Author Topic: Fidelity vs Vanguard?  (Read 1532 times)

Tass

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Fidelity vs Vanguard?
« on: August 10, 2017, 05:47:27 PM »
Seems like a common question. When I searched through earlier posts on this topic, the consensus seemed to be that Fidelity tended to be slightly more expensive, but their customer service was also better, so it's a matter of preference.

My confusion is that Fidelity claims that isn't true: they've listed all their index funds with lower expense ratios than Vanguard: https://www.fidelity.com/mutual-funds/investing-ideas/index-funds

The ones listed there are the Premium/Admiral share classes, but the investor classes for each seem to follow the same pattern: the Fidelity Total Market Index Fund (FSTMX) is listed at 0.09% while the Vanguard Total Stock Market Index Fund (VTSMX) is at 0.15%.
https://fundresearch.fidelity.com/mutual-funds/summary/315911404
https://personal.vanguard.com/us/funds/snapshot?FundId=0085&FundIntExt=INT

I feel like I'm missing something obvious since Vanguard is so highly regarded in FIRE circles - anyone want to clue me in?



Personal background behind this question, if you feel like offering more advice: I'm fully on-board for the frugality side of mustachianism, but just starting to dip my toe into the investment side - I burned through the jlcollins stock series this morning. As a graduate student I don't have any employer investment options (though I do get a stipend), so when I started out I got a Fidelity Roth IRA and dumped a few thousand into a target date fund, for minimum maintenance. Today I learned that fund has an expense ratio of 0.75% compared to the equivalent at Vanguard at 0.16%. Yikes.

Feeling intimidated by the prospect of switching, I did a little digging and ran into the above question. Am I better off just keeping my money with Fidelity but moving it into cheaper funds? I haven't even started worrying about whether a Roth was the right choice yet.

MDM

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Re: Fidelity vs Vanguard?
« Reply #1 on: August 10, 2017, 06:11:16 PM »
Within the past year or so, Fidelity, Schwab and Vanguard have dropped several fund fees by 0.01% or so just to be the most recent "lowest cost" supplier.

Would I change suppliers to save 1%?  Absolutely.
...to save 0.1%?  Probably.  Maybe.
...to save 0.01%?  Unlikely.

YMMV.

Do the math to see the difference in absolute dollars for your portfolio.

Frankies Girl

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Re: Fidelity vs Vanguard?
« Reply #2 on: August 10, 2017, 06:30:22 PM »
Full disclosure: I have everything with Fido and am 100% fine with it. I have no personal experience with Vanguard. I only am giving my opinion, based off my own experiences and things I have read here and around on other financial/frugality boards/forums.


Fidelity is as cheap if not cheaper than Vanguard - but only if you're looking at the index funds expense ratios comparing Fido's index fund stable to Vanguard. If you use Fido's managed funds, invest in any funds that Fido would charge a fee for (like buying/selling/holding Vanguard funds in a Fido account) or pay for professional management, then you will be paying more than what you could get compared to Vanguard.

https://www.bogleheads.org/wiki/Fidelity
^a comparison of index funds/ETFs for Fidelity picks (again, you lose the cheaper cost benefit of investing with Fido if you hold non-Fido funds since they will charge you transaction fees for outsider funds)

I hold a few Fido index funds - nothing else. I pay zero in management fees, and my ERs are lower than Vanguard's equivalent funds.

Vanguard's VTSAX expense ratio: 0.04%
Fidelity's FSTVX expense ratio: 0.035%

Vanguard's VBTLX expense ratio: 0.05%
Fidelity'sFSITX expense ratio: 0.045%

So it's not a huge amount, but they are cheaper. And Fido offers much more in terms of customer service, website interface/tools/apps/calculators, etc...

You'll likely have read all about how Vanguard is shareholder owned, and how they're not in it for profits and how that's a better overall company standard/practice. Totally agree that this is good for the shareholders as the company isn't going to be a greedy corporate entity out to make more money off their clients to fill the board of directors' pockets. But unfortunately, this structure also means they don't pay their employees as well or throw god-awful amounts into developing the latest website or apps since they don't want to have a high overhead and prefer funneling most of the profits back to the shareholders, and that means they may not be the most knowledgeable or as well trained people or have the latest and greatest gadgets and tech stuff as someplace like Fido. I've seen numerous issues with getting questions answered, getting funds transferred in or out in a timely manner, and a bit of disorganization over the whole company in general and I've heard complaints at how clunky the site can be. They get the job done in the end, and there's never been a single instance where I thought they did anything wrong - just slow, confused sometimes and frustrating to deal with in some cases. I don't think this is the norm, but it has happened more than you'd like to hear about in normal circumstances.

