Vanguard vs Fidelity: Who is Better?

Personal investors may feel overwhelmed when contemplating how to begin investing. This article will be a breakdown of Vanguard vs Fidelity.

Vanguard and Fidelity are two of the largest asset management firms in the world. They are beloved by individual retail investors and corporate benefit plans.

AUM

Assets under management (AUM) is the total market value of the investments that a person or entity manages on behalf of clients.”

In tax policy, there is a theory called “voting with your feet”. Essentially, people will choose to live in a state with more favorable tax policies.

This is clearly evidenced in the mass exodus of citizens leaving California and New York for lower tax states like Texas and Florida.

Let’s simply adjust this tax theory to investment theory and call it “voting with your wallet”!

People are going to choose the asset management firm that provides the most comprehensive suite of investment products and diligence of care.

I don’t have the most recent numbers since the March 2020 pandemic crash. However, The Balance noted that Vanguard had $5.6 Trillion AUM and Fidelity had $2.46 Trillion.

vanguard vs fidelity assets under management (aum)

These numbers are going to be different after the recent stock market crash. Both companies have probably lost anywhere from 20-30% of assets.

When it comes to “voting with your wallet”, the edge clearly goes to Vanguard vs Fidelity!

Lower Fees?

Vanguard and Fidelity have both staked their entire business model on being discount brokerages.

This means they compete on a low-cost basis, similar to how Walmart competes in the retail business.

They both have extremely low fee structures. Fidelity even has a zero expense index fund (this was a marketing ploy though).

However, I am certainly not complaining about paying 0% in fees, while other asset management firms commonly charge 0.5% or higher!

Now, to the extent you want active management, Vanguard’s Wellington Fund has a great track record and low fees.

A lot of readers misunderstand my philosophy as being solely invested in passive index funds. This is certainly not the case at all!

I am a proponent of low fee investing! So, to the extent you can find low fees in active funds, go for it!

My final conclusion here is that Fidelity has lower fees for passively managed funds, but Vanguard has lower fees for actively managed funds.

Fund Choices

Vanguard has 130 mutual funds and 74 ETFs. Fidelity has over 300 mutual funds alone, which means they have more funds than Vanguard’s combined total.

vanguard vs fidelity fund choices

However, most of these funds are overlapping in terms of underlying assets. For example, Vanguard and Fidelity both have hundreds of funds with Microsoft exposure.

This could be in the form of Microsoft debt or equity. There are limited options when it comes to slicing and dicing fund asset allocations.

Plus, some stocks have more liquidity than others. This makes layering the underlying securities easier for fund managers.

Neither platform is going to have great alternative investments like Private Equity.

Public Trust

Both companies are well-respected, but Vanguard has more public trust in my opinion. This all goes back to Vanguard’s founder, John Bogle.

Bogle staked his entire professional reputation on fighting for small investors and taking on bloated Wall Street money managers.

Bogle never sold out to make a quick buck, and this is why Vanguard almost has a cult-like following. There is an online discussion forum called “Bogleheads” in his honor!

Seriously, you have to be careful about what you say regarding Vanguard because their beloved disciples become very angry. It’s similar to CrossFit! It’s all they can talk about.

Safe to say that Vanguard has the edge when it comes to public trust.

Investors = Owners

Vanguard investors are the owners of the company. There are no outside shareholders, and the same cannot be said for Fidelity.

The following is an excerpt from Vanguard’s website.

“Typical investment management companies are owned by outside stockholders. These companies have to charge fees to pay their owners, which can reduce investors’ returns.

At Vanguard, there are no outside owners, and therefore, no conflicting loyalties.

The company is owned by its funds, which in turn are owned by their shareholders, including you, if you’re a Vanguard fund investor.

Our unique client-owned structure allows us to return profits to our fund shareholders in the form of lower expenses.

Low costs help our clients keep more of their returns, which can help them earn more money over time.”

Fidelity is a publicly traded company, so the interest of shareholders may not always perfectly align with the best interest of the investors.

This isn’t to say Fidelity is explicitly ripping you off. Ultimately though, you have to wonder where their true loyalty lies.

Vanguard makes no bones about who they are designed to serve!

Employer’s Trust?

Fidelity is one of the world’s leading 401(k) providers, and this has been wildly profitable. The business community definitely supports Fidelity.

I’ve worked for 4 Fortune 500 companies, and they all use Fidelity for their employer-sponsored retirement plans.

Fidelity does a wonderful job providing corporate support. I know from personal experience.

I have sat through a couple corporate personal finance seminars from Fidelity financial advisors. The information was very beneficial and well put-together.

Vanguard does not have as large of a presence in the employer-sponsored retirement plan market.

Their market share has been steadily increasing during the past few years though.

Better App?

When comparing Vanguard vs Fidelity, I personally believe Vanguard has a more user-friendly app.

There are tabs for performance, cost basis, account balance, and any other form an investor could desire.

This has nothing to do with functionality, but I like the aesthetic appeal of Vanguard’s color scheme over Fidelity.

Fidelity’s app seems very patchworked, and it could have even been developed by different people not working together.

The pages don’t link together very well, and the flow of information is oddly pieced together.

Best Website?

On the other end of the spectrum, I think Fidelity has a much better website for investors.

Again, the aesthetic appeal of Vanguard’s website is much better (in my opinion). However, Fidelity’s website is far easier to navigate.

My mother (who is horrendous with technology) can even decipher which tabs to click to access the information she needs. Seriously, this is a big deal!

Fidelity’s tabs are all located very close to each other, and it makes surfing the site a breeze!

Tax Compliance

The worst nightmare for all investors is trying to determine the tax impacts of various trades. Was that a long-term or short-term capital gain? Was that a dividend or return of capital?

Well, Vanguard and Fidelity will take care of all your tax compliance needs! Both sites allow investors to receive electronic statements.

These wonderful tax compliance departments will relieve any headaches next April. I’m sure this is pretty standard across the industry though.

My Choice

I have always used Vanguard because I am a classic disciple of Vanguard’s founder, John Bogle.

Vanguard has established themselves as working for the individual, and I trust them with my money.

This isn’t to say Fidelity is a bad firm. In fact, it’s the exact opposite. Fidelity is a tremendous company. They simply haven’t formed that level of trust with me as an investor.

Vanguard vs Fidelity

Vanguard and Fidelity are two of the largest asset management firms in the world. They are beloved by individual retail investors and corporate benefit plans.

I tend to believe that Vanguard is one step above Fidelity!

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