 1,800+ as they will be removing the commissions from nearly all ETFs from BlackRock, Schwab, SSgA, and over 100 total ETF providers. This will make them the new leader in number of commission-free ETF trading offerings, by far.
Vanguard’s commission-free trades will exclude complex ETFs, such as inverse and leveraged ETFs – which you should be staying away from anyways. And stocks will still be under the current commission structure.
This is quite a significant development for amateur investors, as ETFs allow investors to passively invest in small amounts as a beginner in indexes without having to drop the $1,000’s of dollars that are typical when buying into an index fund for the 1st time.
Historically, most investment brokers would allow you to buy and sell commission-free ETFs that they managed, but would charge you commissions to buy and sell ETFs that they did not manage. And those costs can add up quickly with each trade.
I’ve previously covered the commission-free ETF offerings from 6 major discount brokers, and at the time of this writing, they are:
- Vanguard: 1,800+
- Schwab: 500+ from 16 providers
- TD Ameritrade: 300+ from 9 providers
- Fidelity: 500+ from 13 providers (after a recent commission-free ETF lineup expansion)
- Firstrade: any from 40 providers
- ETrade: 250+ from 19 providers
While commission-free ETF’s are great, I’d encourage you to seek out passively managed ETF’s and index funds with very low management costs. And frequently trading in and out of funds, just because you can, will always be a bad practice. Passive wins the day (it’s boring but spectacular), as market timing doesn’t work.
Update: Weeks after the Vanguard announcement, Fidelity has launched 2 zero-cost index funds and slashed fees in order to (at least temporarily) beat Vanguard on mutual and index fund fees. The investment broker fee wars are heating up! Will Vanguard follow suit?
Update: Schwab now offers free stock, ETF, & options trades to all accounts.
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Thank you for this update and series of articles. I am sure you get more readers than comments but I at least wanted to acknowledge the great public educational service in sharing you financial wisdom, and to also let you know you are a great writer.
Thanks, Walt!