Investors today have a plethora of options when choosing an investment firm or other place to keep their money. However, not all stock and mutual fund platforms are created equal, and it’s important to pick one that fits your needs. For example, an active trader might seek a platform with access to insider notes and customizable screeners, while someone who is investing for retirement might be fine forgoing bells and whistles.
Two of the most popular investment firms that have stood the test of time are Vanguard and Fidelity, providing wide appeal for a variety of investors. In general, Vanguard takes a more traditional approach to buy-and-hold investing, while Fidelity caters to investors who want a more customizable or hands-on experience.
But which one will work best for you? Before making a decision, take some time to consider the characteristics of each firm and their relative strengths:
— Size and philosophy.
— Performance and costs.
— Automated investing services.
— Functionality and mobile apps.
— Overall appeal.
Size and Philosophy
The Fidelity Fund was established in 1930, following the stock market crash of 1929, and it transitioned to a management company in 1946 after being acquired by Boston attorney Edward C. Johnson II. The company historically focused on growth stocks over blue-chip value stocks, which at the time included companies like Xerox and Polaroid.
Decades later, Fidelity remains among the largest investment firms in the world, home to about 33.5 million retail accounts. Its discretionary assets are about $4.3 trillion, while assets under administration total $11.3 trillion.
Vanguard was started in 1975 by the now-legendary investor John Bogle, who believed that the improbability of beating the stock market necessitated investing in a basket of funds all at once. This philosophy of diversification and accessibility drove him to start the first public index mutual fund, which tracked the S&P 500, soon after Vanguard’s launch. Much of how the firm operates today still follows Bogle’s thinking.
With 411 funds offered worldwide, 204 of those in the U.S., Vanguard stands close behind Fidelity when it comes to individual customers, claiming more than 30 million. Assets under management top $8 trillion, second only to BlackRock.
Performance and Cost
Building off of its beginnings as an innovator of index funds, Vanguard offers a wide range of these funds today. Fidelity offers a comparable selection, although Vanguard’s reputation for rock-bottom fees precedes it.
Before choosing a platform, carefully analyze the funds you plan to invest in from each investment house. Each type has a different expense ratio and return performance over time, and doing this research beforehand can boost your earnings. Take a look at more than just the year-to-date performance, especially considering the S&P 500’s roughly 15% decline so far in 2022. Look at the returns over three-, five- and 10-year periods, as well.
Index funds.Index funds are not actively managed, but rather invest in a set list of stocks that track the performance of a specific market benchmark, or index, as closely as possible. That’s why this type of investing is referred to as a passive strategy. Actively managed funds, by comparison, usually target a specific category and change composition based on their managers’ decisions. Actively managed funds tend to charge higher fees.
Both Fidelity and Vanguard have index funds that track similar stocks. For example, both companies have index funds that track the S&P 500. The returns are nearly identical over time because they contain similar investments. Vanguard 500 Index Fund (VFIAX), for example, has lost 10.7% over the past year, while Fidelity 500 Index Fund (FXAIX) has posted a 10.6% loss over the same period.
Those similar returns go way back. FXAIX returned 10.6% annualized over three years, over five years it gained 11.3%, and it rose nearly 13% over the past decade. The Vanguard fund returned 10.6% over the past three years, 11.3% over the past five years and 12.9% over the past decade.
However, even similar funds can differ by the minimum investment amount and expense ratio, or the charge for investing in the fund. Fidelity has no minimum investment amount for FXAIX and charges a 0.015% expense ratio, which is $1.50 for every $10,000 invested. Vanguard, however, has a minimum investment amount of $3,000 for VFIAX Admiral shares and charges an expense ratio of 0.04%, or $4 for every $10,000 invested. So, in this case, the return for the two funds is nearly identical but Fidelity actually has a lower expense ratio and lower investment minimum.
Actively managed funds. Since an actively managed fund’s success rate is based on the decisions of its managers, these types of funds require more scrutiny, especially when the philosophy of the overarching firm comes into play.
