Vanguard vs. Fidelity – Which Funds Are Better?


vanguard rollover ira mutual funds individual stocks vs mutual funds fidelity etfs active management

Yesterday morning, I had the distinguished honor of being on a call with Fidelity, the administrator/provider of my previous company’s 401k accounts, to roll over my 401k to a Vanguard IRA.

During this call, the sales agent was fiercely trying to persuade me to rollover the 401k account to a Fidelity IRA. His two major selling points were that he claimed that Fidelity had..

  • 1) Lower expense ratios than Vanguard, and
  • 2) Better money managers/actively managed mutual funds.

I then proceeded to get in to an argument with the sales rep about how active management is a foolish game in which to play. He fought back valiantly, stating that if you find a good money manager that takes advantage of the Modern Portfolio Theory, you can achieve higher returns through proper asset allocation.

Needless to say, he was digging his own grave with this piece of wisdom, since that has nothing to do with why active management is superior (asset allocation can be done on your own with index funds).

Regardless of how I felt about the validity of reason #2 above (better actively managed funds), reason #1 did in fact get me thinking because I have never done a personal, head-to-head comparison of Fidelity and Vanguard. I merely was trusting that Vanguard was superior because it is the most recommended in the investment books I read by Malkielvanguard rollover ira mutual funds individual stocks vs mutual funds fidelity etfs active management , Siegelvanguard rollover ira mutual funds individual stocks vs mutual funds fidelity etfs active management , et. al.

Because of this, I wanted to dedicate today’s post to comparing Vanguard against the largest mutual fund company in the world (as far as quantity of capital invested goes), Fidelity.

 

Point of Comparison #1 – Comparison of Expense Ratios (and subsequently, performance)

Shown on the table below is a comparison of the expense ratios for each of the 14 mutual funds/ETFs that I am currently holding in my Vanguard investment portfolio. You can find a listing of the ticker symbols of the funds that I am holding in my investment strategy.
 
vanguard rollover ira mutual funds individual stocks vs mutual funds fidelity etfs active management

As you can see on the table above, Vanguard features lower expense ratios (and therefore higher returns) on 10 of the 14 funds that I am holding. This corresponds to Vanguard beating Fidelity on expense ratios 70% of the time.

Moreover, Fidelity does not even offer index funds for the small cap value, REIT, and Emerging Market arenas. This is rather inadequate for the asset allocation-obsessed investor.

Simply put – no one can beat Vanguard on index investing.

 

Point of Comparison #2 – Trading Fees / Commissions

When it comes to trading fees and commissions for trading ETFs and mutual funds, Fidelity and Vanguard are tied. 

They both offer $0 trading on their proprietary mutual funds and ETFs.

 


Point of Comparison #3 – Minimum Balances, Initial Quantities, and ETF Availability

This point is an area where Vanguard shows though as having a clear advantage, at least in my perspective.

Fidelity requires that an investor have (for each mutual fund) a minimum initial investment quantity and continuing investment balance of $10,000. For the majority of investors, especially for younger investors, I feel that this is simply not realistic.

On the other hand, Vanguard requires a minimum initial investment of $3,000. However, once the account is established, the balance can dip below that level without penalty.

As far as ETFs go, Vanguard reins superior over Fidelity because 1) their ETFs feature lower expense ratios and 2) Fidelity does not even offer their own ETFs. Instead, the ETFs listed on the table above are actually iShares ETFs that Fidelity offers with $0 commission trading.

Point of Comparison #4 – Ease and Simplicity of Navigating Website

In trying to find the expense ratio data in the above table, I have to admit that I obtained a serious headache in the process.

Even though I am very used to and partial to Vanguard, Fidelity’s website is a pain to navigate. It is much harder to sort mutual funds based on asset class and whether they are index funds or actively managed.

Additionally, I feel that Fidelity tries to complicate index investing too much by offering “enhanced” index mutual funds. This makes it even harder to drill down to the investment vehicle that you want.

Key Takeaway

By the evidence shown above, I believe we have disproved what the sales agent was saying about Fidelity offering lower expense ratio index mutual funds.

As I am wrapping up this post, I am trying to brainstorm in my head just why Fidelity manages the most capital in the world, when Vanguard is clearly superior as far as index investing goes. Thus far, I have thought of the two reasons listed below:

  • Fidelity markets itself better to institutions, encouraging them to establish their 401k accounts with their company.
  • Fidelity specializes more in active management vs. index investing.
    • Since sadly, the majority of investors fall in to the active management trap, I suppose it would make a lot of sense for Fidelity to have an increased amount of capital.

