Spoiler alert. The answer is Vanguard.
It’s unusual that so many people would speak so highly of a company. Especially in the world of finance. Finance often being synonymous with greed.
What’s also interesting about Vanguard is that you will see many people recommending them with no ulterior motive. Most positive referrals to Vanguard are not because they pay amazing affiliate bonuses to people who recommend them. They’re just simply much better than most investing companies.
There are a few different reasons as to why Vanguard are the best company you can use for investing your money and I’ll explain them below.
Hopefully this post will convert you to a fan of Vanguard. I don’t get anything for speaking out about how great they are so you don’t have to worry about me having my strings pulled by an investment titan for a cheeky fee on the side (I wish).
So let’s get into it and explain why Vanguard are probably the best investment company in the world.
Vanguard index funds
First and foremost, Vanguard essentially created the idea of index fund investment.
Index fund investing is a great, simple way to invest and build wealth. Most people who know their peas from their carrots will recommend index fund investing as the primary investment tool for most ordinary investors. When I say ordinary, I don’t mean you’re not special, you are. What I mean is that your full-time job isn’t investing. Or if it is, you’re probably doing it with someone else’s money. For anyone reading this who is investing their own money, index fund investing is the way to go.
Vanguard’s founder Jack Bogle created the concept of index fund investing in 1975 as a simple and cheap way for people to invest and make money. He faced a lot of laughs and backlash when he first revealed his revolutionary idea. But after his methods were proven to be sound and profitable year after year, even the most ardent critics began to concede as they were drowned under an avalanche of evidence supporting the amazing value of index funds.
By investing in one of Vanguard’s index funds, you are putting your money into the original. Many imitators and copycats have cropped up over the years, duplicating the concept of index fund investment. But why settle for anything less than the original.
Vanguard is cheap!
Okay, so Vanguard created the idea of index fund investing but why use them today?
Because Vanguard is cheap. The way that the company is structured means that everyone who invests in one of their funds is a part owner in the company.
As a part owner in Vanguard, it’s in their interest to keep you happy. One way they do this is by making sure that the fees you pay on your investments are as small as possible and only cover their operating costs.
For most other investment companies, they actually serve two masters. Sure they want to try and keep you, the investor happy. But more importantly than you, they need to keep their shareholders happy. This puts them in a difficult position because the way to keep shareholders happy is to be more profitable. For an investment company, the way to become more profitable is to charge higher fees to the investors. Ultimately, investment companies have to try and charge you as much as they can get away with, without completely overpricing and losing your business. What this business model means is that you, the individual investor, will ultimately lose out.
The cumulative costs of just a 1-2% fee over your investing lifetime can be devastating. I’ve described with an example how detrimental this can be on my last post about compound interest. But this “small” fee can be the difference between you retiring a millionaire or you being able to just about get by. I know which one I’d rather.
It’s in Vanguard’s best interest for you to make more money. They do not have any other people behind the scenes that they need to keep happy. So your happiness and wealth is their happiness and wealth.
What happens if Vanguard disappears?
Although extremely unlikely, we live in weird times. So it’s worth covering the topic of what would happen to your money if Vanguard disappeared into thin air.
The money you’ve invested is actually invested in the companies within your chosen index fund. Vanguard simply act as a custodian to your investing. Which means that they facilitate your purchase of stocks and shares and this is why you do pay them a relatively small fee.
So even if Vanguard disappeared overnight, your money would still be safely invested in the businesses that you had chosen through your index fund.
Your money will be held separately to Vanguard’s own money, this is sometimes called “ring-fencing”. In the unlikely scenario that Vanguard became insolvent (run out of money), an insolvency practitioner would step in, identify which assets (investments) are held by you and either return them to you or switch you over to another provider.
What this means is that by using one of the tax efficient accounts offered through Vanguard, you get to keep more of your own money.
For investors in America, the situation is different but even more favourable for some people. Usually there are ways to invest your money with Vanguard in the US through tax efficient savings or retirement accounts like Roth IRA’s and 401(k) plans.
Paying less tax and lowers fees means that at the end of the day, you get to keep more of your money. And why shouldn’t you. Our goal here is to provide you with the tools for financial freedom, not line the pockets of wealthy companies or governments.
Choice of funds available
Index fund investing by design should be simple.
One criticism of Vanguard is that there are a limited number of index funds available. Some providers will give you access to hundreds and hundreds of index fund options.
To build wealth through index fund investing, you do not need hundred of funds. You only need a handful. Or even just one or two, as recommend by “The Simple Path To Wealth” author JL Collins.
So having access to an unnecessary plethora of index funds simply makes your investing decisions more complicated than they need to be. A simple one page menu at a restaurant with excellent dishes is much more preferable to a twenty page multi-cuisine binder offering good, bad, and ugly choices.
I hope this has demonstrated why Vanguard is an excellent company to assist with your investing.
Vanguard is so good, they don’t even need to pay people to promote them. Most people offering financial guidance who have your interests in mind will direct you to Vanguard. If someone tries to direct you elsewhere, ask yourself whether that’s for your benefit or theirs.
I’m a big advocate for Vanguard as you can see. But with good reason. They’re simple, cheap, and offer you the best possible chance of achieving financial freedom. Which at the end of the day, is what really matters here.
I hope this has opened your eyes to Vanguard, but don’t just take my word for it, ask around.
Do some of your own digging, and if you can put forth a solid argument for any competitor I’d love to hear it, please get in touch!