Vanguard: Popular, low-cost funds that can work out excellent value for large portfolio holders

• Vanguard’s emphasis on low fees, broad diversification, and a long-term investment focus makes them a good fit for long-term investors looking to keep costs to a minimum.

If you’re saving for retirement, or you’re a buy-and-hold investor and want an inexpensive platform, then Vanguard funds could serve you well. However, you’ll need to have a bit of money saved up as the minimum deposit is £500 (or £100 per month if you set up regular deposits) so this isn’t a platform for those who just want to dip a toe in investing with small sums: it’s geared towards those who can afford to put a decent amount away and are looking long-term.

If you’re a beginner, Vanguard’s popular ready-made funds could give you the easy solution and sense of reassurance that you’re seeking.

With Vanguard, you can only invest in funds, and only Vanguard’s funds at that, so this isn’t the platform for you if you wish to have complete control over the composition of your portfolio, down to the last stock.

Accounts

You can invest through a wide range of tax wrappers and investment vehicles at Vanguard. Here’s how it compares to other UK investment platforms:

Each account comes with different investment limits and different tax advantages, so it’s important to spend some time comparing them to work out which is right for you.

Stocks and shares ISA

As a rule of thumb, always invest in an Sometimes called an investment ISA, a stocks and shares ISA is an individual savings account that allows you to invest in shares, unit trusts, investment funds, and bonds. You will not need to pay tax on any income or capital gains earned on investments within an ISAISA before a general investment account as you will pay no income tax on the interest or dividends you receive from an ISA, and any profits from investments are free of Capital Gains Tax.

With a Vanguard Stocks and Shares ISA, you can either pick your investments from Vanguard’s range of over 85 funds, or if you prefer, let them pick and manage your investments for you.

Junior ISA (JISA)

Vanguard offers a A junior self-invested personal pension (SIPP) is a way of investing money for your child’s future retirement, free from capital gains and dividend tax. As it is designed to be started before a child turns 18, it must be opened by a parent or guardian although anyone can contribute. Once the beneficiary turns 18, they take control of the account, however, the money within the account cannot usually be accessed until age 55 (rising to 57 in 2028 and likely to rise further)JISA but it does not accept transfers from Child Trust Funds which is a shame and will rule this provider out for many potential JISA customers. If you’re looking to transfer a CTF to a JISA, then I’d suggest looking at interactive investor (ii), Hargreaves Lansdown, or AJ Bell instead, as they offer this service.

Self-invested personal pension (SIPP)

Vanguard was named a Which? Recommended Provider for its A self-invested personal pension (SIPP) is a type of private pension that allows you to control the specific investments that make up your pension fundSelf-Invested Personal Pension (SIPP) for the third straight year in 2023. Vanguard might have only launched its SIPP in 2020, but with its simple charging structure (one account fee covers it all), it has won customers over.

It’s a straightforward SIPP which gives you access to a choice of 76 funds and ETFs available on Vanguard Personal Investor, including Vanguard Target Retirement Funds and the popular LifeStrategy range. Our independent research into A ready-made portfolio is a pre-made collection of investments that have been put together by investment experts. They are designed to be a simple option for those who don’t want to choose individual stocks or funds for themselves.ready-made portfolio performance for those portfolios recommended as default/starter options for SIPP investors, shows that Vanguard’s recommended range – the Target Retirement Fund range – actually does very well when compared with the industry average (66.8%) and Vanguard’s competitors. Producing median average returns of 88.1% over ten years, that’s better than Fidelity’s 75.1%, and PensionBee’s 54.5%, and Nutmeg’s 39.7%.

Another thing I like about Vanguard’s SIPP is the level of help you’re given choosing the right type of investment strategy for your pension if you choose a managed service. Vanguard takes an approach I’ve not seen elsewhere, in asking you to move a slider, in several different scenarios, to find the level of risk you’d be willing to take to potentially reap different returns. It’s a useful approach because it takes the concept of ‘risk/reward’ from something abstract and allows you to feel how different losses or gains would affect you. It also doesn’t assume you know what providers mean when they ask you to select ‘low’, ‘medium’, or ‘high’ risk. If you’re starting from scratch with your pension planning (or even if you’re not – because our attitudes to risk are bound to change with age), it’s a useful way to gauge where you currently sit on the spectrum.

