I’ve seen a lot of posts lately in forums and on Reddit from people wondering if they should invest their money in Vanguard. After reading more to determine the context of this general question, I think I can confidently help answer the over-arching question, “Is Vanguard Safe?”
Before I answer this question, it’s important to address the different parts of this question. First of all, there is a website and app security which focuses on safety from being hacked and having your account compromised. Next, there is the question of whether your investment is insured when it is held in a Vanguard account, Thirdly, there’s the question of whether or not you are protected if Vanguard goes bankrupt. Lastly, it’s important to determine if Vanguard funds themselves are safe and whether your account is safe in regards to risk allocation.
For those with little time, let’s cut to the chase. Vanguard is one of the largest investment companies in the world and has been actively managing mutual funds since 1975 with stellar performance and low fees. It prides itself on top-level internet security for its website and mobile app and is a member of the SIPC, FINRA, and FDIC making it very safe for investors.
Now to go into more detail, I’ve broken this down into three main topics. I’m going to show you if Vanguard does a good job of protecting your money through security. I’m also going to show you if your investment is properly insured. Next, I’ll cover what would happen if Vanguard was bankrupted. Last, I’ll cover if their funds are properly diversified. By the end, you’ll know whether Vanguard is safe enough to invest your money in.
Is Vanguard Reputable?
Founded in 1975, Vanguard is one of the largest investment companies in the world. Headquartered in Pennsylvania, USA, it has 20 offices worldwide, 15 of which are in countries outside the U.S.
With over 30 million investors and hundreds of managed funds, Vanguard is a leader in low fees and high performance. It is a household name in the investing community. Vanguard ETFs and mutual funds are often the base of most Robo-Advisory service portfolios,, such as those created by Betterment and Acorns.
Vanguard manages over $6 trillion dollars in worldwide assets and attributes its success to its revolutionary model which earns its profits based on the performance of its funds and the success of its members.
Is My Money Safe With Vanguard?
When it comes to any company that manages money online, security is paramount. With hackers sitting in seats of airports, coffee shops, apartment buildings, and hotel lobbies, it’s eerie wondering if your money is safe. So, what does Vanguard do to protect your money?
It turns out that Vanguard has some of the best security measures in place to protect users that I’ve ever seen in a financial institution. In fact, there were a couple of methods I didn’t know about until doing the research for this article!
Vanguard Webpage Security
Vanguard has an SSL (Secure Sockets Layer) certificate which makes the http:// in vanguard into an https://. What this basically does is protect information that is transferred between you and Vanguard’s website. Many phishing scams prey on users that enter their information into unsecured sites. I would not even consider investing in a firm that doesn’t have a secure site.
You can tell the site has an SSL certificate by a couple ways. The first is having that “s” in https://. In Vanguard’s case, they have a higher level SSL that enables the visibility of a green bar and lock icon so you can be more sure that you are on a secure site and that site is verified to be the correct site. Here’s what it looks like on Internet Explorer:
They also employ encryption of all data that involves your account access and information typed in any field on the site. This is accomplished with TLS (Transport Layer Security).
Vanguard Account Security
Vanguard protects your login by requiring a username and password which is pretty standard. What I didn’t realize before researching this was that there are actually other methods you can employ to ensure no one can log into your account besides you. They are:
- Security Codes – If Vanguard doesn’t recognize the computer or device you are logging on, they will send a six-digit code to your phone via text which you will have to enter in order to verify that you are who you say you are. On top of that, you can request Vanguard use this 2-Factor Verification every time you log in for an extra layer of security.
- Security Keys – Not to be confused with Security Codes, these are little USB devices that you can use to ensure extra security. If you register a security key with Vanguard, you will need your security key inserted into your computer in order to login to the site via encryption. If someone tries to login with your username and password without physical possession of the key, they will not have access to your account. You can also combine this with Security Codes so that you still have access to your account with the Code in case you don’t have the Key on you.
- Voice Recognition – If you sign up for this free service, you can call Vanguard to conduct business and it will recognize your voice to the accuracy of a fingerprint. In order to register for this, you will need to call Vanguard and complete the process by recording various phrases so that the system can learn and recognize your voice.
