Why does everyone love Vanguard so much?

When it comes to investing, there's arguably no brand that enjoys higher levels of devotion among its user base than Vanguard.

They're like the Apple of the world of stocks and shares.

They're widely praised across social media sites – especially by Reddit users.

The company's evangelists even have a name based on the company founder: Bogleheads.

But there's a burning question that needs answering: what exactly makes Vanguard so popular, and what are the downsides to using this platform?

(Spoiler: for UK investors, there're more than you think.)

History and business model

To understand Vanguard a little better, let's rewind all the way back to 1975, when it was launched by John "Jack" Bogle.

While other asset managers were listed on the stock market – meaning profits are distributed among shareholders – Vanguard was launched to be owned by the people who invested in its funds.

And this is still the case today...in the US, at least. We'll get to that.

This model means the interests of customers come first, and reduces the risk of strategies being recommended that would be good for the company's bottom line but bad for the community.

But there's a bigger advantage here. Instead of paying dividends, Vanguard reinvests profits into slashing the fees charged when gaining exposure to its funds.

The impact of low fees

Part of Vanguard's philosophy is "keeping costs low for all investors".

Which matters, because even the tiniest fraction of a percent can eat into a portfolio's growth over time.

Here's the effect that different fees can have on your overall compounded value, assuming a £10,000 annual investment for 30 years, with a 7% average annual return:

Between a fee of 0.10% and a fee of 1%, that's a whopping difference of £158,227.

When you're starting out in investing, it's tempting to shrug off slight fluctuations in fees – but numbers powerfully show the difference they make long-term.

Retiring early would become a hell of a lot harder if your portfolio missed out on nearly £160,000 in compounding because of exorbitant charges.

Vanguard's philosophy on fees has had a ripple effect throughout the market, too.

Figures from Morningstar suggest Vanguard funds have an average expense ratio (annual ongoing charge) of about 0.08% in the US, compared with an industry average of 0.48%.

This has prompted something of a price war, with the likes of Fidelity and BlackRock seeking to undercut its fees and woo customers in the US, and brokers like Trading 212 and InvestEngine offering commission-free ETF investing in the UK (though other fees may still apply).

Market position

Looking at how Vanguard's market share has grown since the early 2000s, the price war they started doesn't seem to have had much of an effect on the company's momentum.

Data from ETF.com suggests Vanguard leapfrogged BlackRock to become the world's biggest issuer of exchange-traded funds (ETFs) – with a market share of 30.1%.

ETFGI co-founder Deborah Fuhr says this is a reflection of Vanguard's structure, and was quoted by the news outlet as saying: "They have a level of loyalty with financial advisers that is quite rare. The money is very sticky."

Though, if Google Trends data is anything to go by, Fidelity and Schwab both edge Vanguard out in terms of demand.

The FIRE connection

Speaking of loyalty, Vanguard is a darling of the FIRE movement – that stands for "Financial Independence, Retire Early" if you're unfamiliar.

In FIRE, determined savers spend as little of their income as possible – usually an above-average income – to save and invest aggressively, with some squirrelling away up to 70% of their earnings.

While FIRE has come in for a fair amount of criticism – with cynics arguing this means living an unnecessarily miserable life in your younger years – some have ended up retiring in their 30s or 40s.

Despite being a relatively small community, they're certainly a vocal one.

Having loud voices that are fighting in your corner is an effective way to achieve even greater exposure, even if completely unintentional on Vanguard's part.

According to r/EuropeFIRE's 2023 survey, Vanguard was the most-used broker in the UK from within the community, followed by Hargreaves Lansdown – the broker that is actually the most-used in the UK overall, further emphasising Vanguard's increased popularity within the "early retirement" demographic.

Interestingly, Hargreaves Lansdown is actually cheaper than Vanguard for investors in the UK, assuming ETF investments via monthly direct debit within a stocks & shares ISA*, and a portfolio balance above £30,000.

*Fees will be higher if you invest in an alternative way to this.

