There are other investment firms, such as T. Rowe Price and Charles Schwab, but Vanguard and Fidelity are two of the oldest firms around and even for non-investors may be the best known.
There are a lot of similarities between the two firms. Both offer brokerage and savings accounts for taxable and tax-sheltered money. Additionally, both provide an array of branded and third-party products to choose from, which are low cost and come with mobile app offerings.
But there are also some key differences, enough that it may make an investor choose one over the other, depending on their needs. Here are a few key points for many investors to know when deciding between these two mammoth fund companies:
— Product offerings and costs.
— Access and education.
An April 2019 working paper published under the Economic Research Initiatives at Duke University compares the two investment giants on 21 comparable funds in five aspects: performance, tax-efficiency, cost, diversification, benchmark and tracking precision.
The report’s research shows Vanguard has a better after-tax return and is more tax-efficient than Fidelity. In the funds sampled, Fidelity had a lower expense ratio than Vanguard. They also found Vanguard funds are more diversified. Fidelity funds offer a higher tracking precision to their benchmarks than Vanguard, but the authors note the difference is small, as Vanguard’s average tracking error is 0.08% and Fidelity’s is 0.04%.
Todd Rosenbluth, director of exchange-traded fund and mutual fund research at CFRA, says he has noticed Fidelity is increasingly launching index-based mutual funds and alternative-weighted ETFs, but that it remains predominately an actively managed fund shop. “Even within the ETF universe, (it doesn’t) offer broadly diversified market-cap weighted index ETFs, but now (has) actively managed equity ones,” he says. The company recently launched ETF versions of some of its mutual funds, such as the Fidelity Blue Chip Growth ETF (ticker: FBCG) in 2020 and Fidelity Magellan ETF ( FMAG) in 2021. This gives investors the choice of wrapper, he says.
Rosenbluth says Fidelity partners with other firms on ETFs, including BlackRock, one of the top global ETF issuers. He considers Vanguard’s ETFs to be more broadly diversified and are more building blocks and asset allocation products, whereas Fidelity’s ETFs are either sector, smart beta or actively managed.
Karin Risi, managing director and head of Vanguard’s Planning and Development Group, says the firm focuses on long-term investing, whether that means an investor is opening an account for retirement or a brokerage account for taxable money such as a place to put an emergency fund.
“We do not attract the short-term traders,” Risi says. “We do not put out lots of tools and calculators to facilitate short-term trading.”
On that point, Alec Lucas, strategist with Morningstar’s manager research team, who covers Vanguard, says the company has a “paternalistic streak,” and it won’t offer some products. For example, Vanguard makes available every publicly traded, U.S. domiciled ETF on its brokerage platform commission free, but it won’t list leveraged ETFs.
“That would be a more concrete example of the sort of ‘we don’t think this will lead to good outcomes for you because investors tend to not use these well, so we’re not going to offer them,'” he says.
Robby Greengold, a senior analyst with Morningstar’s manager research team, who covers Fidelity, says the firm takes a view of being a one-stop financial shop for investors.
“Fidelity’s fundamental objective is to attract new clients, build durable relationships with existing clients and retain them,” he says. “And that means building an ecosystem that’s meant to sit at the center of people’s financial worlds. Fidelity wants to give clients absolutely no reason to open an account with a competitor.”
Scott Ignall, head of Fidelity’s retail brokerage business, says the firm wants to meet retail customers where they are in life, whether it’s someone wanting to learn to trade or someone starting a first job, as well as offering private wealth management. It also offers access both online and in person.
Product Offerings and Costs
Both Vanguard and Fidelity offer very low costs for their branded products as well as access to thousands of third-party mutual funds and ETFs.
Vanguard funds’ lower-expense ETFs hover around 0.03%, or $3 for every $10,000 invested annually. The average ETF expense ratio is 0.06%. Investors can expect about a 0.18% expense ratio on actively managed funds. Vanguard has almost 200 mutual funds and more than 80 ETFs available to U.S. retail investors.
