Vanguard VTSAX vs. Fidelity FSTVX
My article was subsequently published here by Seeking Alpha on February 13, 2017
Let’s be clear – until the end of 2016, I didn’t know much about Vanguard. On the contrary, Fidelity and I go back a long way. I first opened an account in 1993 and have been a happy customer ever since. They have a long list of great mutual funds, and as a part time trader I enjoy using their platform, Active Trader Pro. In addition, their customer service is arguably the best in the business, and their user friendly website is… well, friendly.
For nearly 25 years I slept well knowing Fidelity was (and still is) a trusted financial company with over 70 years in business. But, as my mother used to say, “pennies make the dollar.” Whether I liked it or not mom was always right, so I decided to actively listen to her motto and do some research.
After doing a side-by-side comparison of Vanguard VTSAX vs. Fidelity FSTVX, I came to the conclusion that if I were to do this Millionaire Journey with Fidelity instead of Vanguard, I would lose out on a lot of pennies in the long run.
For ease of comparison I split the data into 4 parts. Let’s compare!
Vanguard vs. Fidelity: Expense Ratio & Since Inception
If you take a look at the comparison chart below you will see that Vanguard beats out Fidelity on all fronts except 2: expense ratio and annual performance “since inception.” According to the comparison, Fidelity’s expense ratio beats Vanguard by .01%. That’s infinitesimal when you are talking about a small account. However, if you had an initial investment of $1 million you would lose $100 in 1 year from the expense ratio difference. That still doesn’t sound like much but if 30 years passed you by, assuming a 6% annual investment return, you would lose out on $16,053.23, according to the expense ratio calculator here.
30 years is a long time, and $16,053.23 is a significant amount of money but, after digging further, I found an error. Even though the chart shows a .01% difference between expense ratios, Fidelity’s expense ratio is actually .045% and not .04%. Click here to see Fidelity’s expense ratio from their website. So the real difference is .005%, not .01%.
All things considered, we now have to cut the previous expense ratio profit loss of $16,053.23 in half.
Yes $8,026.62 is still a lot of money, using my same chart and scenario from above, but it’s much less than the comparison would lead you to believe it is.
Regardless, Fidelity wins on expense ratio.
Now let’s look at the since inception row.
There is a substantial difference between Vanguard VTSAX and Fidelity FSTVX. Fidelity wins by a whopping 2.48%, which is significant. But let’s look at when these index funds actually began.
Vanguard’s VTSAX began on November 13, 2000, or 248 days after the dot com bubble started to burst. Then, less than a year after its inception, we had September 11, which caused a big draw down on the world markets. If there was ever a bad time to start an index fund, Vanguard pretty much nailed it.
Now let’s look at the since inception of Fidelity’s FSTVX, which started on October 14, 2005 – right around the time we were riding the real estate bubble. We didn’t see a major correction for 3 years after Fidelity’s fund began. That is just enough time to build a stronger percentage from a “since inception” standpoint.
So, if you had invested on their respective inception dates, Fidelity is the clear winner. However, the past is over and that percentage win between inception no longer applies to anyone, including my Millionaire Journey, because those numbers factor in 2 entirely different points in the world economy. Nonetheless, I gave Fidelity the win on since inception.
Vanguard vs. Fidelity: Differences of Average Annual Returns
Now let’s look at the second piece of the puzzle. If you look below, Vanguard wins across the board on the 1, 3, 5 and 10 year annual return. Furthermore, over a 10 year period, there is a significant nearly .5% increase of the average annual total return (after taxes). That is huge, especially if that number stays consistent over longer time frames. In my opinion, that is a big win for Vanguard and the VTSAX fund.
To make that clearer let’s use my same scenario of a $1,000,000.00 investment with no other contributions over a 10 year period. Then let’s use the 10 year averages from the total return – after taxes – on distribution and sale of fund shares row.
Vanguard had a 5.81% return and Fidelity had a 5.37% return.
- If you invested that 1 million with Vanguard you would have had $1,759,005.28 after 10 years.
- If you invested that 1 million with Fidelity you would have had $1,687,212.55 after 10 years.
- The difference is $71,792.73.
- The difference in expense ratio cost is less than $1000.00.
As you can see, Vanguard is a BIG WINNER in just a 10 year period. Those numbers are too significant to ignore and a game changer in my overall decision making, but let’s move on to see if we can find a little redemption for Fidelity.
