Vanguard vs. Fidelity: Which is Best For You?

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Choosing the best online brokerage is a key step to being a successful investor. Making a decision can be difficult because you have several good options.

This Fidelity vs. Vanguard comparison can help you choose between two of the best online brokers.

Fidelity and Vanguard offer a full-suite of investment options, including index funds and stocks. Both brokers also charge some of the industry’s lowest fees.

Neither brokerage is a poor choice for new investors or experienced investors. Your 401k plan may be with Fidelity or Vanguard. However, one can be a better fit for your investing goals.

What is Fidelity Investments?

Fidelity began in 1946 and now has over 30 million individual members. You can open taxable and individual retirement investment accounts (IRAs). If you prefer a hands-on approach, Fidelity offers a robo-advisor and personal wealth management as well.

This brokerage is best known for its broad mutual fund portfolio. Long before free investing apps were around, mutual funds were the most practical way for average people to invest.

Many Fidelity mutual funds have an active investing style or focus on a specific market sector. However, you can find plenty of index funds, including the Zero family, that are 100% fee-free.

Fidelity also lets you buy or sell stocks and ETFs for free. Since January 2020, you can buy fractional shares of stock in the Fidelity mobile app.  

Advanced investors may also appreciate Fidelity’s Active Trader Pro platform. This is an advanced research tool that Vanguard doesn’t offer. 

What is Vanguard?

Vanguard was launched in 1975 by Jack Bogle, who many consider “the father of index funds.”

Because of this low-effort and low-cost investing style, Vanguard has one of the most loyal followings known as the Bogleheads. Over 30 million people invest with Vanguard.

Like Fidelity, Vanguard offers active mutual funds, ETFs, stocks and bonds. You can hold these investments in a taxable or retirement account. The Vanguard Personal Advisor service can also manage your account when your account balance is at least $50,000.

There are no fees to trade most stocks, mutual funds and ETFs. But, most Vanguard mutual funds require a minimum $3,000 initial investment.

While Vanguard lets you trade options, Vanguard isn’t the best fit for advanced stock traders. 

Fidelity vs. Vanguard: In-Depth Comparison

CompanyVanguardFidelity
Trades$0$0
Monthly fees$0$0
PromoNoneNone

There are many similarities between Fidelity and Vanguard. Both brokerages charge low fees and offer investment accounts for you and your family.

For example, you can also open a 529 college savings plan. Fidelity even offers term life insurance.

Either platform is a good option for investors who solely desire to invest in index funds. But if you want to trade stocks or access a financial advisor, one broker can be better than another.

Account Options

Both Fidelity and Vanguard offer these common investment account types:

  • Taxable accounts (individual and joint)
  • Traditional IRA
  • Roth IRA
  • Self-employment IRAs
  • Solo 401k
  • 529 college savings plans
  • Annuities

Neither brokerage requires a minimum account balance for the taxable accounts and IRAs.

The account options differ if you prefer a managed account where Fidelity or Vanguard decide how to invest your money. Let’s look at each broker’s most popular advisory options.

Fidelity

You have several different options to have a Fidelity advisor manage your portfolio. These options can be cheaper than hiring a local financial advisor. 

Fidelity Go

The most affordable advisory account is Fidelity Go. You can start investing with a balance as low as $10. Your only fee is an annual 0.35% annual management fee. 

This account uses a robo-advisor where Fidelity invests your cash into a basket of stock and bond ETFs. Although a Fidelity professional doesn’t personally review your portfolio, they adjust the Fidelity Go investment strategy as necessary.   

If you think investing with computer algorithms is unusual, other brokers like Betterment are doing the same thing. In fact, Betterment’s annual management fee is only 0.25%.

Fidelity Personalized Planning & Advice

You can get one-on-one advisory access with the Fidelity Personalized Planning & Advice. Fidelity requires at least $25,000 in assets to join, and there’s a 0.50% annual advisory fee.

Before joining, you will get a personalized investment plan you can approve.

The Fidelity Go robo-advisor will manage your investment portfolio. However, you can bounce your money goals and finance questions off of a Fidelity money coach in 30-minute sessions.