And there are multiple other options that are cheaper than both of the two most popular brokers, too. These include Trading 212, InvestEngine, and Freetrade.

Philosophy

Vanguard describes its core purpose as the following:

"To take a stand for all investors, to treat them fairly, and to give them the best chance for investment success."

This has clearly resonated with investors, considering it has more than 50 million customers worldwide.

Vanguard's stated principles for success in investing also align well with what FIRE devotees are trying to achieve.

For one, both believe in establishing "clear, appropriate investment goals" – and encouraging discipline by removing emotion out of the process.

In the case of someone who wants to retire early, this might involve leaving the world of work and enjoying drinks with umbrellas in them on a beach by the time they're 45.

Diversification is another key value that Vanguard recommends, as a balanced portfolio helps to limit volatility and shield against "unnecessarily large losses."

Given FIRE investors have a shorter investing timeframe than most, dramatic downturns can scupper their long-awaited "I quit!" moment, and limit how much they can withdraw.

These values have also been reflected in the ETFs Vanguard has chosen to launch in the marketplace.

While BlackRock and Fidelity raced to launch funds based on Bitcoin's spot price, Vanguard has so far refused because it didn't believe "there is an appropriate role for [cryptocurrency] in long-term portfolios" – though, according to recent reports, it may be re-thinking its position.

Launching such an ETF be pretty lucrative for Vanguard, but it's not caved to pressure yet because of the risks and ramifications it could have on investors.

Business resilience

Being accountable to shareholders can have major downsides for an investment platform.

For one, there can be incredible scrutiny on short-term revenue and profit targets, while losing sight of the bigger picture.

Vanguard's investor-owned structure alleviates some of this pressure and enables its management to adopt a longer-term perspective, much like its investors do.

What's more, a robust balance sheet – Vanguard has $8.6 trillion in assets under management – means it's in a strong position to weather market downturns and financial storms in a teacup.

In fact, it means it's one of the biggest owners of virtually every major listed company in the world.

Also impressive is the fact that this company has only had five chief executives since its debut in 1975, with the latest, Salim Ramji, taking the reigns in July 2024. This consistency and stability will undoubtedly serve as a draw to investors.

Product offerings

Another element of Vanguard's popularity lies in how it offers an array of investment products to match differing circumstances and objectives, while keeping costs relatively low.

Vanguard offers ready-made funds that are geared towards those who want a diversified portfolio that matches their risk profile – without building it themselves.

Five "LifeStrategy" funds are available that offer differing ratios of shares to bonds, and greater degrees of risk or security. For example, while a portfolio with 80% bonds may offer greater safety with likely lower returns, a 100% equity fund comes with more risk but the potential for higher gains.

"Target Retirement" funds allow you to set a date when you plan to stop working, with Vanguard gradually reducing exposure to stocks in favour of bonds as you grow older.

This starts as 80% shares and 20% bonds when you're in your 30s, but slowly decreases to a 50/50 split once you're in your 60s.

Overall, the company offers 90 funds, but you don't necessarily have to use Vanguard's platform to invest in them.

While roughly half of their funds are global in outlook, others focus on Asia-Pacific, Europe, Japan, the UK, the US and emerging markets. They're assigned a risk score on a scale of 1 to 7 too, with the vast majority sitting somewhere between 3 and 6.

Here are the account types that Vanguard offers in the UK:

Account Type	Available on Vanguard?	Annual Fee
Stocks & shares ISA	✅	0.15% (capped at £375)
SIPP	✅	0.15% (capped at £375)
Lifetime ISA	❌	N/A
General Investing Account	✅	0.15% (capped at £375)
Junior stocks & shares ISA	✅	0.15% (capped at £375)
Junior SIPP	❌	N/A

Interestingly, Vanguard was the cheapest option in precisely zero categories when we compared stocks & shares ISAs, self-invested personal pensions and junior stocks & shares ISAs.

They also lack a few features that are offered by the competition, such as the ability for employers to contribute to an employee's SIPP.

