Q: You really seem to love Vanguard, which is odd... what gives? Getting a kickback?
A: Nope, I receive no compensation or special consideration from Vanguard. I have however been with them for a long time & had good experiences; and more importantly I am a true believer in their structure or more essentially, their philosophy.
Fidelity, Schwab, JPMorgan, Merrill Lynch, etc all have two masters to satisfy: one master is their actual customers / clients, while their other master is their stockholders, (meaning those people / investors who own shares / stocks of JP Morgan, Fidelity, etc). Its rare when someone is in both groups, and even if they are, it doesn't benefit them.
These firms not only have to make money for the customer, but also for the stockholder, an obvious conflict of interest, (serving two masters), trying to get money to both, often satisfying neither.
Vanguard on the other hand is unique, it has zero stockholders, there are no shares of Vanguard to buy, they don’t exist; the owners of Vanguard ARE the actual customers / clients / investors, (proportionally represented by how much each invests), so Vanguard only serves one master, and only has one master to make happy via returns, the investors!
What this means is that since the customers actually own Vanguard, then why would they charge themselves more than the bare minimum to operate Vanguard? This results in more of the investment returns (a greater percentage generally speaking than their competitors) reaching the customer, (as opposed to some separate shareholder, that other brokerages have, who likely isn’t even a customer, and it wouldn't matter if they were!). A lower expense ratio, lower fees, etc, Vanguard runs lean so its customers can have more return!
Also, you rarely see Vanguard advertised anywhere, be it TV, online, etc. Why waste the money, their owner's / customers money? Yet Vanguard is #1 in assets under management, which is in the trillions. This is a result based solely on their structure and reputation.
Vanguard is the best imo, for low costs and efficiencies, based on its unique business model.
Q: Does Vanguard have any drawbacks?
A: Yes, but minor. Sometimes they are so focused on being lean, that their services are a bit understaffed. Normally, this doesn't matter. They also ended their native banking functions, which I had for years, which was very inconvenient and short-sighted of them imo. The only other complaint I have is that their online trading tools are a bit lacking or simplistic. Where is a trailing stop-loss function?? Come on VG, its ridiculous you don't offer this!
Q: I have heard the stock market is no different from the casino, is this true?
A: No. This is one of those so-called “conventional wisdom” nuggets that’s insidious, bc it just isn’t the case. The casino is built and designed for them to win, and you to lose, in the short term & in the long term; the proof of this is how do you think they get those giant opulent tacky facilities built? It isn’t via girl scout brownie sales.
The markets meanwhile are built and designed for you to WIN, bc whats for sale is ownership of a business, and no business is started and designed to fail or rip people off, (outside of criminal corruption, which overall is a very rare occurrence). Every business wants to profit and succeed, and if it doesn't it won't be around very long for you to invest in! All hail capitalism!
America has a long history of successful businesses, and over many years they grow, provide fair returns, and expand the economy, and that's why a basket of stocks in an index fund that tracks for instance the Dow Jones has proven to be a winner. The stock market is designed for you to WIN, period, end of story.
Q: What about taxes? I hate taxes.
A: Who doesn’t, taxes are the worst. Maybe one day we’ll get the FairTax. Until that blessed day ever comes, the closest you can get is a Roth IRA. Yes, you pay tax now, upfront, (via earned income that was already taxed); but never again, no matter how much it earns, (provided you follow the basic Roth IRA rules, like no early withdrawls on earnings, etc).
My advice is to get a good tax professional, be it a CPA, H&R Block, or whoever is qualified. Hopefully they can show you the ropes to save you money, bc the idea is to always send Uncle Sam the least amount possible. They can find deductions, file the returns, and most importantly act as a buffer between you and the government if the government, via the IRS, ever decide to audit you or assert there is a problem of some kind.
Finally, in a normal taxable account, be aware that any holdings which are bought and sold in under a years time, are considered “short term” and taxed at a higher rate. Conversely, any holdings that are bought and sold in over a years time, are considered “long term” and get much more favorable tax treatment. (This is one reason why buying a basket of stocks in a fund and just holding it over years can often out perform any random single company’s stock or a more actively traded brokerage account; less activity = less taxable transactions, or financial events with tax consequences).
