You’re not always going to be young and capable of staying employed. The earlier you recognize this fact, the better the future will be for you. Necessarily, at some point in your life after retirement, you will need to live off your life savings but, savvier individuals know that there are clear advantages in opening an Individual Retirement Account (IRA). When you start looking into taking your hard-earned dollar to gain from the more beneficial arrangements offered by an IRA, you will inevitably find yourself on the lookout for the best target-date funds and it is likely you will zero in on weighing Fidelity vs. Vanguard.
Fidelity Or Vanguard?
Before you could even go down to making a properly informed choice, you must first understand some basic facts about an IRA. So, what are target retirement funds? Here are some things you should be aware of:
- IRAs are a type of savings account that every employed, including self-employed, individuals are entitled to open.
- IRAs provide limited tax-free policies that make it more favorable for saving up for your future.
- IRAs are sometimes opened by companies for their employees like a 401(k) but, most of the time, individuals are required to choose and open these accounts on their own.
- IRAs protect stocks, options, dividends, and other earnings from investment facilities from taxes.
- The Government regulates the amount of money that may be deposited and kept in IRA funds yearly, as well as define the date when these funds may be withdrawn.
- Presently, the limit set is at $5,500 per year.
- IRAs are generally of two types: Traditional IRA and Roth IRA.
- A Traditional IRA are required to be withdrawn by the time you reach 70 and a half years old. On the other hand, a Roth IRA may be kept active and growing for as long as you want.
- In a Traditional IRA, you pay a tax by the time you are eligible to withdraw your money. In contrast, a Roth IRA compels you to pay taxes with every taxable transaction.
Now, which are the best target retirement funds? The two largest investment houses in terms of funds managed are Fidelity Investments and the Vanguard Group. The first is based out of Massachusetts and reported that its Assets Under Management (AUM) as of December 2017 reached $2.4 trillion. The Vanguard Group is an investment company with headquarters in Malvern, Pennsylvania. In 2017, Vanguard reported its AUM at $4.5 trillion.
Fees And Commissions
Fidelity and Vanguard may be the largest investment fund options for most Americans but, while the investment offerings may be similar, the funds are managed and charged very differently. Considering that US citizens are encouraged to open an IRA, is Fidelity free? No, neither do Vanguard retirement funds come free-of-charge. Fees are based on several considerations, including the amount of money deposited in the facility and the type of facility. In addition, percentage commissions are also effected with every elected sale or withdrawal.
Here’s a breakdown of management costs, other fees, and commissions charged by both Fidelity and Vanguard:
- Management Fee for Stock Trading. For Fidelity, the cost is $4.95 across all funds managed under this facility, regardless of value. For Vanguard, management fees vary depending on the amount of funds allocated for stock trading, ranging from free to $7 upon account opening and $2 up to $20, still depending on the amount managed, for every year following the 25th year of keeping your fund in the facility.
- Management Fee for Option Trades. Fidelity charges $4.95 + 65 cents per contract, whereas Vanguard, again, charges fees based on the amount of money withheld in this facility which may range anywhere from free to $20 with a $1 charged for every contract drawn up.
- Minimum amount to open an account. How much money do you need to open a Fidelity account? Fidelity requires at least $2,500 to open an account for any of its investment facilities while it does not apply any minimum for IRAs. As for Vanguard, there is no minimum amount required for account opening, although the company requires a $1,000 balance to open a stake in any of its investment facility.
- Annual account fees, and closing and inactivity fees. Even the best fidelity index funds are not charged any annual or inactivity fee although, a closing fee of $50 is implemented on all accounts, regardless of withdrawal amount. On the other hand, Vanguard implements a $20 annual service fee for all accounts, including IRAs. This annual fee may be waived by maintaining at least $10,000 worth of investments in Vanguard funds or, by signing up for paperless transactions.
- Trading applications/platform. Several Fidelity Roth IRA reviews point out the favorable online platform and app provided by Fidelity for more advanced individual investors to view and trade their assets online in real-time, including on mobile devices.. This allows for added flexibility if you buy and sell your fund assets constantly. Unfortunately, Vanguard does not offer the same trading platform.
Commissions. For the three most commonly traded assets, that is, stocks, stock options, and mutual funds, Fidelity charges $4.95 per trade, $4.95 plus $0.65 per contract, and $49.95 per purchase, respectively. How much does Vanguard charge per trade? In the same order, Vanguard implements the following commission scheme: $7 per trade, $20 plus $1 per contract, and $35 per purchase. It must be noted that some of the best target date funds 2050 include Exchange-Traded Funds (ETF), many of which are traded on commission-free basis by both fund management entities.
Still asking, “How do I pick a target date fund?” The answers cannot be found solely on the potential of funding facilities to earn alone but also, in your personal investment appetite. How much risk are you willing to take? Of course, that goes beyond your hunches and feelings, particularly involving, among other things, how much fund you have to risk.
So, whether you are looking to avail of the best Fidelity index funds for retirement or, are keen on opening Vanguard target retirement funds, you must first determine your investor personality. The most common categories are identified below:
Aggressive Investor. Aggressive investors normally have advanced knowledge and skills when it comes to managing investment funds. Most will want a direct hand on how their funds are traded and, therefore, the online trading platform offered by Fidelity will be a suitable fit for this type of investors. Funds that fit these personalities are commonly high-risk.
Conservative Investor. These often characterize those who are into investing for the longer term. The best facilities for this type of investor personality are mutual funds that mature over the medium and long term. Most will also designate a fund manager to minimize risk of losing. Some of the best Vanguard funds for retirement match the investing appetite of these personalities.
Cost-Conscious Investors. Low cost index funds, including cost-free ETFs suit investors who are cost-conscious. If you are this personality type, it will also do you good to invest in longer-term fund facilities.
Service-Oriented or Tech-Savvy Investors. If you have a significant investment fund you’d like to grow, you can benefit from hiring the services of a personal investment fund manager which either Fidelity or Vanguard can assign to you at a certain amount of fund managed, usually $1 million and up.
Conclusion: Which one is right for you?
It pays to educate yourself about investing and IRAs but, choosing an investment fund also makes it apparent that your personality, values, and actual available funds should match your choice of investment facility. Only by weighing these factors can you successfully build your retirement fund. So, does Fidelity or Vanguard suit you better? Again, the answer depends on many factors, and requires you to evaluate yourself.