Wealthfront vs. Vanguard

Wealthfront and Vanguard specialize in two different types of online trading platforms. Vanguard offers a full-service trading platform that specializes in mutual funds. Wealthfront, on the other hand, is what is known as a robo-advisor service. You don’t select specific securities, instead, you select financial goals and priorities. Based on these choices Wealthfront decides how to allocate your money among a series of pre-made portfolios and makes adjustments automatically. Both offer strong products and services, but take different approaches in how to achieve and utilize them.

A financial advisor can be extremely helpful with mapping out all of your long-term financial goals

Wealthfront vs. Vanguard: Fees

There are usually four types of fees to look out for when choosing a trading platform:

• Trading Fees: Any fixed charge attached to each trade that you make. This can come in the form of a flat fee or what’s known as the “spread.” This is when your broker charges you based on the difference, if any, between the buying and the selling price of an asset.
• Trading Commissions: This is when a broker will charge you a percentage based on the volume or value of each trade.
• Inactivity Fees: Any fees that the broker charges you for not trading, such as for keeping money in a brokerage account.
• Non-Trading/Other Fees: Any form of fee for trading on this platform not covered above. For example, a brokerage might charge you for making deposits into your brokerage account, taking money out of it or signing up for additional services.

Given that Vanguard and Wealthfront are structured very differently, the fees they charge are based on entirely different models.

Wealthfront is mainly a robo-advisor service. This means that it holds your money and assigns it to pre-arranged portfolios based on your financial preferences. These portfolios are, themselves, managed by the firm’s algorithms with broker intervention as the firm sees fit. You, the individual investor, make no specific investment decisions yourself. As a result, the firm charges no trade-based fees.

Instead, Wealthfront charges an annual fee of 0.25% of all assets on account. This means that if you maintain $10,000 in a Wealthfront account, you would pay $25 each year for this service. (The goal and promise of this service, of course, is that your portfolio will grow by considerably more than 0.25%, offsetting this monthly fee.)

However, Wealthfront also offers a DIY option for investors who prefer to build their own portfolio of individual stocks and exchange-traded funds (ETFs). Customers can even purchase fractional shares of company stock using a Stock Investing Account. And just like its robo-advisor option, Wealthfront does not charge commissions on individual transactions.

There are no other charges for common activities on Wealthfront’s service, including inactivity, deposits and withdrawals. Certain niche activities can trigger fees, such as creating a 529 account (which can charge a total fee of between 0.39% and 0.45%).

As a full-service trading platform, by contrast, Vanguard lists most of its fees on a per-transaction basis. It charges nothing to trade Vanguard mutual funds or ETFs, $0 to trade stocks online and $25 to make a broker-assisted trade of individual stocks by phone.

However, trading other mutual funds can trigger up to a $20 per trade fee. Vanguard charges $1 per contract to trade options, but offers 25 free trades for investors with between $1 million and $5 million invested in Vanguard ETFs and mutual funds. The firm also offers 100 free options trades to investors with more than $5 million invested in Vanguard ETFs and mutual funds.

Vanguard also charges a $25 annual account fee for brokerage accounts, although this fee can be waived if you sign up for electronic delivery of account-related documents. While you must keep a minimum balance of $500 for investment accounts at Wealthfront, Vanguard does not have a minimum balance requirement.

Wealthfront vs. Vanguard: Services & Features

This is where the rubber meets the road. Wealthfront and Vanguard’s products overlap in that they both cater to fund-based, hands-off investors. Despite offering the ability to actively trade and manage assets, Vanguard’s identity is as a mutual fund broker. Its trading platform retains that identity, and is best for investors looking for the risk mitigation of a portfolio heavy in pooled assets. Wealthfront’s robo-advisory model offers exclusively pooled assets, which caters to that same crowd.

Yet, there is where the similarities end.

Wealthfront invests based on an automated system. When you create an account you answer basic questions such as age and income, then you create a financial plan based on issues such as risk tolerance and whether you are investing for specific goals. From there the system allocates your money among assets in the firm’s shared portfolios, choosing how to balance your investments based on your financial planning. (For example, investors with a higher appetite for risk and more aggressive savings goals would be balanced into more speculative asset classes than those with a more conservative financial outlook.)

The firm’s portfolio includes a wide mix of assets, from equities and bonds to exchange-traded funds (ETFs) and real estate. This is a departure from many robo-advisors, which often build their portfolios exclusively from ETFs. 

However, while Wealthfront’s system invests your money according to financial preferences and planning, it does not allow you to actually make any investments yourself (unless you use their Stock Investing Account).

As a full-service trading platform, Vanguard allows you to directly trade virtually all mainstream securities. This includes, but is not limited to, stocks, bonds, ETFs, mutual funds and currencies. The most common asset classes not available through Vanguard are futures and cryptocurrency.