Junior SIPP

Only a few providers offer a A junior self-invested personal pension (SIPP) is a way of investing money for your child’s future retirement, free from capital gains and dividend tax. As it is designed to be started before a child turns 18, it must be opened by a parent or guardian although anyone can contribute. Once the beneficiary turns 18, they take control of the account, however, the money within the account cannot usually be accessed until age 55 (rising to 57 in 2028 and likely to rise further)Junior SIPP. It’s a tax-efficient way to build a retirement nest egg for your child. For the tax year 2024-25, you can contribute up to £2,880 and the government will add £720 basic tax relief (20%) taking the total up to £3,600. Not only are your contributions topped up by government tax relief, but the investments you make have decades to grow, so, by the time your child retires, what started as a modest pot could have grown to be a considerable one.

For parents who have already utilised the Junior ISA allowance, and want to continue saving for their children’s future in a tax-efficient way, this is a great little product. Of course, it is worth remembering that your child cannot access this money until they retire, so you really are locking it away for the long term. However, the advantage of this account is that contributions to your child’s pension fall under one of the inheritance tax exemptions and could therefore fall outside of your estate for inheritance tax purposes.

Assets

The first important thing to note is that when you invest with Vanguard, you are always investing in funds. The second is that Vanguard only provides access to its own products and services.

Vanguard offers both DIY investment (where you pick and choose your own funds) and ready-made solutions (where the experts at Vanguard select your funds for you).

For DIY investors, if you are happy to invest in only funds, then Vanguard offers a choice of 86 different Vanguard funds comprising different weightings of equities/bonds, categorised by risk level. But again, you are not getting a wider selection of all the available funds on the market, as you would get by opening an account with Fidelity or AJ Bell, for example. You are getting a restricted list of Vanguard’s own funds.

Within their range of funds, however, you’ll find index funds (which track the market), active funds (which aim to outperform the market), and ETFs (which allow you to match the performance of the stock exchange as a whole). And, if you don’t want to be overwhelmed with choices, and you’re encouraged by Vanguard’s market strength and reputation, you may find that only having Vanguard’s range of funds is easy to choose from, making the selection process easier to manage. Vanguard certainly excels at explaining different risk levels, and you’ll know you’re getting a low-hassle, relatively low-cost solution.

For those who want to know they’re getting the best possible deal, however, it’s worth remembering that you can access Vanguard funds through alternative providers – where you’ll get the option to add other, non-Vanguard funds to your portfolio – and you might even be able to get those Vanguard funds at a cheaper rate too (I’ll explain which providers make this possible in the Fees section).

Although Vanguard doesn’t offer robo-advice in the UK, if you need some help selecting funds, the platform does provide a questionnaire to help direct you towards the kinds of investments you should be making.

Sample question from Vanguard’s questionnaire to help with choosing funds

Example of the results page from Vanguard’s guidance on choosing funds

James’s Verdict – Our resident Senior Equity Research Analyst, James Fox, provides his pick of the best available Vanguard funds:

Passive Income – £VUKE

The FTSE 100 may have stagnated in recent years, but its earnings and shareholder returns haven’t. As a result, dividends and share buybacks have increased over the years. Thus, a fund like £VUKE which distributes dividends to shareholders may be well-served for those seeking passive income without incurring too much downside risk. The fund’s current dividend yield of 2.6% may not look like the most favourable investment given the current rate environment. However, the ETF’s lower losses over the past year as compared to higher-yielding ETFs make up for this. More promisingly, considering the fact that UK equities continue to trade at cheap valuations while earnings grow, future gains can come either via capital appreciation or higher dividend yields if stock prices remain flat.