Wealth Management

With at least $250,000 in assets, you can get a dedicated financial advisor. This advisor can help you plan for retirement and leaving an estate.

Vanguard

You can also find “hands-off” investing at Vanguard if you don’t feel comfortable investing by yourself. 

Vanguard Personal Advisor Service

The Vanguard Personal Advisor Service is a hybrid robo-advisor like Fidelity’s Personalized Planning & Advice. You will speak with a Vanguard advisor to make an investment plan. This advisor reviews your portfolio quarterly and rebalances as necessary.

However, Vanguard uses a robo-advisor to manage the day-to-day portfolio movements. The annual cost is 0.30% of your account balance with a minimum $50,000 account balance.

Edge: Fidelity offers more hands-on advisory options for high net worth investors.

Fees

Both Vanguard and Fidelity continually lower their fees for the most common investments to compete with fee-free brokers like Robinhood and M1 Finance. The most recent change for both is charging $0 to buy or sell stocks and ETFs. 

Below is a summary of the fees you might pay to buy or sell investments online.

Fidelity

  • Stocks: $0
  • ETFs: $0
  • Fidelity mutual funds: $0
  • Non-Fidelity mutual funds: $0 up to $49.95
  • Options: $0 per trade plus $0.65 per contract

The account service fee is $0 for all non-retirement and retirement accounts. 

More importantly, Fidelity only requires a $1 initial investment for most of their mutual funds. Vanguard requires at least $3,000 to open a position for most funds.

Vanguard

  • Stocks: $0
  • ETFs: $0
  • Vanguard mutual funds: $0
  • Non-Vanguard mutual funds: $0 up to $20 per trade
  • Options: $0 per trade plus $1.00 per contract

Vanguard investment accounts don’t have a minimum account balance requirement.

You will need to enroll in paperless documents to avoid a $20 account fee. It’s also possible to avoid the fee if you have at least $10,000 in Vanguard mutual funds and ETFs.

Another way to avoid the $20 account fee is having at least $50,000 in your account.

While Vanguard doesn’t charge any trading fees, most Vanguard mutual funds have a $3,000 minimum initial investment. This high minimum can be annoying if you don’t want to buy ETFs.

You can sidestep this cost barrier by buying the ETF version of the mutual fund instead. Vanguard offers an ETF and mutual fund version for most index funds.

The long-term fund performance is similar for both fund types, yet the ETF version may have lower fund fees.

Edge: Fidelity because they have lower investment minimums for more mutual funds 

Investment Options

While you’ll have access to many of the same individual stocks, each broker has differing mutual fund options. Yes, you can buy index funds and target-date retirement funds with either broker.

But each broker puts their twist on passive index funds and active funds with a colorful history.

For example, Vanguard offers the Wellington Fund (Ticker: VWELX) that’s a favorite balanced fund for retirement portfolios.

Fidelity offers many active funds that strive to outperform their market benchmark, such as the Fidelity Contrafund (Ticker: FCNTX).

Here are the most notable investment options for Fidelity and Vanguard.

Fidelity

Fidelity has some exciting options for stocks, mutual funds and ETFs.

Fractional Investing

Inside the Fidelity mobile app, you can buy fractional shares of stocks and ETFs. For instance, if you can’t afford to buy a full share, you can at least buy a partial position. However, this feature isn’t available on the web platform as of February 2020.

Fractional investing makes it easier to build a diversified portfolio when investing with small amounts of money.

Fidelity Zero Index Funds

Many index funds already have some of the lowest fund expense ratios. Even if you pay $0 to buy shares, most funds charge annual fees to cover operating costs.

For example, a 0.04% fund expense ratio means you pay $4 in annual fees for every $1,000 you invest.

Fidelity’s ZERO index fund products have a 0% expense ratio. No fund fees mean you don’t lose any of your investment balance or gains.

The four different Fidelity ZERO index funds cover these asset classes:

  • Large-cap U.S. stocks (i.e., S&P 500)
  • Total U.S. stock market index
  • U.S. mid and small-cap stocks
  • International large- and mid-cap stocks 

You will need to get a bond index fund with an expense ratio. However, these are some of the most cost-efficient stock index funds you can find. As all index funds have nearly identical performance records, no fund fees are an easy way to keep more potential gains.

