Why I Fell in Love With Vanguard
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Have you ever had one of those moments where you wonder what you were thinking…for years?!
Well, my friends, I had one of those ultimate hand palm moments several months ago. Today, I’d like to share with you how and why I fell in love with Vanguard.
As someone who has thought himself to be a relatively good investor stock picker over the years I avoided Vanguard. I don’t know why. Maybe it was viewing Vanguard as too boring. Maybe it was because I thought they weren’t for me.
I don’t know why. But what I do know is that I finally feel like we’re doing what we should be doing for our investing. It doesn’t hurt either that Vanguard is just plain awesome and a member-owned company so you know they’re out for the best interests of their clients – not stockowners.
Why We Moved to Vanguard
There are a number of reasons why we moved to Vanguard. When I say we moved to Vanguard, I mean we moved everything.
That being said, we had a number of reasons for the move. Those were:
- I’m too busy with our business to adequately manage our investments the way I’d like to. It has been a good 3-4 years since I’ve been able to adequately manage our investments
- I wanted a much lazier approach to our investing
- I wanted to significantly cut our investing fees
- We chose them for our self-employed retirement plan – a Solo 401(k) so it made sense to move everything to them
- I wanted a place that specializes in investing – they’re the brokerage of brokerages
- I love their philosophy, driven by Jack Bogle
- I wanted to know what we were paying for our investments
I’m sure there are other reasons why a move to Vanguard made sense, but these are the top reasons that come to mind. Other online brokers will encourage you to trade actively, charge crazy fees and overall not be an advocate for growing your wealth. I want to invest our money with a broker that’s the opposite of that. Vanguard epitomizes that philosophy.
In short, I’m too busy to actively manage things on my own and I want a lazy and solid approach to manage our investments. As I’ll share later, our previous approach was anything but lazy and solid.
I will also add that ever since we made the move it has been confirmed to me we made the right decision. I know I sound like a fan boy, and admittedly I am though to be clear that I am not being compensated by Vanguard or anyone else in any way for this post. I asked them several years ago if they had an affiliate advertising program and they smiled and said “No. How do you think we keep our fees so low? :-)” Still, I believe in their approach and service so much that I am happy to promote them on the basis of their value alone.
Having dealt with nearly every major online broker in my previous day job, the service we’ve received from Vanguard has been top notch. At most other brokerages you need to have millions of dollars to receive such service. We don’t have millions of dollars, yet, but they have treated us like we do.
What We Were Investing In and What We Changed
I’ve never been a terribly active trader in previous years but I was a stock picker. I’d not just pick any stock, as I usually selected each stock or ETF after thorough research. Below is what we were invested in at the time we moved to Vanguard:
- Vanguard Health Care ETF – VHT
- Vanguard Total Stock Market ETF – VTI
- Deutsche Bank X Trackers MSCI Japan Hedged Equity ETF – DBJP
- iShares Core US Aggregate Bond ETF – AGG
- iShares Russell Mid-Cap Growth ETF – IWP
- PowerShares Nasdaq Internet ETF – PNQI
- Schwab International Equity ETF – SCHF
- Consumer Discretionary Select Sector ETF – XLY
- Vanguard FTSE Europe ETF – VGK
- SPDR Series Trust S&P Dividend ETF – SDY
- iShares Core S&P Small-Cap ETF – IJR
- Vanguard FTSE Emerging Markets ETF – VWO
- Vanguard Small-Cap Growth ETF – VBK
- Powershares QQQ ETF – QQQ
- Dr. Pepper Snapple Group – DPS
- Alibaba Group Holding LTD – BABA
- Altria Group – MO
- Berkshire Hathaway B – BRK.B
- Coca-Cola Company – KO
- FedEx Corp – FDX
- Ford Motor Company – F
- Goodyear Tire & Rubber Company – GT
- Microsoft – MSFT
- Qorvo – QRVO
- Southwest Airlines – LUV
- Visa – V
- Walt Disney – DIS
- Apple – AAPL
- Apple (call) – AAPL
- Freeport McMoran – FCX
- Starwood Property Trust – STWD
- Starwood Hotels & Resorts Worldwide – HOT
- Whole Foods Market – WFM
- Blackstone Group – BX
- AT&T – T
- Intel Corp – INTC
- Lowes Companies – LOW
- BlackBerry Limited (straddle) – BBRY
Wow, 38 different stocks, ETFs and other holdings! That’s just plain nuts and way too much for me to actively manage effectively or efficiently. Upon our move to Vanguard we sold everything but Disney (I’m not a Disney fan but Mrs. Frugal Rules is and I know when to listen to her) and BRK.B as it’s really like a mutual fund anyway and I love having the ability to go to the annual convention each year.