How about you all? Do you all use Vanguard of Fidelity for your index and/or actively managed mutual fund needs? What made you go with the provider you chose? 

Share your experiences by commenting below!

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Related articles comparing Vanguard and Fidelity at several of my favorite personal finance blogs:
Comparison of Vanguard, Schwab, and Fidelity @ the Investing Guy
Target Retirement Funds Face Off – Vanguard and Fidelity and T Rowe Price@ The Amateur Asset Allocator
Vanguard vs. Fidelity – Which is Better? - Wealth Informatics

Comments

  1. I'm sorry for your pushy salesman experience, those are never an enjoyable.

    I'm still kind of new to the whole world of investing, ended up with an inherited IRA at both Vanguard and Fidelity. Thanks to a pushy 'personal Financial Adviser' at my bank, I've been very motivated to educate myself to be independent and comfortable about my own choices. What I've found is that Vanguard seems to be the standard which many blog post or articles use in their examples – the other day I read an article against hedge funds comparing a “vanilla” straw man portfolio , using all Vanguard funds “that my grandmother might set up” with high flying hedge funds (which overall did not fair well, a few blew past, but many more out of business others about the same as market values). Fidelity website seems to be more for the active trader, where Vanguard seems to aim more for the buy-and-hold folks.

    I've actually decided to use both as my investment companies, using each for where they are strongest. I've consolidated two legacy 401k's (Prudential & John Hancock) to a Vanguard traditional IRA mutual fund and for a inherited Roth at Oakmark which I'll need to take next year (5th year after death), I decided to open a Fidelity taxable brokerage to invest in munies (with other RMDs, I'll be over the $5K mark and sets up a holding pen for when RMDs exceed what I can roll back into tax advantage accounts).

    Both Fidelity & Vanguard have their strengths, but they have both been head and shoulder in customer service above the other firms I've dealt with as a retail customer.

    • Thanks for taking the time to share your experiences Kevin! I would definitely agree with you – whatever faults Vanguard and Fidelity do have, they are both a good overall choice when compared to the \”other\” options out there. Personally, I prefer Vanguard, but they both have their place!

  2. Great post. I am trying to decide on rolling over my old 401k to Vanguard (old employer) vs. Fidelity (new employer). Sounds like I should stick with Vanguard.
    My recent post Two Prisoners Missing From Classified Guantanamo Files

    • Thanks for reading Russ. It really all depends on what you're looking at investing in. If you're looking for the lowest cost index funds, Vanguard is definitely the way to go!
      My recent post Simplify Your Asset Allocation and Remove The Impossible From Your Investing Strategy With Bettermentcom

  3. I have my funds from TD Ameritrade and Fidelity. Vanguard won't allow me to set up account till I get my permanent residency, which is on going now. I am not at all un happy with Fidelity though. Same with my current 401K which I have with Wells Fargo, running fine!
    My recent post Enjoy Life- Save Money- Take Staycation

    • Thanks for sharing those experiences One Cent At A Time.

      Even though I am clearly biased towards liking Vanguard over Fidelity, in reality, compared to the option of foolishly investing money in individual stocks (which has been shown to produce lower returns over the long term for the majority of people), investing in index mutual funds with Fidelity or TD is perfectly acceptable.

      As long as you are happy with them, then keep doing what you're doing. Just keep an eye out for the expense ratios and how they compare elsewhere so you can maintained an informed perspective.
      My recent post June 2011 Financial Goals Update – Short Term- Mid-term- and Long Term

  4. @irish_rover50 says:

    My company has just gone full fidelity with their 401K. Vanguard funds i now don't have to be sold but i won't be able to add to them in the future. My experience has been Vanguard has a broader offering of index funds at lower rates. They also have a solid line up of bond funds. It might be time to retire…. and transfr to vanguard.

    • Thanks for sharing Irish rover! I agree with you – Vanguard has a better offering. However, the truth is that having a 401k is somewhat of a blessing in itself these days, and Fidelity isn't TOO much of an evil. I'm sure you'll be just fine!
      My recent post My Personal Finance Journey Vs. The United States of America – Round 2 – What Interest Rate is Your Savings Account Earning?

  5. The first thing to remember is that they are indeed SALES agent and are trying to sell you on anything they can. The problem though is that most are probably not as knowledgeable as you are and would have fallen into the trap. Cant believe it got to the point of arguing I would have hung up a long time ago. My husband love Vanguard and T. Rowe Price so we tend to stick with those funds.

    • You’re absolutely right Tiffany. I guess I should just accept that they are sales agents! Haha

      How is T Rowe Price as far as passive investing funds go? Do they have some pretty competitive index funds?