That being said, Vanguard does have another advantage over any other financial group. They have a proprietary dividend system (patented so that means only they are allowed to use it) that minimizes cap gains/dividend taxable events. I am very spotty on how this all works, but it is something of a plus for them, and hopefully one of the Vanguard peeps can chime in with the how and why this is such a good thing to have.

My take overall is that if you are an index investor, you can get a great portfolio setup at Fido for around the same money (granted it's going to be a few hundred a year give or take), but have access to more bells and whistles since Fido is so competitive and constantly trying to beat the other guys. The index funds and other ultra-low cost funds/ETF they offer are loss leaders. They hope to entice you in and then once you're there, show you some slick managed funds or maybe partake of their paid managed funds/services at some point. The key is to never buy into the expensive stuff - if you're in it for the index funds, then always stick with that, and you'll get all the benefits of a fancy schmancy fund group with an itty bitty expense ratio.

I honestly think Vanguard is a fantastic company and should be considered as your #1 pick unless you do feel like you need a bit more help/hand-holding. I did in the beginning, and now I stay with Fido because I'm very happy with what I have and can't imagine stepping backwards on the customer service and perks I get with Fido.
« Last Edit: August 10, 2017, 06:37:04 PM by Frankies Girl »
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L.A.S.

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Re: Fidelity vs Vanguard?
« Reply #3 on: August 10, 2017, 06:33:38 PM »
Vanguard is owned by the account holders.  So they don't have an incentive to overcharge.  Or at least that is what is claimed.

Fidelity is privately owned and is therefore profit driven.  They have many competitively priced index funds -- think of these as the loss leaders.  However, they also have products such as actively managed funds and financial advising services which tend to be much more expensive (but not outrageously so).  If someone is careful they can get good low costs products at Fidelity.  If they are not careful, they can end up in their higher cost products and services.

 

seattlecyclone

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Re: Fidelity vs Vanguard?
« Reply #4 on: August 10, 2017, 06:37:27 PM »
At the moment, Vanguard, Fidelity, and Schwab all offer very low-cost index fund options that seem roughly equivalent in terms of fees and each company seems to have covered all their bases in terms of major asset classes.

Historically, Fidelity has specialized more in higher-cost actively-managed funds, and that still makes up the bulk of their offerings. As long as you stick to their index funds you'll do fine...at the moment.

There is some speculation that Fidelity and Schwab are offering these low-cost index funds at a loss in order to compete with Vanguard, and that they could increase the expense ratios in the future if index investing somehow fell out of fashion and competing on price with Vanguard wasn't seen as such an important factor anymore. This is certainly a risk you take when you invest with these companies. The risk is greater in taxable accounts because switching from one provider to another years or decades down the road could incur capital gains taxes. You'll have to decide for yourself how credible this risk is; I don't have a crystal ball on the matter. Furthermore you'll need to weigh this risk against other perceived benefits of the for-profit firms, including the perception that they may offer better customer service. I've been mostly pleased with Vanguard myself, but I tend not to need much hand-holding.
I made a blog! https://seattlecyclone.com/

The Roth IRA was named after William Roth, who represented Delaware in the US senate from 1971-2001. "Roth" is a name, not an acronym. There's no need to capitalize the final three letters.

Radagast

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Re: Fidelity vs Vanguard?
« Reply #5 on: August 10, 2017, 07:41:31 PM »
As a graduate student I don't have any employer investment options (though I do get a stipend), so when I started out I got a Fidelity Roth IRA and dumped a few thousand into a target date fund, for minimum maintenance. Today I learned that fund has an expense ratio of 0.75% compared to the equivalent at Vanguard at 0.16%. Yikes.

Feeling intimidated by the prospect of switching, I did a little digging and ran into the above question. Am I better off just keeping my money with Fidelity but moving it into cheaper funds? I haven't even started worrying about whether a Roth was the right choice yet.
Fidelity has low cost target date index funds as well, just be sure to check for the word "index." Here is the 2055 fund: https://fundresearch.fidelity.com/mutual-funds/summary/315793828

I have a slight preference for Vanguard in this matter, but either is reasonable.

Tass

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Re: Fidelity vs Vanguard?
« Reply #6 on: August 10, 2017, 09:13:40 PM »
As a graduate student I don't have any employer investment options (though I do get a stipend), so when I started out I got a Fidelity Roth IRA and dumped a few thousand into a target date fund, for minimum maintenance. Today I learned that fund has an expense ratio of 0.75% compared to the equivalent at Vanguard at 0.16%. Yikes.

