Vanguard Canada: Learn About its Brokerage Services and Index Funds

The Vanguard Group is the manager of one of the world’s largest and hottest line-ups of mutual funds and exchange-traded funds (ETFs). In addition to traditional financial products, Vanguard Personal Advisor Services (PAS) was launched in 2015 to supply algorithmic and human investment advice for client funds placed at wholly-owned broker-dealer Vanguard Marketing Corporation (VMC). As of June 30, 2019, it held over $140 billion in assets under management.

Of PAS applicants, 80% to 90% produce other Vanguard accounts, consistent with a spokesman, and entry requires $50,000 across all assets. The firm charges a 0.30% fee on the primary $5 million in assets, dropping to 0.20% between $5 million and $10 million. Let’s find out 

Before setting up the account, the robo-advisor asks a series of  detailed questions regarding age, assets, retirement dates, risk tolerance, and market experience. Based on the customer’s response, it generates a proposed portfolio allocation crammed with Vanguard Funds and “other securities.” Most of the heavy lifting is completed by algorithms, but the new client must speak with a financial advisor to finish the customized plan during a cumbersome process which tends to take as long as a month. Vanguard is great for anyone looking to invest in Canada’s stock market. Let’s find out more about it.

Vanguard Canada: All you need to know

Is there a Vanguard in Canada?

Vanguard ETFs is under management of Vanguard Investments Canada Inc., an indirect wholly-owned subsidiary of The Vanguard Group, Inc. These ETFs can be bought through registered dealers across Canada.

How is the Vanguard Canada site?

The site provides a lot of resources to help with goal planning. These resources include checklists, how-to articles and calculators. Clients can utilise these incredibly useful tools to estimate their total costs of retirement, perform top-down reviews of assets and plan major life goals that include college savings. The Investing Education section is disappointing and infused with marketing pitches, but a well-populated blog covers a broad swath of monetary topics.

Vanguard began testing a replacement consulting service very quietly in mid-September 2019. Based on the filings with the Securities and Exchange Commission, this new offering was named the Vanguard Digital Advisor. It is a true robo-advisor which provides online financial planning tools to its users, helping them create a customized, goal-based budget. Vanguard Digital Advisor hasn’t been registered yet, so it’s not available for review, but the SEC filings have indicated that it’ll have a minimum account size of $3,000, while carrying a management fee of 0.15%. 

What are the charges of Vanguard Canada’s Robo advisor?

The Vanguard robo-advisor charges a competitive 0.30% advisory fee for the first $5 million that it manages. The charges are paid quarterly, and they drop to 0.20% for assets over $5 million. Clients who start their account with Vanguard PAS by transferring in non-Vanguard assets are required to pay a transaction fee in case those securities are liquidated. According to a Vanguard spokesperson, “These fees only apply to clients who enroll in the service with individual stocks or non-Vanguard funds that they, in consultation with their PAS advisors, choose not to sell—likely because of embedded capital gains. If they do ultimately sell, they would incur the same transaction costs as they would by placing a self-directed trade on their Vanguard Brokerage Account.” There are not any transaction fees assessed when buying or selling Vanguard’s ETFs. 

What are Vanguard Canada index funds?

Vanguard index funds consist of companies that make up a particular stock exchange’s index. The index of a stock exchange is made up of securities including bonds and shares of various companies.

In this post, we are going to focus on stock based index funds only. Vanguard does offer index funds made up of various corporate bonds.

Stock indexes are a major section of a stock market and are often used as a tool to measure the market’s performance overall. On numerous occasions, more actively managed funds like mutual funds or hedge funds will track their funds against these indexes to gauge their own fund’s performance.

One of the most popular indexes is the Standard & Poor 500 (S&P 500). The index comprises of a little over 500 publicly traded firms. Another popular index fund is the Dow Jones Industrial Average (DIJA). It tracks far fewer firms than the S&P 500, mainly sticking with  30 “blue chip” or financially mature companies. Depending on the index you want to invest in, you can choose the Vanguard fund corresponding to it. 

What are the benefits of investing in index funds?

Great diversification

Whenever you invest money, it is very important to diversify your holdings. Thankfully, index funds are diversified by design. So, when you buy an index fund, you automatically invest in multiple companies at once. Let’s say you invest $5,000 in a particular company’s stock and the stock goes belly up, you will end up losing all your money. However, if you invest in an index fund, the losses you suffer because of a particular company’s misfortunes, will be offset by the gains of other companies that make up the index fund. Index funds also invest your money across various market segments.

Stocks and picked for you

Unless you are a seasoned investor, it will be very difficult for you to select the right stocks for your portfolio to generate profit. If you invest in an index fund, you can make your life easier as a stock investor. You will have a nicely diversified portfolio without making the effort to pick individual stocks.

Lower expenses

Whenever you invest any money in the stock market, you should also be mindful of the expenses that you will incur while investing in the stock market. Brokerages levy charges on investors which are charged as a percentage of the transaction value (buying/selling of stocks).

This is known as the expense ratio. This shows how much of the money you put in the fund is used for cost of operations and investment. Try to look for funds with low expense ratios since high expense ratio funds eat up a lot of your profits. Index funds tend to be passively managed and that leads to lower expense ratios. All the fund manager has to do is select stocks that reflect indexes like the S&P 500 or the Dow Jones Industrial Average. Vanguard claims that its average expense ratio is 83% lower than the industry average, making it the ideal investment choice for investors who don’t want to spend a lot of their money on fund management costs.

Things to keep in mind before investing in Vanguard funds

Before you invest any money, analyse the metrics of the Vanguard index fund that you want to buy. The information you require can be found on Vanguard’s website. The important things that you must check for are:

  • Expense ratio
  • Average annual returns (1 year, 5 year and 10 year rates)
  • Average annual returns since inception.

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