- Account and Activity Alerts – This is probably something you are familiar with. If setup, you will have alerts sent to your phone or email any time money is transferred in or out of your account, purchases or sales are made, or account information is changed.
Vanguard’s mobile website offers the same security as mentioned above. Also, the app will time-out after inactivity.
Behind the scenes, Vanguard also monitors all login attempts and all activity on the site and logs them to ensure they can retrieve that data at any time. Vanguard even employs ethical hackers which test the security of Vanguard’s site and servers and reports their findings directly to the company.
Is Money Invested in Vanguard Properly Insured?
There are a few key agencies that you want to verify your brokerage is a member of to ensure that your money is protected in the event of fraud, bankruptcy, or a security breach.
Vanguard is a Member of the SIPC.
I would never place my money in a brokerage that isn’t registered in the Securities Investor Protection Corporation (SIPC). The reason this is so important is that if your brokerage is a member of the SIPC, the government has insured your securities up to $500,000 ($250,000 in cash) in the event that Vanguard Group goes bankrupt.
Being a member of the SIPC is important but I think its really the bare minimum of what to expect from a major brokerage. Vanguard Group takes its investors’ security a step further and has secured additional coverage from Syndicates at Lloyd’s of London. This coverage insures a members securities up to $49.5 million per customer ($1.9 million in cash) and an aggregate total of $250 million.
Vanguard is a member of FINRA
In order to protect your investments from fraud, Vanguard is registered by the Federal Industry Regulatory Authority. If you suspect fraud due to how Vanguard handles your investments, you can go to this watchdog agency to investigate the claim.
Check out FINRA’s brokercheck service for Vanguard.
What Happens if Vanguard Goes Under?
This is a very doomsday scenario and in reality, virtually impossible. First of all, unlike ponzi schemes developed by the Bernie Madoffs of the world, Vanguard has a very unique structure. Look at this image from one of their presentations:
Most investing companies are privately owned and profit from the performance of their funds by managing the money of investors. Fees and commissions are where most of the company’s earnings come from. Vanguard on the other hand is literally owned by its members.
Members own and invest in the funds and the funds feed into to the parent company. The company only profits when investors profit. As a result, Vanguard can get by with expense ratios that average 0.10% which are the lowest in the industry.
Each fund is technically its own company, so even if one fund fails and isn’t able to sustain itself, the rest of the company is untouched. Also, Vanguard only manages the money, which is actually held by JP Chase Bank as custodian of the funds. If Vanguard fails as a business, the money is still in JP Chase Bank, and a new managing company would come in and manage it.
Are Vanguard Funds Safe?
This is one of my favorite questions. Is your money safe if it is invested in a Vanguard fund? Well, like all financial securities, there is a risk anytime you invest money. That being said, the risk is minimized by diversifying. All of the Vanguard’s funds offer to aid in diversifying. In fact, each Vanguard fund is individually a separate company so if one fund went belly up, the other funds would be unaffected.
Proper diversification is important and that means, having multiple funds with different compositions. That can mean bond funds, growth stock funds, emerging market funds, Real Estate funds, and various others.
Looking through my Betterment Portfolio, I can see that 7 out of the 11 funds that I am invested in are all Vanguard Funds. When I look at my Acorns Portfolio, 5 of 7 of the funds are from Vanguard.
If these huge Robo-investing services that manage millions of accounts are confident with this type of diversifying, I feel like it’s a pretty safe bet.
If you are still not convinced, then go ahead and mix up the fund companies. After all, the Vanguard S&P 500 fund and the iShares S&P 500 fund will be virtually the same in performance and fees.
Just make sure that you are keeping an eye on the fees and performance when comparing other funds.
Well, there you have it! We covered 4 concerns that make people wonder if Vanguard is safe and I think I did a pretty good job of showing you that they all prove to be safe. Vanguard is a terrific company with a rich history of strong performance and cult-following. If you were worried about investing in Vanguard before, I hope this helped clear the air!
Interested in which Vanguard Fund is my favorite? Check out this article on VTSAX! You’ll find one of the best funds for betting on the entire US economy!
Until next time, let’s start investing!