Fidelity and Charles Schwab are two of the most established investment firms, and each has millions of clients. Fidelity serves more than 43 million accounts, while Charles Schwab has more than 34 million accounts.
Charles Schwab has $8.2 trillion in client assets, while Fidelity has $11.5 trillion in assets under administration. Fidelity is the older of the two, founded in 1946 by Edward C. Johnson II. Charles Schwab was founded in 1971 by none other than its namesake, Charles Schwab.
Fidelity and Charles Schwab both offer various index funds and low-cost exchange-traded funds, or ETFs, that are among the best in the industry. Both firms offer great features that can help you along your investment journey. However, each firm has subtle differences to keep in mind as you make a decision.
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Investors should compare the following characteristics when deciding between the two firms:
— Account and investment options.
— Performance and cost.
— Management options.
— Functionality and tools.
— Overall appeal.
Account and Investment Options
Fidelity and Charles Schwab both offer thousands of no-load, no-transaction-fee mutual funds and ETFs. These funds allow investors to build wealth and keep more of their money in the process. Some of these funds track popular indexes like the S&P 500 and the Nasdaq-100, while others are actively managed.
Charles Schwab partners with T. Rowe Price to showcase additional actively managed mutual funds to expand your pool of choices. If you want to buy stocks on either platform, you won’t have to worry about trading fees and can purchase fractional shares.
Neither firm requires a meaningful minimum investment for its mutual funds and ETFs. You can get into a fund with as little as $1. However, both firms require a minimum order value of $1 for their systems. While investors can trade options on either account, only Schwab offers futures. Both brokerage firms have a 65-cent fee for each options contract you trade. If you want to buy cryptocurrencies, Fidelity is the brokerage firm for you.
Fidelity and Schwab both let you buy bonds, insurance and annuities. They also offer several retirement plans, such as traditional and Roth IRAs, individual 401(k) plans, SEP IRAs and rollover IRAs.
While both platforms have superb trading resources, Schwab has the edge. “Schwab has a customizable trading platform called Thinkorswim for those active traders who want robust tools and customization of complex strategies and techniques,” explains Misty Garza, vice president and financial advisor at Bogart Wealth.
Performance and Cost
Fidelity and Charles Schwab have comparable fund performance and costs.
Both investment firms have several mutual funds and ETFs with good performances over the past one, five and 10 years. However, past performance is not a guarantee of future outcomes. Investors should review each fund’s fees, historical performance and asset allocation to gauge how they may perform in the future.
A history of steady performance indicates less volatility than a fund that has significant performance swings over the course of several years. Comparing a fund to an appropriate index can help you gauge if the fund is performing well or falling below expectations.
You may want to compare a growth-oriented fund to the S&P 500. However, it wouldn’t make as much sense to compare a fixed-income fund to the S&P 500’s performance. A fixed-income fund and the S&P 500 have different objectives and cater to different types of investors.
[See: 7 Best ETFs to Buy Now.]
Management Options
Investors can choose from funds that are actively managed, passively managed or algorithm-based. It’s important to consider if you want active, passive or robo-advisor management before putting money into a fund.
Active Management
Actively managed funds attempt to outperform a market index and usually come with higher fees. While Fidelity and Charles Schwab both have many low-maintenance funds, they also let you choose from many active funds. Schwab has an expanded offering due to its partnership with T. Rowe Price.
While actively managed funds aim to outperform benchmarks, it’s easier said than done. Most actively managed funds end up underperforming the benchmark, and the higher fees don’t help. Elevated expense ratios mean you keep less of the profits, and it is possible to find expense ratios above 1% for actively managed funds.
Passive Management
A passively managed fund aims to mimic an index instead of trying to outperform it. These funds have lower expense ratios since a manager doesn’t have to stay on top of it every day. Fidelity and Schwab both offer passively managed funds with expense ratios under 0.1%.
“Passive management is good for those who want to be able to have a ‘hands-off’ approach to their investments,” Garza says. “Passive management is typically geared towards index investing and offers low-cost investment options.”
A passive approach makes it easier for more investors to enter the market and generate a return on their capital. The learning curve is more generous for passive investors who prefer to put their capital into a fund that mirrors a benchmark, then set it and forget it.
Robo Advisors
Robo advisors allow you to make algorithm-based investments. You can indicate your risk tolerance, portfolio strategy and other parameters, and leave a so-called robo advisor to make investments on your behalf based on the rules you set.
Fidelity and Schwab both offer robo advisors. However, it’s easier to get started with Fidelity since the firm does not have a minimum investment requirement to start.
You must have at least $5,000 to open a robo-advisor account with Schwab. Schwab does not have an advisory fee for its robo advisor, though, which is a key advantage.
Fidelity does not charge an advisory fee for portfolios under $25,000, but you will have to pay a 0.35% advisory fee each year if your portfolio exceeds $25,000. Fidelity robo-advisor accounts give you access to unlimited one-on-one coaching calls. Schwab provides 24/7 live support instead of coaching calls.
Both companies have their customers fill out questionnaires before pairing them with a robo advisor. However, Garza warns that robo advisors have considerable risk.
“Because robo advisors are automated advisors, there is little to no human interaction — and determining someone’s risk profile is more than just using an algorithm. Emotional and behavioral factors need to be considered when setting up a risk profile,” Garza says.
Functionality and Tools
Fidelity and Schwab both offer tools that can help beginners and advanced investors. You can get an advanced stock screener and trading tools from either platform, but Schwab’s Thinkorswim is arguably the gold standard for trading platforms you can find among investment firms. Fidelity’s Active Trading Pro is competitive, however, and is a great choice as well.
Overall Appeal
Fidelity and Schwab are both excellent choices. These investment firms offer thousands of funds. There are some nuances, such as Fidelity being better for crypto traders and Schwab being more optimal for futures traders.
Fidelity’s robo advisor is better for investors who are getting started, but Schwab becomes more affordable once your balance exceeds $25,000.
“What sets brokerage firms apart from each other is their trading platforms, educational tools and support when needed,” Garza says.
Fidelity and Schwab both check off the criteria. Passive investors can pick either firm, but if you want to take a more active, trading-based approach, Schwab’s Thinkorswim platform is hard to beat. Both brokerage platforms are reliable choices for investors.
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Fidelity vs. Charles Schwab: Which Is the Right Choice for You? originally appeared on usnews.com