What makes these funds even more attractive is you can invest in $1 increments. 

Fidelity Freedom Funds

Index funds get the most attention from average investors these days. Yet not every investor feels confident in deciding which index funds to buy.

If this is you, your best alternative can be target-date retirement funds.

Fidelity calls their target date lineup the Freedom Funds portfolio. Simply find your projected retirement year and pick the fund closest to that year. For example, you choose the Freedom Fund 2050 if you plan on retiring in 2050.

As retirement gets closer, the fund automatically invests in less-risky assets like bonds. While these funds can take the guesswork out of retirement planning, target-date funds may underperform the broad stock market.

You will see two different fund options for each retirement date. The Freedom funds invest in Fidelity’s active mutual funds and can have expense ratios. The Freedom Index set holds index funds, so you have a lower expense ratio.

Like the Fidelity Zero funds, you only need to $1 to open a position.

Active Mutual Funds

Fidelity has plenty of mutual funds with an “active investing strategy.” What this means is you’re trying to beat the market benchmark instead of only matching its performance.

As with any online brokerage, you should avoid some funds due to poor performance. However, many Fidelity funds have four-star and five-star Morningstar ratings.

These funds can be an easy way to invest in specific market sectors like industrials or real estate. A recent investing trend is socially responsible investing. You can find a few socially-minded funds as well.

If you’re thinking about holding active mutual funds, you may consider using Morningstar as a research tool. Their third-party research can help you find the best mutual funds that Vanguard or Fidelity offers.

Vanguard

Index mutual funds are the cornerstone of Vanguard’s investment options. However, you can also buy index ETFs, active funds and stocks. 

Admiral Shares

The “crown jewel” of Vanguard’s index fund portfolio is their Admiral shares class. This share class has lower fund expense ratios than Vanguard’s investor shares class. For instance, the investor share may have a 0.27% annual expense ratio versus 0.18% for Admiral shares.

Although Vanguard Admiral shares still have an expense rate, they are 0.05% or less for most index funds. This fee may not be as attractive as Fidelity’s Zero funds. However, the costs are competitive, with Fidelity’s index funds still charging fund fees.

Vanguard has recently removed the investor class shares for many of its index funds. In the past, you usually needed a $10,000 fund position to convert your investor shares into Admiral shares. Now, you get Admiral shares with the minimum $3,000 investments.

One Admiral shares fund that many early retirees are fond of is the Vanguard Total Stock Market Index Fund (ticker VTSAX). This fund invests in the 3,000 largest U.S.-listed companies. Its expense ratio is 0.04% and has a $3,000 minimum investment.

Index ETFs

Even though it’s cheaper than ever to buy Admiral shares of index funds, the $3,000 minimum investment is still pricey for cash-strapped investors. Thankfully, Vanguard offers index ETF equivalents for their index funds.

Your minimum investment is the cost of a full share. Vanguard doesn’t offer fractional investing like Fidelity. If you can only invest $1,000 presently, you will need to buy Vanguard ETFs.

One advantage of ETFs is the potentially lower expense ratios. Let’s look at the Vanguard Total Stock Market ETF (symbol VTI). Its annual expense ratio is 0.03%, while its Admiral share equivalent (VTSAX) has a 0.04% expense ratio.

Target Retirement Funds

Vanguard offers target-date retirement funds that hold various stock and bond index funds. These funds require a $1,000 minimum investment, which makes it easy to diversify your portfolio as a new investor quickly.

LifeStrategy Funds

Another twist on the target-date approach is to invest according to your risk tolerance. Fidelity has Asset Manager funds with a similar approach. However, the average expense ratio is 0.13%, which is lower than Fidelity’s funds that can be closer to 0.70%.

Vanguard’s LifeStrategy funds offer these investment strategies:

  • Income
  • Conservative growth
  • Moderate growth
  • Growth

These last three funds are for investors with a minimum five-year investment timeframe. Income LifeStrategy seeks to hold 80% of its assets in bonds for three to five years.