Vanguard's downsides

There are a few other disadvantages worth bearing in mind.

The major one: British customers are treated a little differently than Americans.

And by "differently", we mean worse.

In the UK, you'll pay an annual account fee that's worth 0.15% of your investments – but this is capped at £375 a year if the total value of your portfolio is worth more than £250,000.

In the US, there are no account fees whatsoever – unless you opt for paper reporting, which costs $25 per year.

Annual fund fees – 0.08% on average – are the same regardless of your location.

We took a deeper dive into this over on our YouTube channel:

And remember how we said that Vanguard is owned by its investors in the US? Well, this isn't the case in the UK.

Actually, if we want to be pedantic, it is exactly the case – Vanguard, in the UK, is owned by Vanguard's US investors.

It could be argued that Vanguard charges customers outside the US more in order to keep fees lower for their primary audience – and technical business owners – in the US.

Although Vanguard has now finally launched their app for UK investors, it's currently still a "work in progress", and – unlike for our friends across the Atlantic – there's currently no ability to trade ETFs.

Another weird quirk in the UK is that Vanguard's platform is often not the cheapest place to gain exposure to Vanguard's own index funds.

Because of Vanguard's 0.15% annual account charge, many other brokerages can offer a less expensive route to invest in their funds.

Fee comparison

We've spoken about Vanguard not being the cheapest option for UK investors. Now, let's examine exactly what their charges look like compared to a handful of other popular brokers.

Below, we've compared investing £5,000 in the Vanguard S&P 500 ETF for one year in a regular stocks and shares ISA, across a range of different trading platforms. 

Some of the totals are approximate because for brokers that charge a percentage, the amount you’d pay would depend on the return on your investment. We’ve calculated it assuming a nine percent annual return:

Platform	Platform cost	Fund charge	Dealing fee	Approx. yearly total
Vanguard	£48	0.07%	n/a	£51.82
Hargreaves Lansdown	0.45%	0.07%	£11.95	£40.30
AJ Bell	0.25%	0.07%	£5	£22.45
Trading 212	0%	0.07%	n/a	£3.82
InvestEngine	0%	0.07%	n/a	£3.82

If you're looking to compare fees and funds across different leading brokers in the UK, you should check out our free index fund cheat sheet 👇

Simplify popular brokers & their fees

A handy (free!) sheet to compare broker options

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Controversies and criticisms

In addition to the drawbacks, it seems no company is able to escape controversy in this day and age.

Campaigners criticised Vanguard for allowing investment in Chinese military companies, while climate groups have condemned the business for holding $300 billion in stocks belonging to fossil fuel firms.

This latter charge might be slightly unfair given the vast majority of Vanguard's business relates to passive funds that simply track a particular index, rather than anything deliberate.

Meanwhile, the FINRA regulator in the US ended up fining Vanguard to the tune of $800,000 after account statements belonging to eight million customers contained errors, and overestimated the returns they would generate. It was also claimed that the company was slow to address the issue despite receiving complaints from 50 users.

Bottom line

Hopefully, all that helps give a little insight into Vanguard's journey from a swashbuckling investment startup to the behemoth it is today.

The popularity of Vanguard is fuelled by four things in particular: low fees, simple offerings, a philosophy that resonates with people, and a dedicated following with a loud voice.

Unfortunately, Vanguard doesn't offer all of the same benefits to customers in the UK that those based in the US receive.

Vanguard is far from the cheapest option in the UK today.

That said, many of the team at Financial Interest use Vanguard's services for at least some of our investment holdings.

It's always important to scour the market and find the platform that's the best fit for you – in terms of fees, choice of products and ease of use.

Like those who are fiercely loyal to iPhones, there are a determined band of investors who vow that Vanguard is the only company for them.

But who knows: you might be like a Samsung user… willing to defy the masses in order to try something new – and potentially better value.

Now that the laws have changed around stocks & shares ISAs, you're able to test platforms with more freedom, rather than being forced to stick with one broker for the entire financial year.

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