In 2011, I started my investing journey by opening a Roth IRA at Edward Jones. I was in my final year of college pursuing a degree in electrical engineering. Mrs. Nine to Thrive had just graduated and was making decent income as a radiologic technologist at the local hospital, so we decided to start investing our extra savings.
While most people are whining and being complainy-pants about the amount of student loan debt they’re in, we were able to get through college debt free and begin our path to financial independence.
The Start at Edward Jones
In 2011, I opened an account at Edward Jones. Having never invested before, and not knowing what the heck I was doing, I reached out to a family friend who was a financial advisor at Edward Jones. I set up a phone call with him, and we talked about my goals and my risk tolerance. He suggested that I invest in mutual funds from Franklin Templeton.
Here’s the inside scoop on Edward Jones. The financial advisors are trying to balance the needs of their clients with making a commission for themselves. Therefore, the funds they recommend will always have fees associated with them. In this case, Franklin Templeton funds had a 5.75% front end load. Meaning the $3,000 I thought I was investing was actually $3,000 – 5.75% = $2,828. On top of that, Edward Jones charges a $40 annual fee. So really, I was only able to invest $2,788.
Dang. Forking over $212 just to invest my money seemed like a lot to me. But at the time, I didn’t think twice about the fees, believing that’s just how investing works. I was also assured by my financial advisor that the funds recommended to me would outperform the market (Lies! More on that later).
The Problem with Edward Jones
You’d think by using a “professional” and paying all this additional money in the form of fees, you’d have access to the best of the best of mutual funds. The funds they recommend should far surpass the returns of the Dow Jones or S&P 500 right?
Wrong! That’s far from true. 92% of actively managed funds (everything that will be recommended to you at Edward Jones) fail to beat the S&P 500. If you hold your investment accounts at Edward Jones, not only will you be forced into investing in actively managed funds that likely won’t outperform the market, but you’ll be paying expensive fees on top of it!
Take a look at the chart below. In 2011, the “Franklin Templeton Rising Dividends” mutual fund was recommended to me (FRDPX). Compare the gains of this fund versus the S&P 500:
From November 2011 to October 2019, the S&P 500 (GSPC) is up 138.2% versus 95.47% for FRDPX. Note that these returns do not include dividends.
This comparison doesn’t even account for the fact that I automatically started in the hole with all the fees that Edward Jones charged.
See below for what this looks like in real dollars. Note that the returns below include dividends.
Wowza, after seven years, the S&P 500 has already outgained that “professionally” recommended mutual fund by over $1,000.
Still think it’s worth using Edward Jones? After looking at the numbers myself, I didn’t think so.
Why Vanguard is Better
Jack Bogle founded Vanguard in 1975, and the company is client owned and operated at cost. This makes Vanguard unique from every other investment firm out there.
Edward Jones on the other hand, is a privately owned company. The owners (shareholders) of Edward Jones expect a return on their investment. This return on investment comes from the revenue that Edward Jones generates from the fees associated with their accounts and commissions you pay when buying a mutual fund.
When you own a mutual fund at Edward Jones, you are paying for the profit that goes to the Edward Jones shareholders (owners). So obviously the shareholders at Edwards Jones want the fees to be as high as possible, which results in higher returns on their investment, not yours.
Vanguard, is operated at cost. Vanguard has no shareholders to answer to. The profit that the company makes gets redirected back into its mutual funds. Resulting in mutual funds with extremely low expense ratios (an expense ratio is the cost needed to manage a mutual fund).
The average expense ratio at Vanguard is 0.18%. The industry average is over 1%. You may think meh, 1% isn’t that big of a deal, I think I’ll stick with Edward Jones. All things considered equal, here’s what the difference looks like after 30 years:
That 1% expense ratio could be the difference of over $176,000!! And that’s not even considering the front end load fees of 5.75%, or the fact that the funds at Edward Jones underperform those at Vanguard.
Does this Guy Have an Affiliation with Vanguard?
Nope! I’m just trying to help people from making the same mistake that I did by using Edward Jones. I would have been so much further along on my financial independence journey if I would have used Vanguard from the start.
Vanguard doesn’t know I’m writing this and I have no Vanguard advertisem*nts on my blog. Vanguard does not pay me in any fashion.
Transferring Your Money to Vanguard
This past year, I transferred my investment accounts from Edward Jones to Vanguard. It was a relatively straight forward process. You can start the transfer on Vanguard’s site. For my account, I was able to complete the process 100% online. However, for some accounts, you may need to fill out some paperwork and talk to someone at Edward Jones before transferring your account.
Which Vanguard Fund to Invest in?
I personally invest all of my money in Vanguard’s VTSAX mutual fund. VTSAX invests in every publically traded company in the United States. When you buy VTSAX you are instantly diversifying yourself with stock from over 3,000 U.S. companies.
VTSAX has averaged a 14% return over the last 10 years (we’ve been in a “bull” market), and offers an additional 1.8% yearly dividend. The expense ratio, as you’d expect, is low, at only 0.04%.
Some people are hesitant to invest in stock mutual funds because of the day to day volatility, and I totally get it. But instead of worrying about what happens on the day to day, buy yourself some VTSAX and forget about it. History shows that on average you will average an 8% yearly return.
I also highly recommend using Personal Capital to track your investments and your overall net worth. It’s super easy to use, convenient, and you get a $20 Amazon gift card just for signing up here.
Cheers to Financial Independence!
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