Value – £VUKG

Like its counterpart, £VUKG also tracks the under-appreciated FTSE 100 index. But where it differs is how it allocates dividends, as this fund accumulates dividends, resulting in higher capital gains. This is why £VUKG has outperformed the £VUKE and the FTSE 100 index. Given the minimal downside risks from the already cheap valuations of many of the UK’s top companies, I see this as a strong value fund to invest in which has the potential to bear fruit in the years to come. The UK stock market has lost its allure for almost a decade. And with rumours of the government looking to reinvigorate the FTSE 100, investor interest may return and warrant a re-rating of the index to a higher earnings multiple, thereby boosting share prices.

Growth – £EQGB

Although much more volatile than the traditional S&P 500 index, the tech-heavy NASDAQ has outperformed its benchmark peer over the past two decades, and by quite some margin. When considering that most of its earnings growth has and is now expected to come from large tech companies, either through artificial intelligence (AI) or those who manufacture the equipment to make such advancements a reality, £EQGB is a fund every long-term investor should be looking at. When paired with the fact that earnings growth for the NASDAQ is forecasted to pick up this year, along with favourable seasonal trends such as the overwhelming likelihood that the stock market finishes the year in the green in an election year, this ETF may be one for the growth giants.

Ready-made funds

The benefit of a A ready-made portfolio is a pre-made collection of investments that have been put together by investment experts. They are designed to be a simple option for those who don’t want to choose individual stocks or funds for themselves.ready-made portfolios is that it gives you access to thousands of bonds and shares in one go. That produces a well-diversified portfolio and ensures you aren’t exposed to too much risk from a narrow basket of assets. It also means you don’t have to do too much research for yourself over different funds – the Vanguard team will have done the research for you.

You’ll be able to choose from:

• LifeStrategy® funds

Each LifeStrategy fund combines multiple individual index funds into one fund portfolio, giving you access to thousands of shares and bonds in a single investment. This helps reduce risk by spreading your investments. Each of the five LifeStrategy funds has a different mix of shares and bonds.

• Target Retirement funds

With a Target Retirement fund, you simply identify when you plan to retire and Vanguard will do the rest. As you get closer to retirement, Vanguard will automatically start switching you out of higher-risk, higher-reward investments and into more stable ones.

At Investing Insiders, we’ve been conducting research into the 1-year, 5-year and 10-year historical performance of more than 160 different funds across 24 different providers. Vanguard’s cautious and conservative fund (LifeStrategy 20% Equity Account) has done ok over the past 10 years, coming in bang on the industry average, but over the past 5 years, it has significantly underperformed when compared to the industry average.

Vanguard’s more balanced fund (LifeStrategy 60% Equity Acc) has done much better over the past decade. Performance over the past 5 years has been above average, and performance over the past 10 years has been excellent, far outstripping the industry average.

On the aggressive and adventurous account (LifeStrategy 80% Equity Acc), performance is, again, mixed, with 10-year returns smashing the industry average, but success tailing off in the past 5 years, with 5-year returns coming in a little under the average.

We can only speculate on why performance may have tapered off in the past five years, (2019 – 2024) compared to the previous five years (2014-2019). However, James Fox, our Senior Equity Analyst, has some ideas. Read his theory and analysis of the Vanguard stocks in the ‘Portfolio performance’ section below.

• ESG funds

Vanguard offers a choice of ESG is an investment approach that takes environmental, social and ethical governance factors into account alongside more traditional financial factors.ESG funds for investors who want their investment portfolio to reflect their values on companies’ environmental, social and governance.

Two types of ESG funds are available:

• Index fund that excludes certain companies. These could be weapons or tobacco manufacturers, for example, or those that breach international principles.
• An actively managed fund that selects companies which meet certain ESG criteria and excludes companies involved in controversial business activities.
  Vanguard does a good job of making details visible about the companies within funds. It’s a shame, however, that they don’t make it easier to filter funds by different criteria as the search process is laborious.

Fractional shares are portions of shares (or ETFs) that are smaller than one whole share. They are designed to make ownership of large, expensive shares more accessible. Fractional shares

As you can’t trade in individual shares at Vanguard, there is no fractional share dealing.

Joint / Corporate accounts

Vanguard does not offer joint accounts or corporate accounts, so you can’t open an account with a partner, or in your company’s name.