For the sake of laziness and ridiculously low fees we whittled everything else down to a small handful of holdings. We are now invested in the following:
Vanguard Total Stock Market Investor Shares – VTSMX
Vanguard Short-Term Investment Grade Investor Shares – VFSTX
Vanguard FTSE All-World Ex-US Small-Cap Index Shares – VFSVX
To be clear the above is in our Solo 401(k), with an 85% – 10% – 5% allocation. It’s also important to point out that Vanguard does not allow for Admiral shares to be held in Solo 401(k)s. Though, with expense ratios of .17%, .20% and .37% respectively I’m not too terribly concerned with those fees. In our other accounts, Roths, SEPs and Rollover 401(k)s, we’re in the Admiral shares available to us with a very similar composition as our Solo 401(k) plan.
I know some would consider such a heavily tipped approach to the entire U.S. stock market (VTSMX/VTSAX hold close to 3,700 stocks) risky. In some instances that would be accurate. I’m of the age however where I’m comfortable with the associated risk. We do have a relatively small exposure to the bond market as well as an international fund. To be fair, many of the companies in the Total Stock Market funds are multinational so it balances out a fair bit of that.
Please don’t take our investments as guidance. It’s not. I’m not at all trying to tell you what to do with your money. I just want to provide a real-life example of managing money so you can make the best decision based on your circumstances.
Investing Should Be Simple
Many out there like to make investing in the stock market more difficult than it has to be. They turn it into chasing gains, listening to the talking heads and thinking short-term. We can all be guilty of that at times, myself included, but that’ll only make investing more difficult than it needs to be.
That is why we moved to Vanguard. We like their focus on long-term growth, not short-term spurts. They know investing is much more about blocking and tackling drills than big plays. They know indexing is generally the best way to go for many investors. Heck, if Warren Buffett says it’s good enough for him, then it should be good enough for most of us. 🙂
I know Vanguard may not be for everyone. I know some hate it because it’s so “boring.” My argument is investing should be boring, but that’s just me. 😉 Vanguard admittedly isn’t for everyone, but it has been a great experience for us thus far and is seriously making me wonder what took us so long to make the move. But, after taking 38 holdings across a number of accounts down to essentially five holdings I’m a fan.
I know this was a pretty long post – an investing one at that. 🙂 That being said, I hope this helps you think through your own investing situation. I will be the first to say that there is no cookie cutter solution to investing in stocks. What works for me won’t for you and vice versa. Hopefully this gives you an idea of another approach to consider, regardless of whether or not it’s with someone like Vanguard.
Do you love/hate Vanguard and why? How many stocks/ETFs do you have and how boring is your investing? When was the last time customer service surprised you in a good way? Would you have done something differently than us?
John is the founder of Frugal Rules, a dad, husband and veteran of the financial services industry whose writing has been featured in Forbes, CNBC, Yahoo Finance and more.
Passionate about helping people learn from his mistakes, John shares financial tools and tips to help you enjoy the freedom that comes from living frugally. One of his favorite tools is Personal Capital , which he used to plan for retirement and keep track of his finances in less than 15 minutes each month.
Another one of John's passions is helping people save $80 per month by axing their expensive cable subscriptions and replacing them with more affordable ones, like Hulu with Live TV.
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