Vanguard vs Fidelity

Brad Barrett has compared Vanguard and Fidelity on a few key aspects:

1. Fees and Expense Ratios:

   • Vanguard's Total Stock Market Index Fund (VTi) is noted for its tax efficiency, passing through no capital gains in 2017, which keeps fund holders in control of taxes. Conversely, the Fidelity Total Market Index Fund generated 879% in capital gains, which can cost high-bracket taxable investors around 0.19% in taxes—higher than Vanguard’s 0.04% expense ratio 1.

2. Zero-Fee Funds:

   • Fidelity introduced zero-fee index funds, setting a new benchmark. However, some concerns were raised about hidden fees and investigations suggesting the advertised zero-fee might not be straightforward. Unlike Vanguard’s straightforward fee structure and trusted reputation, Fidelity’s zero-fee funds might include additional costs or inefficiencies 2.

3. Tax-Efficient Strategies:

   • Fidelity is praised for their donor-advised funds (DAFs) which have lower minimum requirements and flexibility compared to Vanguard. This allows for tax-efficient donations of appreciated assets without triggering capital gains taxes, making it a valuable strategy 3.

     Fidelity vs. Vanguard

     Brad Barrett

     Brad discusses the tax efficiency of Vanguard vs. Fidelity zero funds, highlighting the importance of considering capital gains distributions in addition to expense ratios. The comparison sheds light on the nuanced factors to consider beyond just the zero fees offered by Fidelity.

     

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4. Trust and Legacy:

   • The preference for Vanguard often stems from its history and alignment of interests since it’s owned by its investors. This makes Vanguard’s motivations more trusted in the financial independence (FI) community, as opposed to other providers who may use low-cost funds as loss leaders 2.

Both Vanguard and Fidelity offer strong options, but Vanguard is often favored for its transparent fee structure, tax efficiency, and investor-aligned interests, while Fidelity offers innovative zero-fee options with some additional considerations 1 2 3.