Whether you’re new to investing or are a seasoned investor, you’ve likely heard of Vanguard and Fidelity. They are two of the biggest investment firms in the world based on assets under management. Vanguard has AUM of about $8.5 trillion, roughly neck-and-neck with BlackRock, and Fidelity Investments manages nearly $3.7 trillion, according to the Sovereign Wealth Fund Institute.
Vanguard and Fidelity have a lot in common, but they also have some key differences. In general, Vanguard is focused on long-term, buy-and-hold investing. By contrast, Fidelity caters to investors who want a more hands-on experience.
So which is better for you? When choosing an investment firm, consider and compare the following characteristics:
— Size and investment philosophy.
— Account and investment options.
— Performance and cost.
— Management options.
— Functionality and tools.
— Overall appeal.
Size and Investment Philosophy
Fidelity and Vanguard are two companies with outstanding reputations.
In 1946, Fidelity Management and Research Company was founded with Edward C. Johnson II as president. From its inception, the company emphasized growth stocks and made investments in companies like Xerox and Polaroid in the 1950s. Today, Fidelity is one of the largest investment companies in the world, serving more than 40 million investors and managing employee benefit programs for nearly 23,000 businesses.
Vanguard was launched in 1975 by the now-legendary investor John Bogle. Since its beginning, Vanguard has focused on diversification and was responsible for introducing the first public index mutual fund. Much of how the firm operates continues to follow Bogle’s philosophies, which centered on long-term investing in low-cost funds. Vanguard has become a giant in the investing industry, and it serves approximately 30 million investors.
Account and Investment Options
Vanguard and Fidelity offer a range of account types for individual investors and business owners. Whether you want to save for your retirement or set aside money for your child’s college education, both Vanguard and Fidelity have options for you.
Vanguard is a leading investment firm for retirement planning. It has multiple retirement accounts, including Roth and traditional IRAs, 403(b) services, individual 401(k) plans, and retirement options for self-employed individuals and business owners. Investors have a range of choices in low-cost mutual funds, exchange-traded funds, or ETFs, stocks and more.
Fidelity also has retirement accounts, but it has other options that may appeal to individual investors, such as health savings accounts. And while Vanguard is focused on diversification and mutual funds, Fidelity has more securities from which to choose. For example, Fidelity allows individuals the option to invest in cryptocurrencies, which Vanguard doesn’t provide.
The following table breaks down the general offerings of the two investment firms:
|Assets under management||$8.5 trillion||$3.7 trillion
($9.9 trillion in assets under administration)
|Account minimum||$0, but most Vanguard mutual funds require a minimum investment of $3,000||$0|
|Types of accounts||529 college savings plan
Small plan 401(k)
Taxable investment account
|529 college savings plan
Fidelity Advantage 401(k)
Taxable investment account
Health savings account
|Available investment types||Bonds
Money market funds
Performance and Cost
As the innovator of index funds, Vanguard offers an impressive range of index funds today with low expense ratios. Fidelity has a comparable selection of funds, but its fees generally aren’t as competitive as Vanguard’s.
Before choosing an investment firm, analyze the fund options from each company. Expense ratios and other fees can vary significantly between funds, and it’s wise to look at each fund’s historical performance.
Although a mutual fund’s past performance isn’t a guarantee of future results, it can give you an idea of how volatile the fund has been and how it has performed relative to other funds in times of economic decline.
When researching funds, it can be helpful to compare their long-term performance — such as their five-year or 10-year annualized returns — to the performance of broad market benchmarks such as the S&P 500. Comparing the fund’s returns to those of a major index across the years can show you how well the fund performed in different market conditions.
When deciding between Vanguard and Fidelity, think about your preferences for portfolio management. Do you prefer active, passive or robo-advisor management?
Active management. An actively managed fund is professionally managed to try to beat the market, and the fund manager makes decisions about what securities to buy or sell. Actively managed funds typically have higher expense ratios than index funds.
While Vanguard is best known for its index funds, the company has several high-performing actively managed funds, too, such as the Vanguard Advice Select International Growth Fund (ticker: VAIGX). VAIGX has an expense ratio of 0.42% and is focused on non-U.S. companies with high growth potential.
