In the forefront of this argument are two of the largest investment management companies in the world: Fidelity Investments and The Vanguard Group Inc. Fidelity is a Boston-based company that had over $2.0 trillion in assets under management (AUM), as of Dec. 31, 2015. It has 452 mutual funds and other brokerage and investment management services. The Vanguard Group is based out of Valley Forge, Pennsylvania, and has over $3 trillion in AUM. Vanguard has over 320 funds and is most notably recognized for having the lowest-cost funds with an average expense ratio of 0.18%.
Fidelity is the better choice for an aggressive investor. It has made a name for itself by having superior investment expertise through actively managed funds. Most of these funds that have seen success over the years have been equity-based and have regularly outperformed both peers and benchmarks. The Fidelity Contrafund (“FCNTX”) has been run by William Danoff since 1990. Over a 10-year annual average, as of May 31, 2016, the Contrafund has given investors a return of 8.69%, which outperformed the S&P 500 return of 7.41%. Fidelity also has many small- and mid-cap equity funds for those investors looking for larger growth potential. The Fidelity OTC Portfolio (“FOCPX”) invests in over-the-counter stocks that are considered highly speculative. The fund has given investors a return of 12.45% over a 10-year annual average, beating the NASDAQ Composite return of 9.68%. Investors seeking above-average returns with the use of an actively managed fund should look at Fidelity's investment selection.
Vanguard Investments represents the more conservative investing option. Almost half of the mutual funds and ETFs available in Vanguard’s platform are oriented toward fixed income. Of the 320 total investments available, only 65 mutual funds are considered actively managed. The remaining 255 are index-based and are supposed to mirror the returns of the corresponding benchmark. For example, one of Vanguard’s most popular funds is the Vanguard 500 Index Fund (“VFIAX”). This fund seeks to mirror the performance of the S&P 500 and has done so successfully. Its average annual return over the past 10 years was 7.42%, with the S&P 500 at 7.41%. Investors looking for a more conservative way to invest using indices should consider Vanguard.
Vanguard is known for the lowest-cost investment management company. The average expense ratio at Vanguard is 0.18%. Many of its index-based funds have low expenses, such as the Vanguard 500 Index fund, which features an expense ratio of 0.05%. Even the most expensive fund in Vanguard’s lineup, the Emerging Markets Select Stock Fund (“VMMSX”), has a 0.93% expense ratio, which is still 38% lower than that of its peers. Overall, Vanguard’s philosophy holds true throughout its investments, as lower expenses lead to better overall returns.
Service-Oriented or Tech-Savvy Investors
Fidelity prides itself in the service-oriented and tech-savvy areas, having an extremely user-friendly website for those learning about its products. The Fidelity website offers informational videos, news, research reports and investment guidance for the general public. Once an investor becomes a client, Fidelity has an easy-to-use trading platform that charges only $7.95 for equity trades and $1 for bond trades. For the more tech-savvy investor, Fidelity also offers a mobile app to give its clients trading ability and portfolio information from any smartphone or tablet. Investors looking for superior service for an extra price should look to the Fidelity Private Client Group. Customers with over $1 million in assets get a personal financial consultant who manages investments and helps with other services such as tax and retirement planning.