|Benefit:||Exposure to the stock market|
Possibility of high returns (but also high losses)
|Account options:||ISA, Junior ISA, SIPP, General|
This is a review of my Vanguard Stocks and Shares ISA that I opened in Spring 2020. I will share how much I invested and how it performed over the course of (nearly) a year.
Who are Vanguard?
Vanguard Asset Mangement was formed in the 1970s by Jack Bogle. Unlike other investment companies that were owned by shareholders, Bogle structured Vanguard so that the company was owned by the funds it managed – essentially making every Vanguard investor a joint shareholder.
With no dividends due to be paid to shareholders, the savings are passed on to the investors in the form of lower fees. It is the low cost of commissions and annual account fees that set Vanguard apart from other companies.
Why I invested with Vanguard
I opened my Vanguard Stocks and Shares ISA after reading Investing Demystified by Lars Kroijer.
The primary thesis is that an ‘average joe’ like myself does not have an edge when picking stocks, so I’m better off using a whole-of-market global equity fund, which basically invests in a large proportion of stocks from around the world.
Over the long term, equity value should increase at a decent rate (as it has done historically) but be aware that past performance is not an indicator of what will happen in the future – there is risk involved.
To balance the riskier stocks, Kroijer advises that government bonds or GILTS should also be bought in proportion to risk tolerance. For example, a higher percentage of stocks if I am happy to take risks or a higher proportion of bonds if I am risk-averse.
Passive investing Vs Active investing
Kroijer’s investment strategy is one of passive investing, which means that buying and selling are limited and when you buy you tend to hold the stock for the long-term – a buy-and-hold strategy.
Conversely, active investing requires a more hands-on approach by yourself or a fund manager to pick stocks and decide when to buy and sell. This method is more time-intensive and requires an ‘edge’, which Kroijer considers very few people to have (even the experts).
Proponents of active investing consider passive investing to be too limited in flexibility and potential returns – even the best passive funds will only ever slightly outperform the market as a whole.
However, those in favour of passive investing will say that active investing is riskier and requires more time/money to run – either your own time or paying a fund manager for theirs. So, they prefer to take a low-maintenance, low account fee approach.
Being fairly risk-averse, lazy and cheap, I regard myself as a passive investor – I just want to make the decision of where to put my money then get on with my life, with perhaps a performance review a few times a year. This is one of the reasons that I decided to invest in Vanguard funds.
Types of funds provided by Vanguard Investor UK
Although they do offer active funds (run by fund managers that use their expertise to decide what to buy and sell) their primary products are index funds that simply track the performance of a particular index such as the FTSE 100 – because index funds are based on buying and selling shares in proportion to the index, with no active decision-making or judgment calls, commissions are typically lower.
Vanguards LifeStrategy funds are designed to work perfectly with Kroijer’s recommendations. They split the fund between equities (shares) and bonds in different proportions dependent upon the fund you choose. There options for funds based on 20%, 40%, 60%, 80% and 100% of equities, with the remainder invested in bonds.
Vanguard’s Life Strategy Funds all have low fees of 0.22%.
Target Retirement Funds
Similar to the Life Strategy funds, target retirement funds are designed to split the investment between equities and bonds, however, these proportions change as you get closer to retirement. They begin with a higher proportion of equities and incrementally adjust to a higher proportion of bonds as retirement draws near.
The idea behind this is that over the long term, any losses will be balanced with gains, giving an overall gain. When you are young, you have plenty of time to ride any storms and are able to take more risk but if you are close to retirement, you don’t want a stock-market crash devaluing your entire portfolio – bonds typically increase in value when stocks go down.
All Target Retirement funds have low costs (currently 0.24%).
Regional Equity Funds
If you’re not interested in acquiring bonds for your portfolio (like me – see below), Vanguard also offers a variety of regional equity index funds. These funds buy and sell equities from the following geographic areas:
- Global (worldwide)
- Emerging markets (including China, Taiwan, Korea, India, Brazil etc.)
Some of these are active funds and command higher fees – at the time of writing, the highest Vanguard active fund charged 0.48%.
Regional Fixed-income funds
And if you just want to invest in bonds but not equities, you can invest in Vanguard’s fixed-income index funds. As with the regional equity funds above, these can be bought based on geographical location. Kroijer recommends buying bonds in the same currency as the part of the world that you live in.