Fidelity also offers active funds, such as the Fidelity International Growth Fund (FIGFX), an actively managed fund in the foreign large growth category. While the fund is similar to VAIGX, it has a higher expense ratio of 0.99% and a greater focus on Japan.
Both Fidelity and Vanguard boast actively managed funds that have beaten their benchmarks. At Fidelity, 86% of equity funds that had the same manager for at least five years beat their benchmarks over their manager’s tenure, which represents 32 of 37 funds, the firm reports. Vanguard says that 86% of its actively managed funds performed better than their Lipper peer-group averages over 10 years through 2021, representing 81 of 94 funds.
Passive management. A passively managed account isn’t actively managed by a fund manager. Rather than trying to outperform the market, passively managed accounts aim to replicate the performance of an index, such as the S&P 500 or the Nasdaq Composite Index. These funds typically have lower expense ratios than actively managed funds, which can add up to significant savings over time.
As mentioned before, Vanguard is known for its passive index funds and is an industry leader in indexing. About $4 trillion is invested in Vanguard index mutual funds and ETFs. Index fund options range from broad stock market funds, such as Vanguard 500 Index Fund (VFIAX), to environmental, social and governance, or ESG, funds like the Vanguard ESG International Stock ETF (VSGX).
Fidelity has a wide range of high-performing index funds, including funds that track U.S. stock market indexes, international equity index funds and sustainable fund indexes. Top choices include the Fidelity 500 Index Fund (FXAIX) and the Fidelity U.S. Sustainability Index Fund (FITLX).
The performance between the companies’ index funds are likely similar, as they track the same market indexes. However, Avanti Shetye, a chartered financial analyst, or CFA, in Ellicott City, Maryland, says the fees and investment minimums vary between companies. “Fidelity funds have no minimum requirements on initial investments,” she says. “Vanguard, on the other hand, has a minimum investment requirement of $3,000. For an investor who is just starting and either doesn’t have $3,000 or wants to test the waters before getting comfortable investing, Fidelity is the clear choice with its zero minimum requirement.”
Robo advisors. Hands-off investors may want to consider using a robo advisor, which is a type of online financial advisor that uses algorithms to manage your portfolio. A robo advisor can automatically rebalance your portfolio and reinvest dividends, and it will adjust your asset allocation as needed.
Vanguard Digital Advisor is Vanguard’s robo-advisor option. It requires a minimum investment of $3,000, and it only invests in ETFs. You can choose between a portfolio composed of standard ETFs or ESG ETFs. Vanguard Digital Advisor is free for the first 90 days. After that, expect to pay up to 0.2% in advisory fees, which vary based on selected options.
Fidelity’s robo-advisor service is Fidelity Go. There’s no minimum to get started, making it a better choice for beginner investors. Your money is invested in Fidelity Flex mutual funds that typically hold domestic stocks, foreign stocks, bonds or other short-term investments. Fidelity Go is a low-cost option:
— Account balance between $0 and $9,999: $0 advisory fee
— Account balance between $10,000 and $49,999: $3 per month
— Balance of $50,000 or more: 0.35% a year
Functionality and Tools
Vanguard and Fidelity both offer online trading services and educational tools, but they’re quite different. Vanguard’s platform is geared toward buy-and-hold investors, so there isn’t real-time data on specific funds or customizable options. Long-term investors may not mind, but others may find those limitations frustrating.
“Fidelity has many more advanced tools for charting and screening, and comes out ahead for day traders,” says Shetye.
Fidelity’s site is more user-friendly for both beginners and seasoned investors. If you plan on being more hands-on, Fidelity’s features, such as the Active Trader Pro charts and advanced order types, may be appealing.
Overall, Vanguard and Fidelity are both great choices for those interested in investing. They offer a wide range of investment options, low costs, and hands-off or active management depending on your preference.
When it comes to index funds, Vanguard is hard to beat, with hundreds of low-cost options. And the Vanguard Digital Advisor is a powerful robo advisor that charges less than 0.2% in advisory fees. For hands-off, long-term investors, Vanguard stands out from the competition.
Fidelity’s learning center, real-time trade data and cryptocurrency options make Fidelity a better fit for more advanced traders. But its zero minimum balance requirements may also appeal to new investors just starting out.
Whichever you choose, you’re in good hands. Both companies are solid choices for investors.
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Update 10/12/22: This story was published at an earlier date and has been updated with new information.