Lifetime ISAs

Vanguard does not offer a Lifetime ISAs (Individual Savings Accounts) (LISAs) are designed to help you save for your first home or retirement and come with an automatic 25% government bonus on all contributions up to the value of £4,000. There are stocks and shares LISAs – where you invest your savings – and cash LISAs – where you earn interest on your savings. You must be between 18 and 40 to open a LISA and all income, capital gains and interest earned within LISAs is tax-free, although these funds can only be used to purchase your first home or for retirement. Ensure you are familiar with the rules surrounding this account before utilising itLifetime ISA. That’s a shame as, if you’re looking to buy your first home, a Lifetime ISA – with its 25% bonus on retirement or first-time house purchase – makes for a valuable option.

Mobile app

Finally, Vanguard has released an app version of its trading platform! It’s taken far too long to get here, but so far it looks to be well-designed and easy to use. It it still in the early stages of rollout, however, so functionality is limited to a few activities: monitoring performance of your investments, buying and selling funds, and accessing FAQs. There is no ability to see live pricing on ETFs yet, and so you cannot purchase these through the app, and no access to customer service via the app yet either.

Web platform

The platform is clean, clear and simple to navigate. It provides access to all the features you need to manage an investment account. What it isn’t, is a trading account. This is not a platform that’s designed for day traders – it’s for long-term investors – so you won’t find all the research and execution bells and whistles of a complex trading platform.

Demo account

As an investment, rather than a trading platform, Vanguard does not have a demo account to test out strategies.

The fees you pay to invest with Vanguard comprise of three main parts and are based on the overall value of your account (including any cash held). They apply whether you are investing in a A self-invested personal pension (SIPP) is a type of private pension that allows you to control the specific investments that make up your pension fundSIPP, Sometimes called an investment ISA, a stocks and shares ISA is an individual savings account that allows you to invest in shares, unit trusts, investment funds, and bonds. You will not need to pay tax on any income or capital gains earned on investments within an ISAISA or General investment account (GIA) is an account designed to provide access to investments. You may be liable for tax on any income or capital gains earned within a general investment account but this can be a useful vehicle for anyone who has maxed out their ISA allowancegeneral dealing account.

Your fee will consist of:

• Fund management costs (dealing costs, admin expenses, bid-offer spreads)

A ready-made portfolio is a pre-made collection of investments that have been put together by investment experts. They are designed to be a simple option for those who don’t want to choose individual stocks or funds for themselves.Ready-made portfolios 0.24% – 0.32%
Individual funds 0.07% – 1.66%

• Account fee

This is what you pay in return for the provision of account services. These services include the fund dealing facility, the recording of transactions and holdings, the safeguarding of your investments, and other ancillary services.

0.15% p/a (capped at £375)

If you choose Vanguard’s Managed Service, you will need to pay an additional:

• Managed Service fee – 0.30% per annum

With a managed service, you’re paying for ongoing monitoring and re-balancing of your investments.

Vanguard is known for offering low-cost funds. That 0.15% account fee (capped at £375) is certainly the lowest headline rate among the big-name UK investment brands. If you have a large portfolio, then that fee cap means you’ll be getting one of the lowest rates in the UK market, as these two charts show:

However, for smaller-scale investors, the picture isn’t quite as clear-cut and you may find you can get cheaper access to Vanguard funds through another provider:

So, Vanguard isn’t the most expensive, but it’s also not the cheapest provider on the market. And this presents a problem, because plenty of other providers also offer a selection of Vanguard funds. That means, in some circumstances, going directly through Vanguard is not the cheapest way to purchase a Vanguard fund.

You also need to factor in that you are getting fewer choices for your fees with Vanguard. While Fidelity charges £87.50 per year on a £20k investment compared to Vanguard’s £84, you do have the option of buying stocks and a full range of funds from across the market with Fidelity. AJ Bell’s fees come in even lower on a £20k investment: £50 for the year, and again, with AJ Bell, you have a far wider range of investable assets to choose from. It’s something to consider.

