Please help me decide between Fidelity and Vanguard.

April 6, 2008 4:37 PM

Questions about opening a Roth IRA -- particularly, does it matter where I open it? If so, Fidelity vs. Vanguard?

I want to open my first Roth IRA. I've read past questions and some online resources, but I still have some questions.

- First, does it even matter where I open it? If I figure out I screwed up, how hard is it to switch from one of these to the other?

- I will (very soon) have a 403b with Vanguard through my employer. Does that tilt things in favor of Vanguard for an IRA? Would I be able to "pool" these funds? It sounds nice to make one phone call rather than two. But is there some reason that tilts things in favor of Fidelity? Would it be better to have them both as options? Then I could hold, say, some of both group's target retirement funds.

- To make a good decision, do I need to figure out where I would invest the money first? They have different expense ratios even for their S&P 500 index funds (VFINX is .15% vs. FSMKX is .10%). I realize this isn't much of a difference, but if they differ on the simplest index fund, they're going to differ by more in other things, right? (I'd be deciding between S&P 500 index funds, some index fund with non-US companies, or a target-date retirement fund.)

- If you do think I should decide where to put the money first by actually looking at fees, how do I find that out? There are these scare stories (eg) about hidden fees. Are they still hidden if I look at Morningstar's front load %, back load %, and expense ratio? Or is there a better place to find all this out?

- All over the web people are saying that Fidelity's customer service is better and more informed. This has me leaning toward Fidelity. Do you think this still holds true?

- Lastly, what does this comment from jak68 mean, "Also -- in case you didnt know -- there is a small difference between buying funds via a trading account at a brokerage house (as with fidelity, schwab, ameritrade etc), VS. buying the fund directly from the fund family's website (vanguard, etc)?" Should this influence me in some way?

Thanks for your help. I'm interested in learning more over the long term, but I also have the feeling that I'm making this too complicated and should find a way to make this simple.

posted by salvia to work & money (13 comments total)

I believe that Vanguard has a reputation for the lowest fees in the industry.
posted by ISeemToBeAVerb at 4:47 PM on April 6, 2008

I've never done anything with Fidelity, but I've had accounts at Vanguard since 1986 and their customer service is amazing. Above and beyond.
posted by astruc at 5:40 PM on April 6, 2008

You can switch from one to the other without much trouble. I switched a few IRAs from Fidelity to Vanguard earlier this year, and it was just some paperwork and an (unexpected) $50 fee from Fidelity.

In general, yes, you should decide WHAT you want to invest in first. But keep in mind that a 0.05% expense difference is not going to add up to much. On a $4000 IRA investment, that's $2 a year, which is not worth worrying about.

You're right to worry about hidden fees, but if you're looking at low-expense index funds, you've already eliminated 95% of your worries.

Like others, I highly recommend the Diehards forums and resources.
posted by xil at 6:08 PM on April 6, 2008

Both have excellent reputations. Check the fund information on Fidelity and Vanguard's web sites for fee information. If your retirement plan at work is with Vanguard, then you'll be able to access all your accounts with one login. You can't pool your investments; IRAs and 403bs are separate accounts.

I would decide on a fund (based on fees and the risk and diversification profile you prefer) and then go with that company. I don't think you have any reason to open your IRA through a brokerage house. Fidelity and Vanguard offer plenty of options on their own.

All my investments are in Vanguard and have been since 2005. I've never withdrawn anything or had any reason to contact customer service.
posted by Dec One at 6:15 PM on April 6, 2008

I've been pleased with every aspect of having my account at Vanguard. Sometimes there's the One Fund that I'd like to buy that's not in the family, but it's probably for the best that those temptations would require me to open a brokerage account.
posted by a robot made out of meat at 6:47 PM on April 6, 2008

Don't forget to ask for socially conscious funds - slightly lower return, but then you can feel good about investing in ethical companies. Ask your financial adviser about it.

Good luck!
posted by cachondeo45 at 8:09 PM on April 6, 2008

Just putting in another good word for Vanguard. I have my Roth IRA with them and I'm beyond pleased.
posted by krisken at 9:51 PM on April 6, 2008

I've been using Fidelity for about 8 years. I have an individual brokerage account, 401k, and special employer setup accounts.

If I was no longer using them through my employer I would switch due to the high trade cost of Fidelity. That being said their customer service has been great and if you aren't doing any trading it would be fine.
posted by Octoparrot at 10:40 PM on April 6, 2008

I went with Fidelity for my IRA because my employer's 403(b) was there and have been surprised at just how truly excellent their website and customer service are. It was also nice to be able to deal with my 403(b) and my IRA all in one place. I would have gone with Vanguard if my employer had been using it, but they hadn't. I assume that Vanguard must be as good as Fidelity to be able to compete, but I actually haven't used the Vanguard website much. When I did briefly compare things between Fidelity and Vanguard I found that the Vanguard mutual funds seemed to have slightly lower fees as a general rule.

I'm quite happy with Fidelity now, after 3 years, and I am unlikely to leave them in the near future for any foreseeable reason, so I guess that's a vote for Fidelity.
posted by ikkyu2 at 11:34 PM on April 6, 2008

Diversify your actual holdings and consolidate your various accounts at one reputable broker. There's a benefit to having all your accounts under one roof -- Makes managing your money much easier.

(I'm a Fidelity man myself and I've been relatively pleased with their service level. The primary reason I'm with Fidelity, however, is because my employer runs our 401K through the company.)
posted by LakesideOrion at 6:07 AM on April 7, 2008

I used to work for a very wealthy "bond guy," who swore by Vangard. They have the lowest fees....and most evidence leads to the fact that "financial experts" can't tell the future, so you're best best is one that doesn't charge you a fortune to bet with your money.
posted by answergrape at 7:54 AM on April 7, 2008

Thanks for all your very helpful answers. My take-away is that both are great and that it is an extra convenience to have all your investments in one place, so that's probably what I'll do. (Though you do make Fidelity sound so great that I'm tempted to try it out, since switching sounds easy, too.) If I'm missing anything, let me know. Thanks again!
posted by salvia at 5:14 PM on April 7, 2008

I am a happy Vanguard customer. Also, they have some "target retirement funds" where you pick the fund for the approximate year that you plan to retire and they automatically adjust the mix of stock indexes, bond indexes, and money market funds for you as you age to ensure an appropriate mix of risk vs. return for your proximity to your retirement age.
posted by Jacqueline at 10:13 PM on April 7, 2008