Q: What about charity?
A: Its important to remember that a lot of people can't even afford to invest anything. Supporting charities is a way to advance causes you believe in and help those who are less fortunate. Perhaps you care about animal welfare, or people with disabilities, or Veterans, or job training, or education... whatever your interests you can find a worthy charity that supports it. But how does this relate to investing?
Well for one thing, charitable giving is a tax deduction. This isn't why you should do it, but it is a useful tool in the tax toolbox, when your income is such that your charitable giving could help you save money on taxes. This is a good reason to hire that tax professional, so they can help you see if, and how much, would X amount of giving help your tax bill.
Also, I am partial to giving to those charities that operate endowments, which basically means the money i give them is itself never spent, but rather invested into that charity's endowment, so that they then in turn can spend ONLY what money their endowment earns. This means the impact of the giving will last into perpetuity, as opposed to a one-off impact.
Vanguard's sister organization, Vanguard Charitable is a great way for investors to easily donate to a one stop shop. You direct funds to VGC, and immediately get the tax deduction, but while its there you direct it into safe broad based VG funds for it to earn until such time you direct VGC to make a grant to a specific charity. This is a tremendously useful site, b/c it makes it easy to handle and even automate your charitable giving, (which otherwise can be a real pain in the neck, trying to get e.g. stock from your account to say a local animal shelter). The drawback is that it takes $25k to open an account with them.
But VGC isn't the only such organization, others have less steep minimum requirements, and in any case many charities will allow small direct donations that are to be routed direct to their endowments. However it is done, be it via direct donation, or using an intermediate site like VGC, my goal most of the time is to get my donations into an endowment (or scholarship)
IMPORTANT! If you want to donate e.g. stock to a charity that shows a capital gain, do NOT sell it to turn it into cash first, and ergo realize the gain! That creates a tax burden for you! What you want to do, is xfer the stock in kind to the charity, so its all tax deduction for you, not new tax charges.
Fidelity, Schwab, JPMorgan, Merrill Lynch, etc all have two masters to satisfy: one master is their actual customers / clients, while their other master is their stockholders, (meaning those people / investors who own shares / stocks of JP Morgan, Fidelity, etc). Its rare when someone is in both groups, and even if they are, it doesn't benefit them.
These firms not only have to make money for the customer, but also for the stockholder, an obvious conflict of interest, (serving two masters), trying to get money to both, often satisfying neither.
Vanguard on the other hand is unique, it has zero stockholders, there are no shares of Vanguard to buy, they don’t exist; the owners of Vanguard ARE the actual customers / clients / investors, (proportionally represented by how much each invests), so Vanguard only serves one master, and only has one master to make happy via returns, the investors!
What this means is that since the customers actually own Vanguard, then why would they charge themselves more than the bare minimum to operate Vanguard? This results in more of the investment returns (a greater percentage generally speaking than their competitors) reaching the customer, (as opposed to some separate shareholder, that other brokerages have, who likely isn’t even a customer, and it wouldn't matter if they were!). A lower expense ratio, lower fees, etc, Vanguard runs lean so its customers can have more return!
Also, you rarely see Vanguard advertised anywhere, be it TV, online, etc. Why waste the money, their owner's / customers money? Yet Vanguard is #1 in assets under management, which is in the trillions. This is a result based solely on their structure and reputation.
Vanguard is the best imo, for low costs and efficiencies, based on its unique business model.
Q: Does Vanguard have any drawbacks?
A: Yes, but minor. Sometimes they are so focused on being lean, that their services are a bit understaffed. Normally, this doesn't matter. They also ended their native banking functions, which I had for years, which was very inconvenient and short-sighted of them imo. The only other complaint I have is that their online trading tools are a bit lacking or simplistic. Where is a trailing stop-loss function?? Come on VG, its ridiculous you don't offer this!
Q: I have heard the stock market is no different from the casino, is this true?
