Merrill Edge offers several services to help customers in building their investment portfolios. With Merrill Edge, you have access to different investment vehicles, including exchange-traded funds (ETFs), stocks, bonds, mutual funds, margin lending, and certificates of deposits (CDs). Some of these investment vehicles are passively managed, and they are known as index funds.
Since Merrill Edge works as a broker, you can buy index funds on the platform. Merrill Edge currently charges no commission on index ETF trades. However, the transaction fee for index mutual funds is $19.95.
We will look further into index funds, how to buy Vanguard funds through Merrill Edge, and the pros and cons of purchasing index funds on Merrill Edge.
What Are Index Funds?
An index fund is a mutual fund or ETF that tracks or matches the features of a financial market index, such as the S&P 500 index.
You can’t buy an index directly, but you can invest in a fund. By owning all of the index’s components, most index funds mimic the index. A fund can match the index by using a sample of assets or extra derivatives, such as options and futures.
A fund manager handles the account’s trading activities, providing clients with a passively managed investment that builds their portfolio.
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What Are the Advantages of Investing in Index Funds?
Investing in index funds, such as Vanguard funds, comes with the following advantages.
- Lower Costs: In contrast to actively managed mutual funds, index funds are passively managed and have fewer transactions. As a result, index fund managers do not require the assistance of research analysts, and the considerable expense ratios of such index funds are reduced.
- Ease of Management: Active management of index funds is minimal to zero. The fund manager is not constantly under pressure to outperform the index in terms of alpha. Their job is to duplicate the index’s portfolio. So, the fund manager needs to employ minimum effort, making index funds a relatively easy fund to manage.
- Diversification: An index fund that mimics a broad-based index has the benefit of diversification since it covers various sectors of the economy. A downturn in one sector will have little effect on the fund in general. Index funds, therefore, allow you to gamble or expose yourself to the broader market.
- Automatic Rebalance: Because an index fund tracks and replicates a country’s index; it’s only logical that it will include the best performers. The portfolio is then automatically mopped up of underperformers. This automatic rebalance occurs with little or no active involvement from the fund manager.
- Chances of Better Returns: Passive funds, according to many critics and advocates, have outperformed most actively managed mutual funds. The vast majority of mutual funds do not surpass their benchmarks or broad market indexes. Passive funds, on the other hand, do not try to outperform the market. Instead, their approach is to meet the market’s overall risk and return. By operating on the notion that the market always wins, passive management tends to result in more favorable performance over the long term.
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Can I Buy Vanguard Funds Through Merrill Edge?
While Vanguard provides virtually all of its mutual funds and ETFs through its exclusive investment platform, third-party brokers like Merrill Edge also offer an extensive range of the same products. Vanguard generally works out deals with other brokers to provide some of its funds commission-free, while the rest of the Vanguard funds are subject to the broker’s regular trading costs.
So, if you are a Vanguard customer, you can purchase Vanguard funds through Merrill Edge at the same price.
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What Is the Minimum Investment for Vanguard Funds on Merrill Edge?
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How Much Does It Cost to Trade Vanguard Funds with Merrill Edge?
Merrill Edge offers 85 Vanguard mutual funds to investors. Although the Vanguard funds are no-load, they come with a transaction fee of $19.95. Vanguard ETF transactions, on the other hand, have no transaction fee.
How To Buy Vanguard Funds Through Merrill Edge
To buy Vanguard funds through Merrill Edge, you need to set up your Merrill Edge brokerage account. Once your account is set, all that is left is funding your account, and the trading begins!
You can fund your account directly from your linked Bank of America account or another bank account (which will take up to 3 days.) Funding can also be done by wire transfer or by mailing a check.
Once your account has been funded, you can start investing. With your Merrill Edge account, you can buy any of the index funds available. Don’t forget that you need a minimum of $3,000 in your account before you can purchase Vanguard mutual funds.
The indexes’ diversification should determine the number of index funds you buy. You may only need one or two if you invest in well-diversified funds. But, if you want to construct an extensive, diversified portfolio, you should invest in various specialized funds that follow certain industries.
Pros And Cons of Trading Index Funds on Merrill Edge
There are a few pros and cons with Merrill Edge when investing in index funds, as with any other type of investment.
- Integration With Bank of America: Customers of Bank of America can use the Merrill Edge platform to connect their bank accounts with their investments. It is now straightforward to log in to one account and see a comprehensive financial picture.
- No Commission Fees: You can trade index funds on Merrill Edge without paying commissions. In addition, the Self-Directed investment plan has no annual fee, so you can exchange equities whenever you choose.
- Informative Resources: You will find up-to-date market information on the Merrill Edge platform. Such information resources make it easier for investors to plan their next steps. Although investing in index funds does not involve significant active management, it is essential to learn as much as you can about index fund trading.
- Only Links to Bank of America: Linking to Bank of America is an advantage to those that already have an account with them. However, users with accounts at other banks cannot link theirs since Merrill Edge only has a partnership with Bank of America. So, you will not see your account on your Merrill Edge dashboard if it is not a Bank of America account.
- Lag Time: Lag delays have been reported on the Merrill Edge website, making it difficult to complete transactions promptly. Some customers report that the procedure for executing a deal is longer than it should be. Slow site navigation can be frustrating for investors who are short on time.
If you have a Merrill Edge account, you can buy index funds such as Vanguard funds. The process is as easy as trading in any other asset.
Investing in index funds allows you to make steady returns since the aim is to earn what the market earns. Index funds also require much lower costs than actively managed funds.
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