Stocks and Shares ISA fees

As you can see from the table below, Vanguard is not the cheapest for ISAs either although, as with the SIPP, they do offer the bonus of dealing fees being included. (I haven’t included the Management Service fee in these calculations as the Managed Service is optional.)

As the above table demonstrates, InvestEngine offers the cheapest route to a Vanguard ETF. However, InvestEngine and the other low cost option, Freetrade, only offer Vanguard ETFs, so won’t offer the LifeStrategy range from Vanguard, for example. Again though, the point stands that it’s always worth shopping around for the Vanguard fund you want as it is possible to get them cheaper elsewhere.

Withdrawal fees

No charge.

Deposit fees

No charge.

A foreign exchange (FX) fee is added to all trades involving foreign currencies. If you buy a stock that trades in US dollars, for example, and your home account is in GB pounds, you’ll need to pay an FX fee.FX fees

No FX fees are due on Vanguard products.

Minimum deposit

Minimum deposits for Vanguard are relatively high: £100 per month, or a £500 lump sum.

Interest paid on cash

Vanguard pays interest on any cash held in your accounts but not invested, at a rate of 2.60%. That’s definitely not the most generous rate currently available (Interactive Brokers offers 4.74% and BestInvest offers 4.53% on cash in a SIPP account) but there are still plenty of providers (looking at you, big banks) which offer no interest at all which makes Vanguard’s rate relatively good.

As you’re only able to invest in funds with Vanguard, research is limited to the specific funds offered. That research is comprehensive however, and well-suited to the kinds of requirements and questions Vanguard’s investors are likely to have.

You’ll be able to research:

• Price analysis
• Past performance data
• Information on the fund’s objectives and risk score
• Number of stocks and bonds held, their median market cap, One way to determine a stock’s value is by comparing the company’s share price (P) to its earnings (E). The lower the P/E ratio, the better value it is deemed to be.P/E and The price-to-book ratio compares the stock market value of a company with the value of its assets on paper. It is used by some investors as a way to spot undervalued stocks.P/B ratios, and data on stocks’ return on equity and earnings on growth rate
• Distribution history
• Costs and charges data

What you won’t find, however, are analyst ratings and forecasts, social sentiments, charting tools or news feeds. Vanguard customers, therefore, are missing some of analysis and signals that can help with decision making.

When selecting a provider for your investments, it is very important to first ensure they meet certain minimum safety standards. We judge Vanguard to meet the threshold for a ‘safe’ provider because:

• Vanguard is authorised and regulated by the Financial Conduct Authority (FCA) in the UK.
• Vanguard utilises multi-factor authentication (a six-digit code) to keep your account secure when you log in, make a withdrawal, or attempt to change your details.
• To protect you against the risk of fraudulent withdrawals of money from your account, Vanguard asks you to nominate a single bank account for the purpose of receiving payments from them.
• Vanguard is covered by the Financial Services Compensation Scheme (FSCS). This means you may be entitled to compensation up to £85,000 in the unlikely event that the company is unable to meet their financial obligations to you.

Warning: It’s important to be aware that all investing involves risk and IBKR’s products are only covered by the UK Financial Services Compensation Scheme (FSCS) in limited circumstances. If you want to find out more about which investment products are protected by the FSCS, use this checker *Link to: https://www.fscs.org.uk/check/investment-protection-checker/>

Account security

All account information passing between your computer and Vanguard’s systems is securely encrypted.

The education offering on Vanguard’s website is rudimentary. There’s a library of blog articles offering some insights on personal finance topics and news, and 101 guides to investing terms and concepts, but it isn’t enough on its own to inform those looking to take charge of their own investments, so you’ll need to supplement your education with resources from other sources if you’re completely new to a product.

Explanations of the differences between different funds and asset classes, however, are clear and helpful enough to allow users to identify which may be better suited to their needs.

Vanguard’s UK-based team can be contacted via:

• Message
• Secure message from within your account dashboard if you are a client
• 24/7 Chatbot
• Phonelines are open Monday to Friday, 9am to 5pm

It’s great that Vanguard can be reached by phone. However, be prepared for delays. Trustpilot users report delays of more than an hour in some circumstances!

