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Vanguard vs. Fidelity: Which Is Right for You?

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Before you open an IRA, it's smart to shop around for the best broker for your investing style. The brokerage you choose will ultimately affect how much you pay in fees, as well as how many investments you can choose from.

Vanguard and Fidelity are two mutual fund managers turned discount brokers. Let's take a look at Vanguard vs. Fidelity in some of the most important areas to consider when opening an IRA.

Commission prices: Vanguard vs. Fidelity

The internet has helped make it cheaper than ever to be an investor. Here are the standard commission prices for Vanguard and Fidelity, sorted by the type of investment:

Brokerage Stocks and ETFs Stock Options Mutual Funds
Vanguard $0 per trade $0 + $1.00 per contract $0 for Vanguard and no transaction fee mutual funds, up to $20 per purchase for other mutual funds
Fidelity $0 per trade $0 + $0.65 per contract $49.95 per purchase

We should note that there is some fine print with commission prices, but much of it is in your favor. Many investors can avoid mutual fund commissions altogether thanks to thousands of no transaction fee (NTF) funds that these two brokers allow you to trade, such as the proprietary products offered by each company. You can also collect valuable bonuses and free trades through special offers for IRAs, which act as an effective discount on trading costs.

In other words, commission schedules tend to be more of a guide than a rule, since many trades are now completely fee-free.

Mutual fund selection and commission-free choices

Vanguard and Fidelity make it easy to invest in their own funds, but they also offer thousands of funds from other asset managers. Both brokers also offer thousands of combined no transaction fee options to choose from in both index fund and actively-managed fund form -- no loads, no transaction fees, and no commissions! So although Fidelity's mutual fund commission rate appears much higher than Vanguard's, it's a non-issue if the funds you want are available on the NTF list.

Brokerage Total Mutual Funds No-Load, No-Transaction-Fee Funds (NTF)
Vanguard More than 6,800 More than 3,300, including any Vanguard mutual fund
Fidelity More than 10,000 More than 3,700, including any Fidelity mutual fund

Here, quality is more important than quantity. And if you have any particular loyalty to either company's brand of mutual funds -- meaning that you want a specific Vanguard fund or Fidelity fund -- it would be advantageous to go straight to the source.

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Minimum deposit requirement for IRAs

You won't find a minimum deposit requirement for Fidelity or Vanguard brokerage accounts. However, if you want to invest in their mutual funds, you should be aware of some minimums. Many Fidelity mutual funds don't have an initial minimum investment requirement, although a few require a substantial initial commitment. Vanguard's target date fund products for retirement investors and STAR funds have $1,000 minimums, whereas most others have $3,000 minimums.

Of course, if you prefer stocks or ETFs, minimums are irrelevant. The minimum is whatever it costs to buy a single share of your favorite stock or exchange traded fund (ETF).

International stocks and ADR investments

You don't need a passport to take your portfolio overseas. Fidelity and Vanguard are two of only a handful of brokers that enable investors to buy and sell stocks directly on foreign markets.

Type of Investment Options Vanguard Fidelity
American depositary receipts (ADRs) Yes Yes
Stocks traded on international stock markets Yes Yes
Mutual funds and ETFs of foreign stocks Yes Yes

Always consider that trading on international markets can result in additional fees and expenses, and this is true with a brokerage account with either firm. Vanguard requires that orders be placed through its Brokerage Block Desk, which tacks on a processing fee of $50 on top of a commission. Fidelity's commissions vary by currency and stock exchange around the world. Even though both brokers make it possible to trade internationally, it may be advantageous to invest via domestic tickers when possible to avoid higher fees and commissions.

Mobile app: Vanguard vs. Fidelity

If brokers want to keep up in the 21st century, they have to offer access to clients' IRAs on the go. Here's how each discount broker's users and customers rated their mobile applications.

Brokerage Apple App Store Google Play
Vanguard 4.7 stars 1.9 stars
Fidelity 4.8 stars 4.3 stars

IRA fees: maintenance and inactivity fees

Although fees are largely going extinct, some live on. Fidelity doesn't have an annual maintenance fee or inactivity fee. Vanguard accounts have an avoidable $20 annual account service fee.

You can avoid Vanguard's fee by keeping at least $10,000 in account value or by electing to receive documents (statements, annual reports, etc.) electronically.

Truthfully, if you've ever seen the deluge of paper mail that a portfolio of stocks and mutual funds can create, you may prefer to have it all delivered electronically anyway. (Fun fact: The Wall Street Journal recently reported that 2 million trees are consumed each year printing mutual fund reports!)

Research and retirement tools

Discount brokers drive down costs largely by eliminating many of the frills of full-service brokers. Today, though, many features are coming back, even though the costs are not. Online discount brokers offer their clients basic research functionality just for having an open account.

Vanguard offers insights and research from S&P, FirstCall, and Thomson Reuters. It also offers a plethora of proprietary retirement tools, including its portfolio analysis tool for retirement savers. The tool analyzes your portfolio to show you how similar allocations have historically performed, going so far as to analyze it for expenses and taxes.

Similarly, Fidelity offers third-party research that includes insight from S&P, analyst upgrades and downgrades from hundreds of research companies, plus proprietary tools like Fidelity's insight into analysts' historical accuracy. The company's Planning & Guidance Center can be a real help in building a retirement portfolio, as it can score your savings progress and show you how changes to your assumptions and portfolio affect your retirement outlook.

We've just touched on a few highlights of each broker's research library. In truth, you'll find plenty to explore with either broker.

Best for IRAs: Vanguard vs. Fidelity

Considering they may be better known for their mutual funds, Vanguard and Fidelity have a lot to offer when it comes to brokerage services for IRAs. But which is better for you ultimately depends on how you invest. Investors who prefer Vanguard's funds may be better off going that route, while Fidelity loyalists would be wise to open an account with Fidelity, as it offers inexpensive and free ways to invest in its own mutual funds and ETFs.

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