  6. Thank you for this post. It's very helpful, as I'm trying to decide which way to go.

    I just want to comment on T. Rowe Price. I love them until they I cashed in an account and they sent me a $10,000 check and 3 weeks later their check (a T. Rowe Price check!) bounced, and cause absolute havoc for me. The worst part was, they refused to replace the funds right away, saying it was “a federal reserve issue” and it was being investigated, and that for the customers affected, they would just have to wait until the investigation was complete. After three days of freak-outs to different T. Rowe Price people who were completely indifferent (which when it comes to your money is traumatizing), one person had mercy on me and got the money wired to my account. But not before several hundred dollars in fees had incurred from my bank. In the end, it got taken care of, but it absolutely scared the hell out of me to ever invest with T. Rowe Price again. I wish that hadn't happened, because I loved their website, their funds and their service. But that experience made me too skittish to go back. I often wonder if that's ever happened to anyone else (outside of the people affected by that T. Rowe Price event).

    • Wow. Thanks for sharing that story Robyn! I imagine that was quite a scary experience. Were they blaming it on the Federal Reserve since the bank at which they hold their funds was having a problem?

      Have you since switched to another investing house? If so, I'd be curious which one you chose.
      My recent post Contents and Building Insurance – Are These Coverage Types Necessary and What Do They Include?

  7. Kenneth Watson says:

    I have had several bad returns on my Fidelity investments. They insist the funds are safe, conservative funds that don't gain much in returns but never lose the principal. I have lost $6,000 so far with the sales advice. My advice is to stay away from Fidelity!

    • Thanks for reading Kenneth. So, they actually told you that the funds would never lose principal?

      I'm pretty shocked they would actually tell you that because unless you're buying something like a money market mutual fund, there is ALWAYS the opportunity that you can lose principal, even with bond funds!
      My recent post Easy Like Sunday Morning Weekly Recap and Roundup – # 5 – December 17th, 2011

  8. Thank you for this post…was looking for a place to put some cash that I came into as a bank savings account or CD would pay less than 1%. Just need the money to sit and grow. Vanguard seems to me the better of the two choices as their fees and index fund selection seem to be better for my strategy. Thank you for your time doing the comparison research.

    • Happy to help out Mike. Just make sure that if you put the money in a stock fund at Vanguard that you don't actually need to use the money for 5-10 years. If so, you'll want to make sure to go with a bond fund.

  9. I am due a qdro from UAL Fidelty 401k. I will be 66 this year and am still Fed employed. Most of which will go into my TSP account. I am wondering what other type of account I should get for easy access unlimited withdrawals and still preserve capital. Vanguard or leave in Fidelity.

    • Thanks for reading Doug. It all depends on what type of investment options are available in your 401k. If there are some low fee index funds, you might be OK. But, I generally feel like rolling over the account to an IRA is usually the best thing to do.

  10. I too encountered a pushy representative at Fidelity. I have rollover IRAs at both Fidelity and Vanguard, and the Fidelity representative denigrated Vanguard and tried to get me to move my money at Vanguard to Fidelity. He turned me off with his aggressive sales techniques. I don't know if he was representative of all Fidelity advisers, but I did not appreciate his approach. I don't like pushy financial advisers; I want objective advise, not sales pitches..

    I have a managed account with Fidelity, which means I pay high fees for them to supposedly make periodic changes to my IRA to maximize my returns with them. But when I recently compared my 1, 3, and 5 year returns at both companies, I got far better returns from Vanguard. My Vanguard fees are significantly lower, too.

    Again, my experience is limited to rollover IRAs with both companies, so I can't comment on any comparisons between the two companies for other types of investments. But I am likely to move the money i have with Fidelity to Vanguard in the near future.

  11. I need to decide:
    * moving old employer 401K to either new employer 401K or to new IRA account – Which one?
    * Choosing between Vanguard or Fidelity – Which one?
    * also how about having most/all 401K into 2040 funds – Is it good idea?

    Please advice

    • Great questions DJS!

      1) Generally, it's better to move an old employer 401k to a new IRA account, since there are more investing options with lower fees.
      2) As this article states, I prefer Vanguard since the fees are lower.
      3) Target Retirement date funds are a good idea for people that want to have a hands off approach to their investing. The fees are slightly higher, but overall, I don't think they're that bad.
      My recent post Yakezie Blog Swap # 20 Roundup

  12. I rolled over multiple past employer's 401(k), which were mostly managed by Fidelity, into a Fidelity IRA. Fidelity did it electronically for the Fidelity IRAs, so I never received a 401k check. That was convenient.