Feeling intimidated by the prospect of switching, I did a little digging and ran into the above question. Am I better off just keeping my money with Fidelity but moving it into cheaper funds? I haven't even started worrying about whether a Roth was the right choice yet.
Fidelity has low cost target date index funds as well, just be sure to check for the word "index." Here is the 2055 fund: https://fundresearch.fidelity.com/mutual-funds/summary/315793828

I have a slight preference for Vanguard in this matter, but either is reasonable.

Ah good tip! Thanks!

Bicycle_B

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Re: Fidelity vs Vanguard?
« Reply #7 on: August 10, 2017, 09:29:09 PM »
One way of looking at it is that with Vanguard, you are pretty much guaranteed to have a very low expense ratio for the type of fund that you pick.  At Fidelity, you have to research more carefully because some funds have very low expense ratios and some don't. 

They are still the two best companies.  Fidelity has info very accessible, including through face to face reps.  It just takes one extra step to ensure getting the best deal.  I have my main $ with Vanguard but may use use Fidelity someday if the need arises. 

Re fund details:  I'd switch to Vanguard for .59%/year on similar fund.  Over a decade, that's about 6% guaranteed; well worth a few minutes to switch.  Now that it's in a Roth, you would need to "roll over" from a Roth at Fidelity to a Roth at Vanguard - the similar account is needed to avoid tax penalties and such.  But of course if you find .15% or .17% in Fidelity's index-based target funds per the previous posts, no need to switch companies, just switch the fund inside the same account you have at Fidelity.

PS.  Roth is ok for now as long as you don't need access to this money for many years.  It will protect you against future taxes in return for requiring you to leave your money in it for a long time.  Assuming you don't need the cash access, Roth investing when your income is low is a good thing... Roth's main unique characteristic is that you get no tax break when you invest, but all withdrawals later that follow certain rules are tax free.  Since your current tax rate is presumably low, this is likely to give you a long term tax advantage. 
« Last Edit: August 10, 2017, 09:36:05 PM by Bicycle_B »

jjandjab

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Re: Fidelity vs Vanguard?
« Reply #8 on: August 11, 2017, 08:53:04 AM »
As a graduate student I don't have any employer investment options (though I do get a stipend), so when I started out I got a Fidelity Roth IRA and dumped a few thousand into a target date fund, for minimum maintenance. Today I learned that fund has an expense ratio of 0.75% compared to the equivalent at Vanguard at 0.16%. Yikes.

Feeling intimidated by the prospect of switching, I did a little digging and ran into the above question. Am I better off just keeping my money with Fidelity but moving it into cheaper funds? I haven't even started worrying about whether a Roth was the right choice yet.

Fidelity has low cost target date index funds as well, just be sure to check for the word "index." Here is the 2055 fund: https://fundresearch.fidelity.com/mutual-funds/summary/315793828

I have a slight preference for Vanguard in this matter, but either is reasonable.

Yes, you must look for "index" in the options at Fidelity and then you will get the same or cheaper as at Vanguard. They typically have both an "index" option and "fidelity funds" option for target date funds, 529 plan funds, etc...

I have been with Fidelity for 12 years. They have fantastic customer service and excellent computer and app based software for managing accounts. On the phone, I have called with what I thought were obscure questions (setting up a non-prototype profit sharing account, rolling over large IRA that required a "medallion"stamp, etc...) and they have been kind and patient and spot on with their help every time. I have zero complaints and only great things to say. So if you are at Fidelity, not sure it is worth that hassle to switch, although obviously Vanguard is excellent in its own right as well. Just not sure they offer anything more than Fidelity at this point.

FLBiker

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Re: Fidelity vs Vanguard?
« Reply #9 on: August 11, 2017, 08:57:56 AM »
We have both (I'm at Vanguard, DW is at Fidelity).  Fidelity is fine, but they have a bit more fees (outside of expense ratios).  Like my wife's 403b @ Fidelity has a $24 per year fee and when I moved my IRA from Fidelity to Vanguard I was charged a $50 account closing fee.  I know Vanguard doesn't have the 403b fee, and I'm not sure about the account closing fee.

Regardless, though, as other folks have said, stick with index funds at either and you're way ahead of the curve.

Tass

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Re: Fidelity vs Vanguard?
« Reply #10 on: August 11, 2017, 09:49:58 AM »
PS.  Roth is ok for now as long as you don't need access to this money for many years.  It will protect you against future taxes in return for requiring you to leave your money in it for a long time.  Assuming you don't need the cash access, Roth investing when your income is low is a good thing... Roth's main unique characteristic is that you get no tax break when you invest, but all withdrawals later that follow certain rules are tax free.  Since your current tax rate is presumably low, this is likely to give you a long term tax advantage.

That is indeed a pretty accurate analysis of my situation - good to know at least some of the initial advice I got was sound. Thanks everyone!