The platform also offers the full range of information necessary to trade in these products. Users can access technical indicators, pricing and trading data going back for the lifetime of any given asset, as well as news and analysis intended to help individuals make smarter choices with their money.

The heart of Vanguard’s platform, however, is its selection of mutual funds. Between its own products and its no-fee list, Vanguard offers one of the largest selections of free mutual funds of any trading platform on the market. However, it’s important to note that this does not mean that the funds themselves are free. Any given mutual fund may charge administrative fees, sometimes referred to as operating expense ratios, meaning that your actual portfolio costs will reflect the products you’ve chosen.

Wealthfront vs. Vanguard: Online & Mobile Experience

What stands out most about Wealthfront’s online experience is the breadth of financial planning options that the service offers. Investors can choose to create savings plans for long-term goals such as retirement, buying a house or even taking time off for travel. As a travel journalist and frequent backpacker, this writer most appreciated the latter, which advertises the ability to “help you see how long you can travel while maintaining financial security.”

This may not be useful to everyone, but that’s the point. Wealthfront offers financial planning tools beyond the standard fare, which allows it to offer useful financial planning for a wider range of investors. Wealthfront uses a tool it calls Path to visualize this planning, laying your goals out in easy-to-understand terms that can let you see where you need to make adjustments going forward.

As above, Vanguard’s user experience reflects its status as a fund-oriented trading platform. It is generally well designed, and users will quickly be able to find critical tools such as portfolio management and how to look up individual assets. While Vanguard does not present the same wealth of data that some other trading platforms offer, it does still offer a breadth of information that will likely prove confusing to new or inexperienced investors.

Yet, while making sense of terms such as stop limit and the colored bar charts favored by investors will take some time, Vanguard is a good system in which to learn. Vanguard’s website in particular is clear, and you can easily find your way to basic functions such as buying and selling an asset. While the platform has a learning curve, it chiefly reflects the complexity of finance rather than Vanguard’s user interface.

Wealthfront vs. Vanguard: Pros and Cons 

When choosing between Wealthfront and Vanguard, it helps to see their differences side by side. Below is a quick comparison of their strengths and weaknesses to help you decide which might fit your needs:

Tax Considerations for Each Platform

Taxes can significantly affect your investment returns, so understanding how each platform addresses them is essential.

Wealthfront

Wealthfront offers built-in tax-loss harvesting for taxable accounts, which automatically sells investments that have lost value to offset gains elsewhere — potentially reducing your taxable income.Wealthfront also offers direct indexing for accounts over $5,000, which purchases individual stocks to optimize tax-loss harvesting even further. These automated strategies can improve after-tax returns without additional effort from the investor.

Vanguard

Vanguard focuses on providing tax-efficient funds, such as index funds and ETFs, which tend to distribute fewer taxable capital gains compared to actively managed funds. Vanguard also offers tax-advantaged account types like IRAs, Roth IRAs, and 401(k) rollovers, where earnings can grow tax-deferred or tax-free, depending on the account.

Which Platform Fits Your Tax Strategy?

• If you’re investing in a taxable account and want automated tax-loss harvesting to help lower your tax bill, Wealthfront is the clear winner.
  
• If you’re building your retirement nest egg and want access to tax-advantaged accounts or prefer to hand-pick tax-efficient funds yourself, Vanguard provides more options and flexibility.

Both platforms can play a role in a smart tax strategy, depending on whether you prioritize automation or hands-on management of your investments and accounts.

Wealthfront vs. Vanguard: Who Should Use It?

This one is relatively simple. Wealthfront and Vanguard offer two overlapping but fundamentally different services. Investors who would like to prioritize financial management and advice, but who are not interested in the ins and outs of actual trading, will find a lot to love about Wealthfront.

Your points of interaction in Wealthfront are almost entirely designed around building a financial plan and figuring out how to manage your money around making that happen. From a user’s perspective, the actual trading is mostly handled by the algorithm. If you would like to invest around financial goals without having to select the actual securities to trade or when to trade, Wealthfront is the choice for you. However, the addition of the Stock Investing Account option gives you the ability to invest directly in individual securities, as well.

Investors who would like to select their assets for a bespoke financial plan to manage might preferVanguard. This trading platform allows you to build a fund-oriented investment portfolio with a wide variety of options to meet just about every need. Users who want to do the research and select their own products, and those who want the option to integrate some speculative assets into their portfolio, may find that Vanguard is the choice for them.

Bottom Line

Both Wealthfront and Vanguard provide a variety of services and investments that can help you find the right balance of investments for your portfolio. The right one for you will depend on the costs and layer of help you need in choosing investments and maintaining your overall portfolio.

Tips for Investing

• No platform, no matter how smart, can take the place of good financial advising. If you don’t have a financial advisor, finding one doesn’t have to be hard. SmartAsset’s free tool free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• A free easy-to-use investment calculator is a great way to get started on creating financial goals, or just for getting a check-up on your progress toward those goals.

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