    However, the big disadvantage was when I tried buying Vanguard Mutual Funds in my Fidelity account. They charged $75 for each Vanguard mutual fund I bought! Now I wish I went with Vanguard, but it would be too much trouble to rollover my Fidelity Rollover IRA into a Vanguard Rollover IRA, so I will have to learn to live with it. The Boglehead Wiki page on Fidelity gave me some good advice.
    http://www.bogleheads.org/wiki/Fidelity

    • That wiki page is a good resource. In general, if you are restricted to having a Fidelity account, it's probably a better idea just to buy their versions of the mutual funds because they will be commission free.

  13. I am in pretty much the same position. I am being offered a lump sum buyout of my pension plan and was looking into a Vanguard traditional IRA. I have, from my former employee, a Fidelity 401k. I have done a fair amount of research on the fees and investment choices, as is obvious that you did too. After reading your experience and those of others, I too will probably be moving my pension plan money into a Vanguard account. Thanks for your wonderful summary!

    • Glad I could help Craig. While Fidelity is better than most, I do believe that Vanguard is the better choice between the two.
      My recent post You Don't Know What You Don't Know – A First-Hand Account of the State of Personal Finance Education

  14. I have a number of fidelity accounts – taxable investment account, joint account with wife, IRA, and self directed solo 401k. Also in the process of converting my work from John Hancock 401k (typical total fee to own S&P 500 fund: 1.4% per year) to Employee Fiduciary (equivalent fund will now be around 0.37% – higher than outside of a 401k but pretty good inside the 401k, we have an investment advisor that also gets a cut but it’s worth it as I legally can’t give investment advise).

    A few things – whether you pick Fidelity, Vanguard or otherwise, always roll your 401k into a personal account instead of moving the assets to another 401k. Even the cheapest 401k is still going to charge an asset based fee each year of something like 0.08% – and that’s if it’s cheap. Typically, the funds are going to cost somewhere between 0.5% and 1% – even if you’re with a big company. Why pay as much as 1% to have your money in an S&P 500 fund when you could do it at Fidelity, Vanguard, Schwab or wherever for less than 0.1%.

    Second thing – I have found that when it comes to the types of funds where the majority of your money is going to be invested – S&P 500 or total market fund, Fidelity and Vanguard have options that are roughly the same price. Keep in mind, even if you have $100,000 invested, a difference of 0.05% in fees is going to be only $50/year – peanuts. At that level, the cheaper fund isn’t even guaranteed to outperform the more expensive one – the cheaper one could have slightly more money sitting in cash in a good year, or might have had to purchase new shares on a different day. It will be indistinguishable. If you’re just starting out and you’re only investing $10k, then you’re talking about $5/year. If you were at Schwab, Fidelity or Vanguard and wanted to be somewhere else, is it even worth your time to theoretically save such a small amount? It can be a lot of hassle switching.

    Third thing – I use Fidelity’s free etf offerings to “manage” my portfolio. I split my portfolio 80/20 stocks and bonds, and further split it 75/20/5 US/International/Emerging markets. So I actually buy 16 different no commission ETFs, even though over 70% of my money is in just two – ITOT and IXUS. Am I overthinking it – probably. Could likely get roughly an identical return using only 3 or 4 funds. But I like to have fun, make spreadsheets, etc, and my weighted expense ratio across all funds is only 0.16%, so I’m not pissing away money in fees – the primary way investors lose out.

    I find Fidelity’s iShares offerings on the funds where most of my money is going – ITOT, ILTB, IXUS, IEMG to be very competitive. So I don’t sweat too much the slightly higher expense ratios on some of the more exotic investments, like IWC (microcap – 0.69%) or EEMS (emerging small cap – 0.69%). Such a small percentage of my overall portfolio is going to these funds that it’s literally a rounding error. Maybe I’ll feel different when I’m a millionaire, but until then…

    Fourth and possibly overlooked, but something I definitely think you should consider: if you live in a major city (I live in Atlanta) Fidelity has local offices, and from a non-sales perspective, I have found them to have excellent in person, phone and online customer service. I pay them nothing each year, other than some margin interest and the expense ratio of the iShares funds which they might get some compensation from – less than $100, and yet there is always someone you can call, chat with or go see in person. As you’re going through life opening accounts, rolling over IRAs, opening accounts for children etc, I think that’s something to consider. Especially when you consider that if you’re investing in index ETFs or low cost mutual funds, we’re only talking about a minor difference in fees that might ultimately be impossible to detect when you look at returns. If you’re in a high cost legacy Fidelity fund – or one of the Freedom funds, by all means review your invesments. But once you’re paying low fees, you get a lot of additional perks due to Fidelity’s giant size.

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