Vanguard UK Now Offering Direct Investing. Is It Cost Effective?

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vanguard uk
Vanguard UK has reduced its fund entry minimum from £100,000 to £500 per fund, offering investors a way to invest in its funds without using an overpriced brokerage. But how do Vanguard’s account fees stack up versus my preferred low cost Halifax iWeb trading platform?
Vanguard Direct & iWeb Facts:
 Vanguard DirectHalifax iWeb   
Account Opening Fee:£0£25
Annual Account Fee:0.15% of account balance.
0% on £250k+
£0
Fee Max:£375
£0
Trading Fee:£0£5
Fund Purchase Min:£500 first purchase, no min after1 share
Auto Invest:X
Other Company Funds Offered?:X
Buy Shares?:Vanguard ETF's only
ISA:

For many years, Vanguard UK’s £100,000 minimum entry fund investment requirement kept many people from direct investing. My beloved Vanguard has finally lowered it’s fund entry minimum to £500 to allow riff-raff such as myself to directly invest into their terrific funds. But does the 0.15% annual account charge make investing directly through Vanguard cost effective? The answer is it depends on your account balance and how many annual trades you plan on making.

I was very happy to discover that Vanguard had dropped their minimum fund investment requirement to £500. I now buy Vanguard funds directly. I would transfer my existing iWeb account, however, iWeb cheekily charges £25 per fund to transfer (max £125) so I’ll leave my existing funds with since iWeb doesn’t charge an annual account fee.

Is Vanguard the best choice for you? You will need to do some basic calculations to decide.

Here are the average fees you might expect to pay but pay attention to the 0.15% annual account fee:

Vanguard does have some actively managed funds with annual fund fees as high as 0.80%, but the only Vanguard funds I buy are trackers with rock-bottom fees in the 0.10 – 0.25% range, so I only pay attention to the annual 0.15% fee.

Vanguard’s 0.15% annual account fee is capped at £375 which is what you would pay if your account balance was £250,000. If you have a balance of over £250,000, the account fee is £0. Good job Vanguard. You truly understand the value of low fees!.

The table below shows how much Vanguard’s 0.15% annual platform / account fee will cost you for various account balances and how many equivalent £5 iWeb trades you will need to make to match Vanguard’s account fee. (If you are opening a new iWeb account, you will also need to add the one time £25 account opening charge.)

Investment BalanceVanguard 0.15%
Account Fee w/
Unlimited Trades
Number of iWeb
Trades to Match
Vanguard's Fee
£10,000£153
£25,000£37.508
£50,000£7515
£80,000£12024
£100,000£15030
£150,000 £22545
£250,000£37575
£250,001 +£00

This table shows how many £5 iWeb trades you would need to make to match Vanguard’s account fee.

For example, if you have a £10,000 account balance and plan on buying two funds each month, Vanguard will only cost you £15 per year in account fees while iWeb will cost you £120. If you have a £50,000 account balance and plan on buying two funds each month, Vanguard will cost you £75 per year while iWeb will cost you £120. The break-even account balance sweet spot is £80,000, so if your account balance is between £80,000 and £249,999 and you plan on making two monthly trades, iWeb will cost you a little less.

The big advantage of directly investing through Vanguard is you can set up monthly contributions. If like me, you’re not good at remembering to manually buy funds each month, auto purchase is great. This is a great tool for beginning investors.

The minor disadvantage of investing directly through Vanguard is they currently don’t offer other companies funds or shares although if you’re in the know, you won’t need any these.

The Big Brokerages Are Already Sweating

Vanguard’s new direct offering is already making its competitors nervous. There was a recent news story where Mark Dampier (the head of Hargreaves Lansdown’s investment research) questioned how well Vanguards passive trackers would do in tough economic times because they were overweighted towards the U.S.A.

This article was both amusing and dumbfounding. Vanguard’s U.S. trackers have been mirroring the indexes since inception in the 1970’s and correct me if I’m wrong, but there have been a few periods of economic trouble since then. This comment is a tactic to scare its customers and dissuade them from switching. Hargreaves Lansdown is one of the most expensive platforms with a 0.45% annual account fee that’s three times greater than Vanguards.

If and when Vanguard offers other companies’ funds (currently you can only purchase Vanguard funds and ETF’s), you will start to see competing brokerage platform fees fall even further which is great news for investors.

Which Vanguard Funds I Prefer

If you’ve been reading this blog a while, you will know how much I love Vanguard’s funds. In fact, Vanguard funds are the only ones I own aside of a small amount of a Neil Woodford fund I purchased before I knew better. Super funds like Woodford and Fundsmith are using clever advertising to dupe the public into thinking that “small” 0.85 – 1% annual fees are quite acceptable because of the fund track record. What they don’t tell you is these fees can end up costing you thousands (or hundreds of thousands) in lost compounding interest over many years.

For average folk like myself, investing in unit trusts and mutual funds can be a confusing mystery. Once I discovered this book, the lightbulb finally went on and I learned a simple way to invest using trackers that outperform nearly every managed fund over a long period of time.

My investment strategy is very simple. I buy two extremely low fee tracker funds: Vanguard US Equity Tracker Fund and Vanguard Global Bond Index Fund. You can read more about why I chose these funds here.

If you want to be like my mother and make your investing life even simpler, the Vanguard Lifestrategy Funds are a basket of various Vanguard funds that provide easy diversification along with low fees and great returns. Lifestrategy Funds aren’t my number one choice because they diversify too much into the UK and world international stock funds for my taste, but they are a great second option if you’re not comfortable being heavily invested into the USA index.

The wonderful thing about Vanguard UK is they have a wide array of different low fee funds and we know that low fees are essential to investing success.

Conclusion

If you have an account balance of less than £80,000 or over £250,000 and don’t mind owning Vanguard funds only, investing directly through Vanguard makes the most financial sense as you can buy funds as often as you like without paying trading fees. Whether you choose to invest directly in Vanguard UK with their low 0.15% annual account fee capped at £375 and zero account fees for balances over £250,000 or choose a low-cost platform brokerage like iWeb, you can’t really go wrong.


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Disclaimer: This Vanguard UK article is for information purposes only and should not be regarded as investment advice. Opinions expressed are my opinions based on my own personal experiences, investing my own money. I am not paid buy Vanguard UK or any of its subsidaries to write this article.