Investing in a portfolio of carefully selected assets is a popular path to retirement. You can choose from stocks, bonds, exchange-traded funds and other assets when assembling your portfolio; however, you have to create a brokerage account before you can access any of these investments. You can choose from many platforms, but few of them compete with Fidelity and Vanguard.
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These financial stalwarts have helped customers build wealth for decades. Both brokerage firms have various low-cost funds that let you invest in a basket of stocks and bonds. While Fidelity and Vanguard are both solid options, they have a few nuances investors should keep in mind. Here’s how Fidelity and Vanguard brokerage accounts compare:
— Size and investment philosophy.
— Account and investment options.
— Performance and cost.
— Management options.
— Functionality and tools.
— Overall appeal.
Size and Investment Philosophy
In terms of reputation and scale, both Fidelity and Vanguard have long been recognized as two leading investment firms in the U.S.
Founded in 1946 with Edward C. Johnson II as president, Fidelity Management and Research Co. fostered a reputation for nurturing growth stocks, making investments in companies such as Xerox Holdings Corp. (ticker: XRX) and Polaroid in the 1950s.
Fidelity now serves over 50 million investors and manages employee benefit programs for nearly 28,000 businesses.
Vanguard is a more recent phenomenon, launched in 1975 by iconic investor John Bogle. Throughout its history, Vanguard has prioritized diversification and was a driving force behind the launch of the first public index mutual fund.
Bogle’s influence is still evident today, as Vanguard focuses on long-term investing in low-cost funds, making the firm a reliable player on Wall Street. Vanguard also serves more than 50 million customers.
Account and Investment Options
Fidelity and Vanguard let you choose from many assets and keep the fees low. You won’t have to pay any commission fees on stock trades, and both brokerage accounts have ETFs and mutual funds with some of the lowest expense ratios in the industry.
You can start trading stocks and ETFs on these platforms for as little as $1. However, you will have to pay a 65-cent fee for every options contract you trade on either brokerage account. Fidelity and Vanguard also let you trade bonds, CDs and money market funds if you want to minimize your risk and focus on cash flow.
If you want to save for retirement, either brokerage platform will work. Vanguard and Fidelity have IRAs, 401(k) plans, SEP IRAs and other types of retirement accounts. While both brokerage accounts offer various choices, the best choice may come down to your investing mindset. Vanguard caters more to long-term investors, while Fidelity has better functionality for investors who want to be more active in the stock market. If you want to trade options and monitor price fluctuations throughout the day, Fidelity is likely the better option.
You’ll also want to use Fidelity if you want to buy cryptocurrencies. Fidelity Crypto lets investors trade popular cryptocurrencies like Bitcoin and Ethereum. On the other hand, Vanguard doesn’t offer crypto and doesn’t even have plans to create a Bitcoin ETF.
Overall, Fidelity still holds plenty of value for long-term investors, but the Vanguard user experience is more suitable for people who only want to commit to long-term positions.
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Performance and Cost
Vanguard and Fidelity both have ETFs and mutual funds that let you follow popular benchmarks like the S&P 500 and Nasdaq Composite while enjoying low costs.
For instance, the Vanguard S&P 500 ETF (ticker: VOO) tracks the S&P 500 and has a 0.03% expense ratio. Meanwhile, the Fidelity 500 Index Fund (FXAIX) follows the same index and has a 0.015% expense ratio.
These funds have nearly identical portfolios and returns. Fidelity’s fund is slightly cheaper, but you’re in a good position if you’re choosing between a 0.03% expense ratio and a 0.015% expense ratio. Investors often find themselves making these types of choices when comparing Vanguard ETFs with Fidelity ETFs. The same approach also applies to each brokerage firm’s mutual funds.
Investors can choose from many mutual funds and ETFs based on their risk tolerances and long-term objectives. You are extremely likely to find an optimal mutual fund or ETF on either of these brokerage platforms if you do some research.
Management Options
Vanguard and Fidelity customers can choose from active management, passive management and robo advisors. Here’s how these management styles differ and what you can expect if you use Vanguard or Fidelity.
Active Management
The thought of beating the market has fascinated investors for many years, and actively managed funds aim to turn that goal into a reality. Although Fidelity and Vanguard have low-cost ETFs that follow major indices, these brokerage firms also offer actively managed funds.
These funds have higher expense ratios since it takes more effort to run them. Portfolio managers have to stay on top of trends and reallocate their positions accordingly.
Actively managed funds may also go through more frequent portfolio rebalancing, while most passive funds only rebalance their assets every quarter.
Passive Management
Passively managed funds have lower expense ratios since they take less effort to monitor. Instead of having a team that’s trying to achieve the best possible return, the portfolio managers adjust the fund’s allocation based on changes to an underlying benchmark.
Passive funds are easier to maintain, but that doesn’t mean you’re missing out on great returns. Benchmarks like the S&P 500 and the Nasdaq Composite outperform most actively managed funds. Vanguard and Fidelity have various funds that track benchmarks. They have nearly identical portfolio constructions and returns, as we saw with VOO and FXAIX.
Lower fees and less time in your portfolio are the cherries on top when it comes to passive funds vs. active funds. These funds have much shorter learning curves and do not require as much knowledge about the stock market as investing in active funds or individual stocks.
Robo Advisors
You don’t have to stay on top of your portfolio to make regular investments and strategic decisions, or at least that’s the main premise of robo advisors. You can set up an algorithm that makes trades based on your criteria.
It’s still good to monitor your portfolio if you use a robo advisor, but it can be a valuable resource. Vanguard and Fidelity both offer robo advisors that cost much less than human advisors.
The Vanguard Digital Advisor has several preset investment options you can use to gauge how it can boost your portfolio. It’s free for the first 90 days and then has a 0.25% advisory fee.
Fidelity Go is Fidelity’s robo advisor. You don’t have to pay any advisory fees if your balance is below $25,000. However, you will have an annual 0.35% advisory fee once your balance exceeds $25,000. Fidelity Go also offers unlimited one-on-one coaching calls once you start paying the advisory fee.
You need at least $100 to use Vanguard’s robo advisor service, while Fidelity does not require a minimum investment.
Functionality and Tools
Vanguard and Fidelity both have educational resources and trading tools, but Vanguard’s trading tools are a bit more limited. Vanguard doesn’t offer any real-time data, while Fidelity has advanced charting and screening tools available to traders.
Fidelity’s Active Trading Pro gives it a comfortable edge over Vanguard for its tools. However, it boils down to the type of clients Vanguard serves. The brokerage firm prioritizes long-term investors and doesn’t have many tools for traders. If you want a brokerage firm that offers more tools and resources, you may want to use Fidelity.
Overall Appeal
Vanguard and Fidelity are both excellent choices for any investor. Both investment houses let you choose from various quality investments and offer a wide range of tools for investors and traders.
It’s hard to beat Vanguard when it comes to buying and holding stocks. The entire platform is designed for long-term investors and isn’t as flashy as new platforms like Robinhood that cater to traders. This lack of “fun,” for lack of a better word, may make the thought of trading less enjoyable for some who use Vanguard.
Fidelity gives you more choices and can work well for people who want to hold stocks for the long run while having the flexibility to make trades. Options traders may also prefer Fidelity due to its more dynamic dashboard and overall experience.
Both choices are great for beginners, and you can start investing on either platform with as little as $1.
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Vanguard vs. Fidelity: Which Is Best for You? originally appeared on usnews.com
Update 05/05/25: This story was published at an earlier date and has been updated with new information.
