What does it mean when someone says, “Oh, I Vanguard” or “I use Vanguard”. There is even a line or two when people talk about investments in a conversation, and someone says, “I let Vanguard handle everything”. Well, my goal is to explain and put that to rest. This all came from an interesting conversation with one of my best friends and he felt that this information was necessary for the community to read, especially those starting out to invest and wanting to know more terminology, where it comes from, what it means and the impact to them. Therefore, I will do my best to explain the “who” and the “what” in Vanguard.
What is Vanguard?
Here it goes – Vanguard is NOT a person! That’s the first statement that I will make. Therefore, when someone says – Vanguard handles everything for me, it is not a single individual. Vanguard is actually an investment firm, based in Pennsylvania and they are one of the biggest investment firms in the world. They manage over $5 TRILLION in assets of individuals all over the world, in fact. Additionally, their corporate structure is of a mutual company. Essentially, the company is owned by the customers whom have their funds being managed. Additionally, the company was founded by John C. Bogle, who is an investing icon.
Who is John Bogle? He has earned the credit & recognition of being the first to create an index fund available to individuals (Bert has explained what an index fund is here, a great read to understand more). His conclusion is that mutual funds perform better than an active fund manager, due to fees and the potential poor investment decision, as a passive index fund would own the entire stock index as a whole, such as the S&P 500 (i.e. the 500 largest companies by market capitalization).
Therefore, in conclusion, Vanguard is an investment firm that will gladly accept your money to place in one of their investment vehicles – such as retirement accounts, 529 plans or individual-trading accounts. Further, their investments are also endless, offering mutual funds, exchange traded funds, stocks, options, etc..
What does Vanguard-ing mean?
Another statement, as mentioned earlier, is that people will state that, “they Vanguard”. What exactly does that mean? Well, there are quite a few employers that have been engaged with Vanguard to be their investment platform for their employees, first off. Therefore, your 401(k) and other savings/investments may be at Vanguard. Typically when that occurs, your investment options are… guess? Vanguard products – such as their mutual funds. Their most popular is the Vanguard S&P 500 Index or the ticker symbol, VFIAX. When I was working at my previous employer, my most basic and most popular investment option was Vanguard’s Institutional Index Fund (VINIX), which essentially also tracks the S&P 500, in a passive way.
However, that’s not all it means. It’s also an approach to investing, when someone, “Vanguards”. I will describe what this approach is. When someone “Vanguards” or is “Vanguard-ing” this means that they are consistently & automatically investing the same specified amount of money at a consistent time interval into one or very few passively managed index mutual funds. What they have done is listened to John Bogle’s main philosophy that passively managed index funds will consistently outperform any other fund. Additionally, they are dollar-cost-averaging the position over the duration of their career or life. Dollar-cost-averaging, of course, meaning their contributions are buying the index fund prices at high and low points.
My thoughts on Vanguard
Vanguard is great. I have nothing wrong with the firm, especially if they are the only option you have as an investor, as an employee, etc.. They have great low-cost/low-expense ratio mutual funds that cover the entire stock market. Further, most of their funds may pay a dividend on a quarterly basis, as a dividend investor, that touches my heart.
However, we all know I am a, “gosh damn Dividend Diplomat”, though. I currently do not consistently invest into a Vanguard product, at this time, in my own individual accounts. However, if they are ever offered by an employer – I am all over it and would highly recommend it, actually. In fact – I recommend any Vanguard fund that tracks the S&P 500 or Total Stock Market, as they will typically pay that quarterly dividend and will take the “thinking” out of investing.
In conclusion – I hope that this provided more information on Vanguard. Vanguard is not a person, but an investment firm. When someone “Vanguards”, it means that they are consistently & automatically investing into one or few mutual fund/exchange traded fund products, to take the emotion out of investing! To start with Vanguard on your own, the minimums usually are $1,000 or $3,000 to begin. In addition, if you consistently invest and elect to receive electronic communication, fees are also waived, I believed (Definitely verify/validate that though!).
Now my question is – do you “Vanguard”?