Once again, the since inception row shows Fidelity is the clear winner. But since we discovered above why there is a bigger difference between the since inception percentages, we will give Fidelity their 1 win and leave it at that.
Vanguard vs. Fidelity: Top Holdings & Equity Characteristics
Now the third piece of the puzzle is a bit more interesting and subjective. In my opinion, Vanguard wins on all fronts except one, or possibly two if you like foreign holdings. However, before we break down what that means, let’s take a look at their respective top 10 holdings first.
It appears that they are more or less similar, with slight differences in holding percentages, except for one personal caveat. Fidelity holds Wells Fargo (NYSE:WFC) as the 10th of the top 10 holdings. That might be good for some, and I would be willing to bet that if we were looking at Vanguard’s top 20 holdings, Wells Fargo would be somewhere between 11 and 20. Regardless, let me point out a few things we recently learned about Wells Fargo.
On September 8, 2016, Wells Fargo announced that it was paying $185 million in fines because of a scandal that revealed 2 million phony accounts, which led to the firing of 5300 employees and an early retirement for then-CEO John Stumpf.
With that said, I will not bash Wells Fargo because I still have a few accounts with them today. However, I did consider switching banks as their mishap bothered me more than I care to admit. At any rate, that is my personal feeling and subjective opinion.
Moving down the chart, it appears that the earnings growth rate is significantly higher in Fidelity than Vanguard even though the price/earnings and price/book ratios can be justified in Vanguard’s favor.
According to Investopedia, “in general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E”. Why there is a huge discrepancy between earnings growth even though Vanguard’s P/E is slightly higher is beyond me. However, it’s safe to say that one would have to decide if the slight difference in P/E was worth the conversation to decide between Vanguard or Fidelity. It could be argued that a lower P/E means that it is undervalued, but it’s an index fund with over 3000 equities in their holdings and I don’t think the difference between percentages in their respective rows holds much weight.
I emailed Vanguard about the big difference between the earnings growth percentages and here is what they wrote.
I am satisfied with their answer but nonetheless Fidelity gets the point.
Ultimately you have to decide if you like foreign holdings or not. I looked at it as a (small) mark against Fidelity because I don’t know what’s going on in the rest of the world. I can barely figure out what is going on in my own country. In essence, I didn’t care for the increase in the percentage of foreign holdings. On the other hand, it could be argued that a little foreign exposure was good enough to give Fidelity the point. You have to decide, but I ruled in favor of Vanguard.
Vanguard vs. Fidelity: Fund Characteristics
Last, and not surprisingly, Vanguard is a much larger fund, which puts it in the winner’s column once again. They had a 5 year head start, hold 206 additional equities in their portfolio and manage more than $450 billion assets over Fidelity.
The numbers above don’t lie. In fact, those numbers tell us a very important story: Investing with Vanguard’s VTSAX will put you on the path to wealth quicker than Fidelity’s FSTVX. It’s also important to note that when I tried to do the same comparison on Fidelity’s site I was met with the following message:
Then, when I contacted Fidelity via their chat service, a representative told me this.
“I apologize, unfortunately this tool does not accept the non-Fidelity funds…”.
Regardless, when I finished reading and reviewing the bookThe Simple Path to Wealth, I knew I couldn’t turn a blind eye to the differences between the two very comparable funds, even though I am a Fidelity fan. Until a couple of months ago I had never considered opening a Vanguard account. However, in the side-by-side comparison, VTSAX beat out FSTVX on almost every point.
If you were keeping score like I did here, the final was:
Vanguard 20 Fidelity 4
I can’t deny that I wanted Fidelity to win, even if it was due to investor’s malaise. If you think about it, I would have had an easier start to my new Millionaire Journey investing in Fidelity’s FSTVX. I could have saved myself several days of paper work, transferring money and getting to know Vanguard’s not so user-friendly website. But my mom’s words popped back into my head, “pennies make the dollar“.
Maybe pennies don’t make the dollars overnight, but they eventually make them… and those dollars make more dollars… and so on…
So, even though Shakespeare left Hamlet without a family and dying from Laertes’ poisonous blade, I would have encouraged him to ponder no more with these insightful words: investing with Vanguard’s VTSAX is the answer to your question.
What are your thoughts on Vanguard VTSAX vs. Fidelity FSTVX?
As always if you have any questions please reach out to me here.
Some of the links in this post are from my sponsors. I thought you should know because honesty is better then sugarcoated bullsh*t.