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Vanguard and Fidelity offer popular index funds with competitive expense ratios. Is one fund family better for your investment portfolio than the other? This detailed comparison of Vanguard and Fidelity index funds — covering fees, performance and selection — helps you decide.
One fun fact sums up Vanguard’s investment philosophy: Under the direction of company founder John Bogle, Vanguard created the world’s first index fund in 1976. Bogle’s innovation gave investors convenient access to a low-cost portfolio that could be held for decades.
Bogle also decided to market Vanguard funds directly to investors, bypassing brokers, and to eliminate sales loads. Both moves, unconventional in the 1970s, showed Vanguard’s commitment to the individual investor’s success. The move to drop sales charges has spared investors from hundreds of millions in fees over the past several decades.
Today, Vanguard retains its reputation as a leader in low-cost funds and a champion of retail investors.
According to Morningstar, Fidelity is the third-largest fund family after Vanguard and BlackRock in terms of U.S. market concentration. The company was formed to take over the Fidelity Fund in 1946 and launched its first index fund in 1988.
Fidelity’s index fund strategy emphasizes low costs and fund performance that aligns closely to the target index. Both objectives benefit index fund investors by minimizing dilution of underlying investment returns.
Below are head-to-head comparisons for Vanguard and Fidelity on expense ratios, fund selection, fund performance and minimum investment requirements.
Vanguard expense ratios on index funds with investment minimums of $3,000 or less range from 0.03% to 0.2%. Per author calculations, the average expense ratio is 0.07%, which equates to $7 annually for every $10,000 invested.
Fidelity expense ratios across 82 index funds for retail investors range from 0% to 0.4%. The average is 0.12%, per author calculations. This translates to $12 annually per $10,000 invested.
Vanguard has the lower average expense ratio, but Fidelity offers a selection of zero-expense funds. Also, Fidelity’s S&P 500 fund, FXAIX, has lower expenses than Vanguard’s S&P 500 portfolios. FXIAX charges 0.015%, while Vanguard’s VOO ETF and VFAIX fund charge 0.03% and 0.04%, respectively.
Both companies beat broader expense ratio averages. A Morningstar report concludes that the average fees for passively managed funds in 2023 was 0.55%.
Vanguard has more index funds with low investment minimums than Fidelity, but both families cover these popular market segments:
Cryptocurrency is one point of differentiation and Fidelity has the edge. Fidelity has funds stocked with bitcoin (FBTC) and ethereum (FETH). Vanguard does not offer crypto funds.
Performance comparisons for index funds can be tricky because the underlying index is primarily responsible for defining the portfolio. So, the comparison is most telling when two funds are targeting the same index. In that case, sampling methods and trading efficiency can introduce a higher-than-necessary tracking error — causing one fund to underperform.
The table below compares returns for S&P 500 funds and U.S. bond market funds from both families. Fidelity performed slightly better on the S&P 500 fund and in the one-year period for the bond fund. Lower expense ratios on the two Fidelity mutual funds contribute to the outperformance.
More generalized comparisons can be made between funds that offer similar exposures but rely on different target indexes. The index gets most of the credit for outperformance, particularly when both compared funds have low tracking errors. Even so, the fund family can take responsibility for choosing the stronger index.
This table compares Vanguard and Fidelity funds with similar strategies, implemented through different target indexes. You can see the performance gaps are larger vs. the prior comparison. The Vanguard index funds mostly outperformed here, despite Fidelity’s funds having lower expense ratios.
Both Vanguard and Fidelity have at least 80 index funds with a $0 or $1 investment minimum. These are predominantly exchange-traded funds. Vanguard additionally has about 50 mutual funds with a $3,000 minimum investment.
Both Vanguard and Fidelity are appropriate for beginner investors. Those who plan to own only an S&P 500 fund and a bond fund might earn slightly higher returns with Fidelity, thanks to the ultra-low expense ratios. On the other hand, Vanguard’s website and fund research tools are somewhat easier to navigate than Fidelity’s.
Fortunately, choosing one fund family doesn’t mean you give up access to the other. If you are trading in a Vanguard brokerage account, you may pay extra fees to buy Fidelity mutual funds and vice versa. You can avoid the fees by purchasing ETFs instead or by opening a new account with the other fund family.
Morningstar is a leading researcher of mutual funds and fund families. The company’s Fund Family Digest summarizes research and ratings on the 150 largest fund families in the U.S.
According to the 2024 Fund Family Digest, Vanguard is the largest fund family with $8.5 trillion in U.S. assets under management (AUM). Fidelity is ranked third with $2.95 trillion in AUM.
Vanguard also has the highest Parent Rating by Morningstar Manager Research analysts. Only 10 fund families earn this rating, based on manager tenure, risk management, performance, fees and other factors. Additionally, 99% of Vanguard’s assets are in share classes with Gold, Silver or Bronze Medalist Ratings. Morningstar analysts assign these ratings to funds that are expected to outperform their category index after fees.
Fidelity’s parent rating is Above Average and 95% of its assets are in funds with Gold, Silver or Bronze Medalist Ratings.
Vanguard and Fidelity have sufficient index fund options to fulfill simple or complex investing strategies. Fidelity does have cryptocurrency funds, which may be an advantage if bitcoin or ethereum exposure is part of your allocation plan.
Vanguard has more assets under management and slightly higher Morningstar ratings, implying a more stable fund management team and better performance potential.
Bottom Line
You can implement many passive investment portfolios with Vanguard or Fidelity. To choose the right family, review Vanguard.com and Fidelity.com. See if one brand speaks to you over the other. If not, identify which exposures you’ll invest in first, such as the S&P 500 or all U.S. stocks. Compare your options across the two families and select the one with lower tracking errors. That hopefully keeps much of the underlying investment returns flowing into your net worth.