Looking at two international growth funds from Fidelity and Vanguard reveals some of the differences that can occur. Fidelity International Growth Fund (FIGFX), an actively managed stock fund in the foreign large-growth category, has an expense ratio of 0.99%, and year to date it has lost about 22%. Vanguard Advice Select International Growth Fund (VAIGX), also an actively managed fund in the same category, has a much lower expense ratio compared with the Fidelity fund, coming in at 0.42%. The fund may have had more exposure to recent economic volatility, though, and it has lost 34% year to date.
Another factor is that the VAIGX fund just started in November 2021, so it may still be getting its sea legs in a challenging market. As an older fund, Fidelity’s offering has gained 7% over the last 10 years, even after the massive losses recorded this year.
Over the long haul, annual losses are an exception rather than the rule, and Vanguard tends to eke out an advantage over its competition. “Both Vanguard’s actively managed and index funds have strong performance records,” says a Vanguard spokesperson. “Over the 10-year period ended Dec. 31, 2021, 86% of Vanguard’s actively managed funds performed better than their peer-group averages. Similarly, over that same 10-year period, 82% of Vanguard index mutual funds and ETFs outperformed their peer-group averages.”
Automated Investing Services
Vanguard Digital Advisor, the firm’s automated investing service, requires an initial investment of $3,000. You can still buy and hold individual exchange-traded funds without this service, but you won’t have the robo-advisor‘s help creating a holistic portfolio.
Fidelity Go, the Fidelity version of the Vanguard Digital Advisor account, is easier to open. The firm will ask you questions about your identity, preferred risk tolerance and the amount you can afford to invest. From there, Fidelity Go will curate a portfolio that you can invest in with whatever amount you have available.
Unless you have significant amounts of cash to invest or know which particular ETFs you want to invest in, Fidelity may be a better choice for the beginner investor who wants to hold a portfolio.
Functionality and Mobile Apps
Both Vanguard and Fidelity offer online trading services, but they are far from equal. Vanguard’s trading desktop is geared toward buy-and-hold investors, and the desktop experience lacks any special add-ons. There is no real-time data on specific funds until you open a specific ticket, and there is a lack of customizable options. It is more than adequate for passive and buy-and-hold investors, but it falls short for those who want a responsive platform for daily trading.
This plays more into Vanguard’s philosophy of the company. At its core, it’s a buy-and-hold company. Jason Heller, executive vice president at Coastal Wealth, says that chief among Vanguard’s benefits is its “low-cost exposure to passive management, which historically over long time periods outperforms most actively managed investments.” He adds, “In order to take full advantage of what Vanguard offers, an investor needs to possess [a] strong understanding of a buy-and-hold mentality.”
Fidelity’s site is more user-friendly for all types of investors. Those who are wanting a hands-on approach to their holdings will appreciate Fidelity’s customizable features, such as the Active Trader Pro’s charts, screeners, advanced order types and more. “If you’re going to be more active in managing your investments, Fidelity is a better offering, especially for options,” confirms Kai Sato, co-president and chief marketing officer at Crown ElectroKinetics Corp. (CRKN).
This becomes even more clear when comparing the mobile-app experience between the two. While Vanguard has been planning to update its mobile-app offerings for some time, its current iteration is fairly outdated and has little beyond simple buy-and-sell actions. Fidelity, however, has a mobile and desktop experience that is sleek and easy to navigate. “While Vanguard has made strides in [functionality] over the years, emphasizing innovation and user experience, it’s not as much in its DNA,” says Sato.
Both Fidelity and Vanguard offer quality, low-cost trading for investors of all types, so doing research into what kind of funds you want to invest in is the first step to choosing a platform. Be sure to keep in mind that Vanguard is geared toward long-term investors who want simple ways to check on their funds’ performance over time. For buy-and-hold investors, Vanguard can be very beneficial. For those who don’t mind possibly trading slightly higher expense ratios for more functionality and choice, Fidelity may be the way to go. It has a lower threshold for portfolio investing and plenty of ways to customize the user experience.
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Update 07/29/22: This story was published at an earlier date and has been updated with new information.