3 Tips for Investing in Vanguard Funds & ETFs

August 13, 2015

fb-vanguardtipsVanguard is the largest fund company in the world and the second largest ETF provider.

It has hundreds of funds — both index funds and actively managed funds — and its funds are available to most investors through their brokerage accounts or retirement plans.

We cover Vanguard funds and ETFs in NoLoad FundX, and we help investors determine which Vanguard funds to own now and when to move on to other funds. We also try to help investors understand how Vanguard funds and ETFs may differ from one another.  

Here are three tips to help you find the right Vanguard fund or ETF for your portfolio:

1. Know Your Share Class

Many Vanguard funds have different share classes. One Vanguard fund may have four different tickers: each ticker represents the same underlying portfolio, but has different brokerage availability, minimum initial purchase requirements, and expenses.

If you are investing in Vanguard through your retirement plan, you may own an institutional share class.

If you are investing directly with Vanguard (and meet Vanguard’s minimum account balance), you may invest in  an “Admiral” share class.

And if you are investing through a discount broker like Schwab or Fidelity, or if you have a smaller amount invested directly with Vanguard, you’ll have access to “Investor” shares.

Vanguard also has an ETF share class, which trades like stocks; these shares are also available through discount brokers. (Because Vanguard Investor and ETF shares are most widely available, that’s what we cover in NoLoad FundX.)

Click here to learn how you can use Vanguard’s website to see if a fund has a different share class.

2. Control Trading Costs

Many Vanguard funds have low expense ratios, but if you’re concerned about costs, you’ll also want to consider transaction fees. At most brokers, you’ll be charged a transaction fee to invest in a Vanguard fund.

At Fidelity, for example, you’ll pay a $75 transaction fee to invest in a Vanguard fund. That $75 may not seem like a lot if you’re investing $100,000 in a single fund, but if you are managing a smaller account, transaction fees can be costly. If you invested $7,500 in a fund with a $75 transaction fee, you’d have paid 1% before the fund made a dime for you. We suggest that investors who are managing smaller accounts focus on investing in no transaction-fee (NTF) funds or exchange-traded funds.

Not sure how much your broker charges for transaction-fee funds? Our table can help.

3. Consider Which Index to Track

Some investors use ETFs to get exposure to certain market indexes, but Vanguard ETFs don’t always track the most common index. Vanguard’s Small Cap ETF (VB), for example, doesn’t track the small-cap Russell 2000 index; it tracks the CRSP U.S. Small Cap Index. (CRSP stands for Center for Research in Security Prices.)

And Vanguard’s Developed Market ETF (VEA) doesn’t track the MSCI EAFE index, a broad international index; it tracks the FTSE Developed Market Index excluding North America.

While there are differences between different indexes, for most investors, these differences won’t make or break their portfolios. But investors who are looking to track a specific market index may need to take a closer look at Vanguard ETFs.

In NoLoad FundX, we cover a wide range of ETFs. We list Vanguard Small Cap ETF (VB), as well as iShares Russell 2000 (IWM) and iShares Core S&P Small Cap (IJR), which covers the S&P 600 index. We compare these funds and invest in those that have the best recent returns.

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