The 24/7 Chatbot seemed very sleepy when I tried it. Unfortunately, it refused to co-operate at all and just kept popping up a survey instead. All-in-all, the experiences I’ve had haven’t inspired confidence which is a shame, as one of the benefits of an older, more established platform over newer, smartphone investment brands, is usually a higher standard of customer service.

Trustpilot reviews don’t ease my concerns, either. The platform has an ‘Average’ score of 3.5 stars at present, and an alarming 55% of them are 1-star reviews. Something around the 10-15% mark is usual.

Complaints are largely centred around issues with transfers, delays withdrawing money, under-investment in customer care and poorly performing IT systems. It’s also worth noting that Vanguard’s score has dropped from 4-stars to 3.5 in just a couple of months. (I checked in on them at the start of the year and things weren’t as bad.) It may be a blip, and all providers receive their fair proportion of negative reviews on Trustpilot, but Vanguard is certainly receiving more negative reviews than most at present.

So that I could test out how easy it is to open and manage a Vanguard account, choose investments and execute trades, I invested £500 into a Vanguard FTSE 100 UCITS ETF.

Account opening

Opening an account with Vanguard was easy. There are three steps to the process:

1. Choose your account type

Choose from: a Sometimes called an investment ISA, a stocks and shares ISA is an individual savings account that allows you to invest in shares, unit trusts, investment funds, and bonds. You will not need to pay tax on any income or capital gains earned on investments within an ISAStocks and Shares ISA; a Personal Pension; a Junior ISAs (Individual Savings Accounts) (JISAs) are tax-free savings accounts for children under the age of 18. Only a parent can open a JISA but anyone can contribute. You can choose to save for your children through either a cash Junior ISA where you will earn interest on any cash in the account, or a stocks and shares Junior ISA where you will invest your child’s savings on their behalfJunior ISA; or a General investment account (GIA) is an account designed to provide access to investments. You may be liable for tax on any income or capital gains earned within a general investment account but this can be a useful vehicle for anyone who has maxed out their ISA allowanceGeneral Investment Account.

2. Choose your funds

Vanguard will ask you to think about your investment goals, your attitude to risk and how hands-on you want to be with your account.

With Vanguard’s Stocks and Shares ISA and Personal Pension, Vanguard can choose your funds for you. You just answer a few questions about how you feel about risk.

3. Choose how much to invest

You can invest from £100 per month, or a £500 lump sum.

Watch this video to view one of Vanguard’s account opening processes:

*Insert Loom video

Transferring your account

Vanguard states that ISA transfers take a maximum of 30 working days but I’ve not tested this myself as my funds are invested in a general investment account rather than an ISA. Depending on your existing provider (that’s often where the delays often stem from in transfers), and the type of pension you have, SIPP transfers can take anywhere from 1 to 10 weeks according to Vanguard’s own data, and occasionally longer.

Closing your account

If the money in your Stocks and Shares ISA or General Account is currently invested, Vanguard will sell your funds, then you can withdraw funds (and have any cash refunded) into your nominated bank account.

If Vanguard choose and manage your investments for you, you’ll need to send Vanguard a secure message, stating the amount you want to withdraw. They’ll do the rest for you. The whole process takes around five business days.
It’s annoying that you need to request this through a secure message and can’t just self-manage closing an account as you’d be able to do with the more tech-savvy newer providers. Legacy providers certainly need to up their game in this regard and swap out manual processes for more digitisation if they want to attract younger consumers accustomed to immediacy.

Buying and selling funds is a simple process at Vanguard. There are no choices to be made on order types as you’re limited to ‘next available price’.

That means your trade will go through at the next trade point.

Unfortunately, that could be a day or two away, during which time the fund’s unit or share price may have changed. In reality, as you’re buying a fund rather than an individual equity, the price isn’t likely to change dramatically, but it’s something to be aware of and which you may find off-putting if you like your trade prices to remain fully within your control.

Have a question about Vanguard that we haven’t covered? Ask it here and we will get back to you as soon as possible!