Typically, an initial minimum investment on Vanguard mutual funds is about $3,000, but the Vanguard STAR Fund ( VGSTX) and Target Retirement Funds have $1,000 minimums. The minimum investment for an ETF is the price of a single share.
Fidelity boasts more than 312 branded mutual funds available to U.S. retail clients and 37 ETFs, including seven actively managed ETFs. Costs for Fidelity’s mutual funds vary, but the expense ratios are as low as 0.15% for most index funds. In 2018, Fidelity started offering zero-expense ratio mutual funds under their Fidelity Zero Index Funds such as the Fidelity Zero Total Market Index Fund ( FZROX) and the Fidelity Zero International Index Fund ( FZILX).
Fidelity charges $0 for equity, ETF and Fidelity mutual fund trading fees in a retail account, and there are no account minimums.
Access and Education
Both firms have a desktop and mobile app, but there are differences. Only Fidelity has a service for people who want to actively trade, Active Trader Pro, which has streaming data and customized charting and is available to any customer who requests it, no matter their trading frequency.
Educational tools and information are also geared to their respective audiences. Risi says their research and blog posts are focused on helping investors reach long-term goals. Recently they’ve focused on behavioral economics and how emotions play into investing.
Fidelity offers information and research in different formats, including webinars, skills-based lessons for people who want to learn to trade, and it also has educational pieces on other topics, like college planning or charitable giving.
When it comes to investing advice, Fidelity has a robo advisor for self-directed investors called Fidelity Go, which is available at a $0 fee for balances less than $10,000, $3 per month for balances between $10,000 and $49,999 and 0.35% for balances of $50,000 or more. Clients can also use a hybrid robo advisor called Fidelity Personalized Planning & Advice, which provides access to financial coaches for a 0.5% all-in advisory fee and $25,000 account minimum.
In 2020, the firm launched Fidelity Spire, an app designed to help young adults to stay motivated and informed about their money decisions. Users can plan, save and invest for short- and long-term investor goals through the app.
The firm also has dedicated call centers and brick-and-mortar locations for clients with simple questions. Anyone can speak with a representative free of charge.
For people who want a dedicated human financial planner, the all-in cost is 0.35% annual advisory fee, he says, and financial advisors pick from a variety of products.
Currently, Vanguard has a hybrid advisory offering called the Vanguard Personal Advisor Services, with algorithms that give portfolio construction answers, but a human advisor can answer financial planning concerns around investing such as saving enough for retirement and other questions that aren’t driven by algorithms. Advisors are available via phone, email or video conference, Risi says.
The annual cost is 0.3% of the assets managed, plus product fees. Vanguard has also launched an all-digital financial planning and money management service called Digital Advisor. The service gives investors a personalized plan and ongoing guidance and is particularly compelling for younger investors who want help meeting financial goals, such as retirement planning or investing to pay down debt. The company says it plans to continue introducing new Digital Advisor capabilities, including broader tools to help households balance multiple financial goals, manage cash flow and build their emergency savings.
Vanguard will manage portfolios that include third-party offerings from a 401(k) rollover or other established investment, but any cash that is added will only be used to buy Vanguard products. “We will not recommend a non-Vanguard product, but we will certainly take in non-Vanguard products if it’s on our brokerage platform,” Risi adds.
The Bottom Line
Both Vanguard and Fidelity are solid options for where to invest your money.
Chuck Self, chief investment officer at iSectors, says his firm uses investment products from Vanguard and Fidelity, and his usage depends on a client’s needs. “When it comes down to it, which ones we use is somewhat subjective. Overall they both have tremendous liquidity, they both have tight bid and offers. There’s really only small differences. They’re both the top ETF shops we use,” he says.
Each firm has a diverse offering of educational content, investment products, and digital or personalized advice platforms. If you are more of an active trader, you may prefer Fidelity, but if it’s ETF investing you’re after, Vanguard has a broader selection. It’s also worth noting that only Fidelity has branch offices where you can meet with a financial advisor in person (though perhaps not during the pandemic). Whichever firm you choose, you’ll be in good hands.
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Update 03/01/21: This story was published at an earlier date and has been updated with new information.