Vanguard versus Fidelity

Clients and students may know that I’ve strongly advocated use of Vanguard mutual funds, particularly given their low cost and broad selection of index fund options.

I’m not the only one who has felt this way. Vanguard now manages more than $6 trillion (with a T) of mutual fund assets, more than double Fidelity’s mutual fund assets. More new savings flow into Vanguard than into any other mutual fund company.

In 2018, Fidelity decided that it had enough of being undercut by Vanguard and turned the tables on them. Fidelity lowered the fees on their index funds (the “expense ratios” in the industry patois) to be slightly below Vanguard’s. I — and many others — expected a price war with Vanguard aggressively responding by lowering their fees to re-assert their price leadership. However, it’s been two years and Vanguard has not done so.

As of the summer of 2020, Fidelity continues to offer the lowest fees in the industry on their suite of index funds — with very few exceptions, they are slightly below Vanguard across the board.

If you’re curious to see the differences, Fidelity conveniently provides this table comparing their funds to Vanguard’s.

Interestingly, Fidelity doesn’t brag too much about their low fees. I suspect it’s because the bulk of their customers’ mutual fund investments remain in Fidelity’s higher cost — and substantially more profitable — actively managed funds. Fidelity would prefer that new customers took notice of these low fees but their existing customers didn’t. That’s a tough needle to thread.

I’m now agnostic on the choice between Fidelity and Vanguard. Fidelity’s Net Benefits is the largest 401K plan administrator and many people are already familiar with Fidelity’s phone app and web interface through using Net Benefits to administer their 401K.

If you’re already comfortable with Fidelity, I no longer see a reason to switch to Vanguard. As I suggested, there are a few minor exceptions where Vanguard has lower fees but these are inconsequential for most people.

Investors now have two good choices for their savings.

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