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Vanguard is a large provider of investment products, and is most known for inventing index funds, which make up a large proportion of its product offering. It has been possible to buy Vanguard funds for many years in the UK, but in 2017 Vanguard launched its own online platform over here, allowing investors to buy Vanguard funds at very competitive rates.
To understand why the launch was a big deal, you have to understand the fees of other online investment platforms. Typically there is a combination of the following:
When you have a Vanguard account, trading feeds are low, or even free. If you're buying an ETF, you have two options:
If buying at the next trading point, there are no charges for the transaction. Let's say you make a purchase in the morning, the transaction should go through by mid afternoon. Since you don't have complete control over when the transaction happens, the price you end up paying can end up varying from the price you saw when making the purchase. Except for under very volatile market conditions, the variation is likely to be small.
If buying at the current market price, you pay £7.50 for the transaction. I've personally never done this, but I can imagine that someone investing a large lump sum may want a guaranteed price before committing to buying.
When you buy a Vanguard fund, the initial buy in is typically £500. After that, you can top up your investment by any amount you choose (assuming it's at least enough to buy one share in the case of ETFs). Being able to drip feed relatively small amounts in at a time, without incurring fees, is a huge benefit.
I routinely invest small amounts into Vanguard funds. Imagine you have £1,500 to invest. Rather than investing one lump sum, you can do the following, without incurring any additional fees:
Of course, the interval you choose to drip feed your cash in is up to you. This is a well known principle known as dollar cost averaging. If you invested £1,500 on day 1, and the market immediately tanked, you'd have large losses. By investing over time, you get the average price, which should help ride out any large volatility in the market, and can help you assess your investment's performance before putting more money in.
As well as the low transaction fees, the platform fees are also reasonable. As of April 2020, the fee is 0.15% of the value of your investments. Even if you just invested in bonds, you'll still make a better return than most cash ISAs, even after the fees.
In other articles, we'll discuss Vanguard in more detail, and will cover some of the investment products they offer.
This is part of the Vanguard series