A: No. This is one of those so-called “conventional wisdom” nuggets that’s insidious, bc it just isn’t the case. The casino is built and designed for them to win, and you to lose, in the short term & in the long term; the proof of this is how do you think they get those giant opulent tacky facilities built? It isn’t via girl scout brownie sales.
The markets meanwhile are built and designed for you to WIN, bc whats for sale is ownership of a business, and no business is started and designed to fail or rip people off, (outside of criminal corruption, which overall is a very rare occurrence). Every business wants to profit and succeed, and if it doesn't it won't be around very long for you to invest in! All hail capitalism!
America has a long history of successful businesses, and over many years they grow, provide fair returns, and expand the economy, and that's why a basket of stocks in an index fund that tracks for instance the Dow Jones has proven to be a winner. The stock market is designed for you to WIN, period, end of story.
Q: What about taxes? I hate taxes.
A: Who doesn’t, taxes are the worst. Maybe one day we’ll get the FairTax. Until that blessed day ever comes, the closest you can get is a Roth IRA. Yes, you pay tax now, upfront, (via earned income that was already taxed); but never again, no matter how much it earns, (provided you follow the basic Roth IRA rules, like no early withdrawls on earnings, etc).
My advice is to get a good tax professional, be it a CPA, H&R Block, or whoever is qualified. Hopefully they can show you the ropes to save you money, bc the idea is to always send Uncle Sam the least amount possible. They can find deductions, file the returns, and most importantly act as a buffer between you and the government if the government, via the IRS, ever decide to audit you or assert there is a problem of some kind.
Finally, in a normal taxable account, be aware that any holdings which are bought and sold in under a years time, are considered “short term” and taxed at a higher rate. Conversely, any holdings that are bought and sold in over a years time, are considered “long term” and get much more favorable tax treatment. (This is one reason why buying a basket of stocks in a fund and just holding it over years can often out perform any random single company’s stock or a more actively traded brokerage account; less activity = less taxable transactions, or financial events with tax consequences).
Q: What about charity?
A: Its important to remember that a lot of people can't even afford to invest anything. Supporting charities is a way to advance causes you believe in and help those who are less fortunate. Perhaps you care about animal welfare, or people with disabilities, or Veterans, or job training, or education... whatever your interests you can find a worthy charity that supports it. But how does this relate to investing?
Well for one thing, charitable giving is a tax deduction. This isn't why you should do it, but it is a useful tool in the tax toolbox, when your income is such that your charitable giving could help you save money on taxes. This is a good reason to hire that tax professional, so they can help you see if, and how much, would X amount of giving help your tax bill.
Also, I am partial to giving to those charities that operate endowments, which basically means the money i give them is itself never spent, but rather invested into that charity's endowment, so that they then in turn can spend ONLY what money their endowment earns. This means the impact of the giving will last into perpetuity, as opposed to a one-off impact.
Vanguard's sister organization, Vanguard Charitable is a great way for investors to easily donate to a one stop shop. You direct funds to VGC, and immediately get the tax deduction, but while its there you direct it into safe broad based VG funds for it to earn until such time you direct VGC to make a grant to a specific charity. This is a tremendously useful site, b/c it makes it easy to handle and even automate your charitable giving, (which otherwise can be a real pain in the neck, trying to get e.g. stock from your account to say a local animal shelter). The drawback is that it takes $25k to open an account with them.
But VGC isn't the only such organization, others have less steep minimum requirements, and in any case many charities will allow small direct donations that are to be routed direct to their endowments. However it is done, be it via direct donation, or using an intermediate site like VGC, my goal most of the time is to get my donations into an endowment (or scholarship)
IMPORTANT! If you want to donate e.g. stock to a charity that shows a capital gain, do NOT sell it to turn it into cash first, and ergo realize the gain! That creates a tax burden for you! What you want to do, is xfer the stock in kind to the charity, so its all tax deduction for you, not new tax charges.
i wanted to post a few other names of the other investment companies / robo-advisers, just to remind myself that they exist:
ReplyDeleteSigFig (interested in this one), Robinhood, interactive brokers, betterment, wealthfront, mint.
https://www.barrons.com/articles/robo-advisors-kept-investors-calm-during-tumultwith-help-from-humans-at-times-51587301201