Again, some of these are active funds and more expensive, the highest at the time of writing being 0.6%.
Which fund did I invest in?
I used a Vanguard Stocks and Shares ISA as my global equity fund provider because they offered low fees and an index fund that met the requirements of being global and diverse. The fund I invest in is their ‘FTSE Global All Cap Index Fund – Accumulation‘ (links to the Vanguard Investor UK website) which has a fee of 0.23%.
I chose to invest about 50% of my disposable income into riskier investments and the other 50% in more secure investments, however rather than government bonds, as recommended by Kroijer, I used cash savings accounts instead – bond rates weren’t great and I wanted to be able to access this cash quickly and easily if I needed it.
I buy units of the fund every month and at the time of writing this, I had invested £4865.13. It is now worth £5795.36 (around 6 months since opening the account) so I have made about £900.
UPDATE March 2021: When I originally wrote the above paragraph, I had been investing with Vanguard for about 6 months. I have now been investing with Vanguard for nearly a year. I have invested £6,763 and my investment is now worth £8,528. So, in almost 12 months, it has grown in value by £1,765!
According to my Vanguard dashboard, that equates to a 37% rate of return at this moment in time! This was unexpected for me after the year of the Covid-19 Pandemic. However, remember that profits will not be realised until I come to sell my units and it is quite possible that the value of the fund will go down as well as up.
Performance of my FTSE All-Cap Global Fund Stocks & Shares ISA
The graph below shows the performance of my Global Index fund since I first started investing in it back in March last year. The green dots represent when I have bought more units and the red dots indicate that Vanguard has sold some of my units to take their fee. Fees are taken quarterly and over the course of a year, I have only paid £8.88 in fees, which (in my opinion) is an absolute bargain based on the return I have received.
I drip-fed a lump sum into my account at the beginning (as I was learning how to use the system) and then regularly added capital over the year.
Using a tax-efficient ISA ‘wrapper’
My investment in this fund is contained within a Vanguard Stocks & Shares ISA ‘wrapper’ so any profit from my investment is tax-free. I can invest up to £20,000 per year in this way.
As well as an ISA, Vanguard also offer:
- General accounts
- Junior ISAs
- Self-Invested Personal Pensions (SIPPs)
Can an existing Stocks and Shares ISA be transferred to Vanguard?
You can transfer an existing ISA (or Junior ISA) to Vanguard, however, remember that with a Vanguard stocks and shares ISA, you can only buy Vanguard funds so it does not give you the whole-of-market flexibility that a more general stocks and shares ISA may offer.
For me, this is fine because, at the present time, I only plan on investing in Vanguard’s global tracker funds.
Ease of use
The account was easy to open and the website is easy to use, however, there is currently no app.
Buying units for the stocks and shares ISA is relatively easy – you simply log in to the investment platform and make a cash payment into your Vanguard account (I use a Debit card) before choosing which fund you want to invest your capital in.
Because the process is so simple, I’ve never had any need to contact customer services, so unfortunately I cannot comment on whether whether it is good or bad.
Vanguard Asset Management Limited is authorised and regulated by the Financial Conduct Authority (FCA), which aims to make financial markets fair, honest and effective.
In addition, Vanguard Asset Management Ltd is also covered by the Financial Services Compensation Scheme (FSCS), which means you may be covered for up to £85,000 if Vanguard were to go bust – however, this does not cover any losses if the markets go down.
The Vanguard stocks and shares ISA offers some of the lowest rates in the industry for no-frills index trackers and ETFs that do exactly what they say on the tin.
The investor platform is easy to use and contains a lot of useful information about the performance of my investments.
As a happy Vanguard investor, I plan on keeping my account over the long term as one of my primary investment vehicles for my retirement.
|Good points||Not-so-good points|
|Low annual account fee||Risk of loss of capital|
|Possibility of better returns than savings accounts|
|Easy-to-use investing platform|
Remember, if you want to invest in Vanguard funds, the value can go down as well as up. The longer you invest, generally the less risk you take but there are no guarantees.
As always, this website does not provide financial advice – it simply documents my own experiences with investing. Please understand the risks and if you are not sure about anything, consult with an independent financial advisor.