Both Vanguard and Fidelity are well known financial services companies. Vanguard is the largest provider of mutual funds in the world and is owned by its own mutual funds. Fidelity is the fourth largest asset manager in the world. Vanguard vs Fidelity is an interesting side-by-side comparison.
Comparing Vanguard vs Fidelity is useful for the investor whether you are looking to manage funds in your 401(k) or just interested in trading stocks. Making a well-informed decision about what company to use can save you a lot of money in the long run.
What Is Vanguard?
Vanguard, whose full name is the Vanguard Group, is an American financial services company based in Pennsylvania. Vanguard has over $5.1 trillion in assets that it manages. It is the largest seller of mutual funds in the world and second-largest seller of exchange-traded funds. Vanguard offers a variety of financial services including brokerage, annuities, educational accounts, financial planning, trust services, and asset management.
Vanguard is named for an acclaimed 18th-century shipping vessel, and its name means “in the forefront.” Vanguard sees its name as appropriate due to its leadership role among investors. Vanguard’s ownership structure remains unique in the industry, and it is recognized as a leader in low-cost investing and as a steady advocate for investors.
Vanguard’s founder John C. Bogle believed that investment expenses drove investment performance. Vanguard offers very low expense ratios on its no-load mutual funds. Since Vanguard is owned by its mutual funds, profits are re-invested, keeping costs even lower for its mutual fund owners.
Vanguard was founded in 1975.
Vanguard’s founder Bogle created the first index funds that individual investors could buy and promoted low-cost investing. After Vanguard was founded, it succeeded largely through word-of-mouth among investors: low costs, well-managed funds, good service. Other investment companies mimicked Vanguard’s index funds, and by the 1990s they were fairly common.
As it gained more assets, Vanguard further reduced its costs, started more funds (both indexed and actively managed), and began to offer its services to retirement plans, institutions, and financial advisors. While its client base grew, Vanguard’s excellent incoming cash flow and below average redemption rate moved it toward joining the nation’s fund leaders. And as it grew, Vanguard was able to continue to lower its asset-weighted average fund expense ratio.
Bogle is no longer in charge at Vanguard: he retired as chairman in 1999 and was succeeded by Jack Brennan. In February 2008, F. William McNabb III became President of Vanguard, and in August 2008, he became its CEO. These leaders successfully expanded Vanguard’s offerings beyond the initial index mutual funds set up by its founder and diversified into exchange-traded funds and actively managed funds.
What Is Fidelity?
Fidelity is a multinational financial services corporation whose full name is Fidelity Investments Inc. Fidelity is based in Boston. Fidelity is the world’s fourth-largest asset manager at $2.4 trillion. Fidelity’s services include brokerage, managing mutual funds, investment advice, fund distribution, wealth management, retirement services, securities execution/clearance, and life insurance products. Fidelity is the number one 401(k) record-keeper in the U.S.
Fidelity was founded in 1946 by Edward C. Johnson II. In 1977, Edward C. Johnson III became chairman and CEO of Fidelity. In 1997, Robert Pozen became Fidelity’s new CEO. In 2014, Abby Johnson, the company’s third generation of leaders from the Johnson family, became CEO, and in 2016 she became chairman.
Timeline of Fidelity’s Accomplishments
The company formed Fidelity International Limited for its non-U.S. markets (Fidelity sold it off in 1980). In 1982, Fidelity began to offer 401(k) products, which is one of its most popular lines of business today. In 1984, Fidelity began marketing its computerized stock trading, another one of its popular features.
Fidelity became the first mutual fund company to have a website. It has continued to be a pioneer in web-based services in the financial services industry. Also in 1995, the Fidelity Benefits Center was started to provide administrative services for 401(k) plans, pension plans, and health and welfare programs for Fidelity’s client companies.
Fidelity created Fidelity Retirement Income Advantage as a comprehensive service that would help investors plan and manage their finances during and after retirement.
Fidelity created WealthCentral, the financial services industry’s first wealth management platform on the web. The platform combined customer relationship management, portfolio management, and re-balancing, and trading.
Fidelity was re-branded as Fidelity Worldwide Investment. Also in 2010, Fidelity Ventures, Fidelity’s venture capital division, closed and many former employees created a new firm named Volition Capital. In 2011, Fidelity changed the name of international division Fidelity International to Fidelity Worldwide Investment and introduced a new logo.
Vanguard vs Fidelity
The main difference between Vanguard vs Fidelity is that Vanguard is owned by its mutual funds’ shareholders. This non-traditional ownership structure is somewhat like a credit union, which operate to benefit their members. Fidelity is owned by its employees and some family trusts.
Because of the ownership structure, Vanguard keeps its fees/expenses as low as it can and still be operational. But Fidelity has no incentive to do so: it’s just the opposite, charging as high as the market will tolerate.
For example, if $10,000 is invested for ten years, a portfolio held at Vanguard vs. Fidelity produced $23,892 vs. $21,193, a difference of 28 percent. If this same disparity continued for an additional ten years, the difference could be 120 percent.
As mentioned above, Vanguard is incentivized to have lower expenses. It also has lower staff turnover and more index funds, which lead to higher returns to investors.
Both companies have their funds in many retirement funds and are top picks for IRA brokers. But when comparing Vanguard vs Fidelity, if you are an active trader, look for lower commissions and higher quality trading platforms at Fidelity. Vanguard does not have a trading platform of its own and may charge frequent traders more. So if trading frequently is your main concern, you’d save money working with Fidelity.
For some customers, the most critical features for a financial services company are the cost per trade and minimum investment. Let’s compare Vanguard vs. Fidelity on those points. Vanguard charges $7 per trade vs. $4.95 for Fidelity. Vanguard requires a minimum investment of $3,000; for Fidelity, there is no minimum.
Both companies offer mutual funds (Vanguard has 3,700 and Fidelity has 2,800), so no major difference there. Both companies also offer stocks; exchange-traded funds; bonds; taxable funds; joint accounts; Roth, traditional, and rollover IRAs; custodial; SEP and SIMPLE IRAs; solo 401(k)s, trusts, 529, annuities, money market, and CDs. Vanguard additionally offers non-profit accounts. Fidelity also offers penny stocks, foreign exchange market, Coverdell accounts, and checking accounts.
Another point of comparison between Vanguard vs Fidelity is that Fidelity has a mobile trading application with advanced features to mimic a desktop trading platform, but Vanguard does not. Both have free investment research materials, but Fidelity’s is more extensive.