What’s Vanguard and Why should you care?
Vanguard is the investment firm I use for my Stocks & Share ISA. They offer low fee trading via a selection of funds owned by the company. This ensures you benefit from the full return of your portfolio.
Vanguard started trading in the US 45 years ago and reached the UK in 2009. I’ll dive deeper into exactly what they offer within the article. You can invest in most funds via most trading platforms or use Vanguard’s Investor directly.
The biggest selling point is you don’t need to be an expert to trade with Vanguard. It has many options and a clear explanation for each. By going through their funds you get to pick by risk profile, historical returns, and cost. Whether you are starting your journey with investing or are looking for a new placement. They have something for you.
Why do you recommend Vanguard funds?
I’m a big adept of the Dollar Cost Averaging approach of investing. It isn’t possible to time the market. Studies have shown that by investing consistently or by investing a lump sum at once in-market tracking funds such as VUSA (S&P 500 tracker) you will always outperform the market.
If you want to understand the math behind DCA, I recommend this article by Investopedia. This theory is what led me to set up a direct debit for the first of each month. On that date, 20% of my salary is automatically invested.
Vanguard has a successful track record with market tracking funds over the last 45 years. Investing a fix-sum into the S&P while not guaranteeing returns makes them very likely in the long-term. If you are in the US the fund is VOO and additionally holds a dividend yield of 1.2%. On the other hand, if you are investing with Vanguard’s platform in the UK you will have access to VUSA. They are both represented in the pictures below.
As you can see over the last decade both have grown consistently even with hiccups such as the April 2020 Crash. You also have a large array of fixed income funds from Bonds (gits in the UK) to High Dividends.
Don't worry you have other options
If all of this feels too overwhelming and you would rather have simpler, more straightforward solutions… You are covered with Vanguard’s blended funds. They are my favorite as you will see below. The Lifestrategy funds give you the opportunity based on your risk aversion and targets to decide on the percentage of equity vs bonds you hold. They go from LifeStrategy 20 (20% equity & 80% bonds) to LifeStrategy 100.
Not only will you be invested in both equity and bonds they will be internationally spread to minimize the impact of local crashes. The way you should pick such funds is based on your age and risk profile. Low equity means low risk at the expense of high profitability. On the other hand, the high equity is “High Risk, High Reward”.
In case you are looking to retire soon, focus on low equity funds. Whereas with long-term goals (10+ years) you can look at higher risks as Dollar Cost Averaging is on your side.
Vanguard Investors different accounts (UK)
If you aren’t from the UK but want to see my portfolio skip this part! And if you are here we go.
Vanguard offers 4 different types of accounts in the UK:
If you are unfamiliar with ISAs, I go in-depth in “What Is An ISA (Individual Savings Account)?”. The short version is that you can save up to £20’000 p/an in ISAs. Any gain whether from interest, capital, or dividends made on this allowance will be tax-free. Maxing out your ISA should be your priority.
Well, a pension account is straight forward. Your allowance is £40’000 p/a. This money will only be accessible once you reach retirement and will be growing till then. Maxing out your pension allowance should be your priority once you maxed out your ISA.
You should only use General Accounts once both others have been maxed out. As your earnings will be subjected to HMRC’s law. As far as Vanguard is concerned this account functions in the same capacity as any other account. You can freely buy and sell Vanguard funds. If you want to open a General Account I recommend using a third-party app such as Trading 212 as you have access to a higher amount of funds. (Use my referral link and get a free stock valued up to £100/$100).
A junior ISA is just that, an ISA account for Minors. They will not have access to it until they reach 18 and it only holds an allowance of £9,000.
Vanguard’s 3 types of funds
Welcome back to everyone lucky enough not to live in the UK. It’s time to look into vanguard’s 3 types of funds.
Let’s start with Equity funds. There are 36 of them and are accessible through both Vanguard’s platform or third-party apps such as Trading 212. (follow the link to get 1 free stock worth up to £100/$100). As said earlier they are riskier investments but will have higher returns in the long run. You can find the list here with their tickers available when you click on them. The funds are spread out per category:
- Emerging Markets
- Asian Pacific
Each of them with their own characteristics. I personally invest monthly in VUSA as I strongly believe in the S&P 500.
Secondly, you have a Fixed Income. This category regroups all BONDS. Once again you have the choice of your investment platform. These funds typically hold a lower fee and return a coupon quarterly which goes from 0.5% to 5%. Your coupon will depend on your risk profile once more. Government bonds are safer than Corporate but yield lower payments. Holding bonds is a true form of passive income as they will payout until maturity.
Vanguard splits them into the same categories as Equity and they total 24.
Finally, you have blended funds. As explained earlier they are only accessible from Vanguard’s platform. As a blend of equity and bonds, they lead to quick diversification of your portfolio.
What does my portfolio look like?
I started investing with Vanguard at the start of the Financial Year. And so far I have seen a rate of return of 16.6%. With 4.5% coming in the last 3 months. I invest 20% of my income by direct debit monthly. It ensures a stable growth of my portfolio whilst practicing DCA.
Vanguard offers a clear insight tab which makes it easy to see in which markets you are invested and how your portfolio is structured. Mine looks like this:
As you can see I am heavily invested in the European and American markets. I tend to invest most of my direct debit directly into the LifeStrategy 80% which has seen the highest returns so far. The rest is split between VUSA and UK/American government bonds. This ensures I receive a 2.5% coupon quarterly on these investments.
As far as funds and Sectors themselves my portfolio looks like this:
With a high amount of diversification, I am mostly covered by the tides of the market. With this screen, I’m also able to quickly review if I am satisfied with where my money is allocated. I then make modifications ahead of next month’s investments.
As far as investors go Vanguard is a safe option. With a proven track record, a straight-forward website, and a high diversity it is difficult not to recommend. Whether you are a starter or an experienced trader Vanguard will have something for you.
I will say their website is quite dated especially on mobile and if you do not want to be pigeonholed into 1 investor. I recommend using a third-party trader.
In addition to Vanguard, I use Trading 212 which has no fees and the benefit of giving both of us a free share if you sign up with this link. It is quite straightforward and will allow you to open positions with other traders. I will do an in-depth review of it in a future article.
Please share your thoughts on investments and how you prefer to do it below in the comments.
Disclaimer: The links for Trading 212 are affiliate links. I am not paid for my opinion and all opinions shared are my own.