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 ISA 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 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 Self-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 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 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
John’s Verdict – Our resident Senior Equity Research Analyst, John Choong, 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 ready-made portfolio 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:
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.
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, John Choong, our Senior Equity Analyst, has some ideas. Read his theory and analysis of the Vanguard stocks in the ‘Portfolio performance’ section below.
Vanguard offers a choice of 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
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 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.
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