From the Vanguard to the rear

I’ve been a Vanguard customer since the 1980s. Which means I’ve been generally happy with the service. Sure, I like to complain. And nothing is perfect. But you don’t stay with a company for going on four decades if you aren’t at least pretty satisfied with their product.

I’m also a big fan of Jack Bogle, and a believer in the “less is more philosophy” of investing. For most of us, in most instances, set it and forget it is enough.

That’s probably not going far enough. For most of us, set it and forget it in the form of some good low-cost index funds and ETFs is superior to trying to beat the market. It is hard to do, and with enough time it is not necessary to even try.

Which is all to say I’m generally of a mindset to defend Vanguard as a protector of the common investor in an industry that makes a good bit of its money overcomplicating things and force-feeding products that are unnecessary.

But at the end of the day, each of us has to make our own choices. And a brokerage that restricts our opportunity to make individual choices is skating on thin ice.

Take, for example, the message you see if you try to buy a Bitcoin ETF on Vanguard. For this example, I used the Grayscale Bitcoin Trust ETF, but the same message pops up for any Bitcoin ETF. (Vanguard does not have crypto ETFs, so this isn’t just a case of them pushing money into their own products.)

Least you think this is some “regulatory restriction,” here’s what Vanguard has to say about crypto on its blog:

I’m probably the last person in the world you’d describe as a Bitcoin champion. I don’t get it. And I’m probably closer to Vanguard’s line of reasoning than the average investor.

But I also realize that sometimes I am wrong, or at least late to see what others see. I can see a scenario where I might want to allocate say 5% of my investment portfolio to crypto as a hedge against my potential ignorance.

Vanguard is trying to be morally superior here, but this is the same company that freely allowed us to trade AppHarvest to $38 per share (it is now bankrupt) and who would freely allow us to buy into Virgin Galactic in 2021 when the market valued the business at more than $12 billion (its market cap is less than $200 million today). As it should, by the way.

By Vanguard’s logic, buying those stocks (or any other in hindsight mispriced equity) did have enduring investment merit and has more of a place in a long-term portfolio than crypto. Vanguard is looking into the future and is calling Bitcoin a dud. No matter what becomes of Bitcoin (similar to no matter what becomes of Virgin Galactic), that is a disservice to Vanguard customers.

Another example. As stated, I’ve had a relationship with Vanguard for going on four decades. They have a better snapshot into my investment habits and the size of my investment portfolio than almost anyone.

Yet, as of the last few months (and only the last few months), when I deposit new funds I am restricted from buying equities with those funds for seven days.

Some context: The account in question is an IRA, so not a quick money in and out account, and it has been open for years. The amount in question is a few thousand dollars, or a small fraction of the overall value of the account or my holdings with Vanguard. The account being used to fund the deposit electronically has been open for decades and has been linked to Vanguard and has been a source of funds headed to Vanguard for more than 10 years.

There’s no way this is being done “to help detect and prevent fraud.” If this is necessary to prevent me fraudulently funding a retirement account, Vanguard’s computer systems are from the 1960s.

My cynical guess was this is an attempt to funnel funds into Vanguard products instead of non-Vanguard products. Note the more generous terms if you buy mutual funds instead of stocks. But a friend who closely monitors the company (NOTE: Not a spokesperson, and not official word) believes it isn’t a marketing initiative. Rather, their guess it is one part a tech issue (sigh) and one part Vanguard’s attempt to limit “fast money” and impromptu trading. Think of that week as a cooling off period.

I have no idea the reasons. But at best it is a reflection of outdated technology, and at worst another example of Vanguard claiming it knows best when it comes to what I should do with my money.

Ultimately, these are Vanguard’s decisions to make. And the customer’s only recourse is to go elsewhere. I’ve opened a brokerage account somewhere other than Vanguard. It is small, at least for now. I’m not buying crypto or Bitcoin ETFs, at least for now. I’m not making impulsive trades or resorting to day trading.

I don’t think I am leaving Vanguard. It is a pain to transfer accounts. But it is hard to completely rule out Vanguard deciding (just to be argumentative) that since small caps have underperformed large-cap tech over the last decade, they are not appropriate for a long-term portfolio. Or any of a million other what ifs.

Ideally, Vanguard will evolve and do better by its customers. If not, at least I’ll have a plan B.

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