Active Funds

Vanguard offers actively managed mutual funds and ETFs. Like other online brokerages, you will find winners and losers. 

These Vanguard mutual funds and ETFs give you exposure to certain sectors and strategies, including socially-responsible investing. 

If you don’t find a Vanguard fund that fits your fancy, your next-best option can be buying a non-Vanguard ETF to avoid mutual fund fees.

Edge: Toss-up

Cash Management Accounts

Both Fidelity and Vanguard have cash management accounts. These accounts can earn more interest than a standard savings account. 

Fidelity

Fidelity’s cash management account is similar to an online checking account. Your balance of up to $1.25 million can be FDIC-insured. You can also get paper checks and nationwide ATM reimbursements.

With responsible management, you can also get a rewards credit card that earns 2% back. You can invest your cash rewards in your Fidelity account.

All deposits earn 0.82% as of February 10, 2020. 

Vanguard

Vanguard’s cash management account boasts fewer features but can earn more passive income. As your cash is in a money market fund, your money isn’t FDIC-insured.

However, your money is mostly in the Vanguard Federal Money Market Fund (ticket VMFXX) that holds U.S. government bonds.

The current yield is 2.16% APY, before a 0.11% expense ratio, as of February 10, 2020.

Edge: Toss-up

Research Tools

Both brokerages offer research tools that can help you screen potential investments.

Fidelity

Fidelity is the clear winner for traders and even casual investors who need advanced charting tools and access to multiple third-party research reports.

Frequent investors will want to download Fidelity’s Active Trader Pro software. This program offers real-time stock data, news, and charting.

Vanguard

Vanguard lets you analyze the basic stock fundamentals and charts. You can also read research reports from Argus and MarketGrader. This information is enough if you primarily invest in index funds but want to own shares of a few of your favorite companies.

You may also consider using other investment research tools to screen potential investments.

Edge: Fidelity

Mobile App

Both brokerages offer a mobile app for Android and Apple devices. These apps are fully-functional and make it easy to buy or sell positions.

Currently, Fidelity only lets you buy fractional shares of stock using their mobile app.

Edge: Fidelity

Positives and Negatives

Both Fidelity and Vanguard have loyal followings. One brokerage may clearly be a better fit for your investing style. But if you’re still undecided, these pros and cons can help you decide.

Fidelity

Here are some of the highlights and lowlights of investing with Fidelity.

Pros

  • Index funds with 0% expense ratios
  • $0 commission to trade stock and ETFs
  • Many Fidelity mutual funds have a $1 minimum investment
  • No account fees or balance minimums
  • Extensive stock research tools

Cons

  • Fractional investing is only available with the mobile app
  • Fidelity Go annual fee is higher than other robo-advisors
  • Money market funds can have lower yields than Vanguard

Vanguard

Here are some of the highlights and lowlights of investing with Vanguard.

Pros

  • Many index funds and target retirement funds with low fees
  • $0 trade fees for most stocks and ETFs
  • Index ETFs have lower minimum investments than mutual funds
  • Money market funds have some of the highest annual yields
  • Access to personal advisor service with at least $50,000 in assets 

Cons

  • Most mutual funds require a $3,000 minimum investment
  • No fractional investing for stocks and ETFs
  • Few research tools for advanced investors
  • Must enroll in paperless statements or maintain a certain balance to waive the $20 account fee

Who Should Use Fidelity?

Fidelity is better if you primarily want to own stocks and mutual funds. The lower investment minimums and fractional investing make it easier to buy positions with limited funds. Access to in-depth research tools can also be handy.

Who Should Use Vanguard?

Vanguard is best for index fund investors. Paying $0 to trade stocks and non-Vanguard ETFs makes diversifying your portfolio easy and affordable.

Also, you may decide to use Vanguard since investment blogs tend to talk about Vanguard index funds more than Fidelity funds.

Summary

Both Fidelity and Vanguard can offer a better experience than free investing apps. Fidelity is better if you want to invest in stocks or want low investment minimums.

Vanguard is better if you prefer investing in well-known index funds.

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