Vanguard Digital Advisor review 2023

• Newer investors
• Vanguard investors
• Investors focused on low costs

Vanguard takes its reputation for low-cost, investor-friendly services to the robo-advisor world with Vanguard Digital Advisor. This low-cost service builds a professional portfolio using well-established investing principles and then adds on plenty of investing tools and educational components in true investor-friendly fashion. While Vanguard scores well for low costs – its all-in fees may come to about half of what clients might pay elsewhere – it does lack some key premium features such as tax-loss harvesting that are commonly offered by the top robo-advisors. Don’t confuse Digital Advisor with Vanguard Personal Advisor, which offers access to human advisors, though in exchange clients are paying higher fees and must meet a higher account minimum.

If you’re looking for a robo-advisor with more features, then check out Betterment and Wealthfront, both perennially high scorers in Bankrate’s reviews. You’ll get premium features and similar investor-friendly services such as low-cost funds. Another popular pick is Schwab Intelligent Portfolios, not least because of that company’s investor-first street cred.

Pros: Where Vanguard Digital Advisor stands out

Low costs

You’ve come to expect low costs from Vanguard, and the company delivers on that promise with its robo-advisor, whether it’s the management fee or the costs of the ETFs it invests in. 

Vanguard uses a bit of a different pricing structure from most robo-advisors, which add a management fee on top of the ETFs’ fees. In contrast, Vanguard targets an all-in fee of 0.20 percent, which includes the prices of the ETFs, which themselves already charge very low fees. That means all-in you’d pay a very competitive $20 each year for every $10,000 invested.

Naturally, Vanguard Digital Advisor uses its in-house ETFs. That’s not surprising since a huge portion of the robo-advisor industry turns to the company’s funds as primary ETFs for their services. In total, you’ll pay about 0.05 percent for your funds, about as low as it goes, with the expense ratio on the funds ranging from 0.03 percent to 0.08 percent. But unlike other robos that add the costs of ETFs to the management fee, all costs here are included in the all-in fee. 

For example, robo-advisors such as Betterment and Wealthfront charge 0.25 percent as a management fee and then have another 0.08 to 0.10 percent in ETF fees (and potentially more, depending on exactly which funds and allocations you select). To be fair, those ETF fees don’t go to the robo-advisor but to the fund company itself (which often is actually Vanguard.) 

That said, recommending its own funds is an inherent conflict of interest, though Vanguard’s consistently low expenses make this a less pressing concern than it could otherwise be. 

If there’s a downside, it’s that Vanguard’s portfolio mix is surprisingly thin (more below). 

Education and tools

Vanguard was built on the ethos of helping individual investors, and you see that across the site — from educational videos, articles and more — to help you make smart long-term decisions.

In practical terms, that means you’ll have access to all of Vanguard’s retirement-planning tools and calculators. You can import your accounts into your profile so that the robo-advisor can have a more comprehensive view of your finances. Then you can develop a more accurate plan, for example, through Vanguard’s debt-payoff tool, which helps you build a payoff plan for liabilities. You’ll also have access to fund screeners, allowing you to scour the fund universe for what you want, even if you can’t buy those funds in your Digital Advisor account. 

Smooth sign-up process

Vanguard’s sign-up process feels among the most developed and sophisticated. The automated process is smooth and asks detailed financial questions such as your current spending, so you may want to come prepared with at least some of your info. This process may take longer than the sign-up at other robos, but it’s capturing important data to better shape your portfolio.

Vanguard’s sign-up also takes you through detailed financial scenarios where it assesses your risk tolerance. It asks questions such as “Would you risk $1 to make $4 in the next year?” Based on this analysis, it comes up with your risk tolerance and then builds a glide path for you, showing your allocation to stocks and bonds as you age. 

The robo-advisor works from a Vanguard brokerage account, so you’ll need to have one to use Digital Advisor. When you’ve completed your assessment, you’re automatically taken to the brokerage to sign up for an account there, if you don’t already have one.

Cons: Where Vanguard Digital Advisor could improve

Limited portfolio mix

Unlike many robo-advisors, which may construct portfolios with ETFs representing more than 20 different asset classes, Vanguard constructs all its portfolios with just four ETFs:

• Vanguard Total Stock Market
• Vanguard Total International Stock 
• Vanguard Total Bond Market 
• Vanguard Total International Bond

Vanguard drastically simplifies the portfolio management process, which may not be the worst thing, given so much unnecessary complexity and deliberate misdirection in the financial world. But it’s hard not to think that the portfolio could be more diversified across asset classes such as real estate, commodities or others. That kind of balance could give a portfolio more resilience in tough times and even out a portfolio’s performance through the ups and downs of the market. 

If you’re looking for a wide selection of investments, then be sure to look at Wealthfront as well as M1 Finance, where you can buy pre-made funds or virtually construct your own funds. Interactive Advisors also offers an above-average selection of investments. 

Account minimum

Digital Advisor requires a higher upfront commitment than most rivals (Schwab Intelligent Portfolios is an exception). In contrast, you’ll need at least $3,000 in the Vanguard account to use Digital Advisor. That’s not a lot in the big picture, but much more than the zero that many robo-advisors allow you to start off with.

No tax-loss harvesting feature

Vanguard doesn’t offer automatic tax-loss harvesting services for its account, when it’s something of a standard in the industry. That’s not to say Vanguard does nothing to minimize taxes. In fact, it optimizes your taxes and considers the tax impact of all portfolio decisions.

Vanguard factors your cost basis in any decisions to sell or rebalance your portfolio and sells off pieces that create the least negative impact on your taxes – similar to what Ellevest offers.

And if you have both taxable and tax-advantaged accounts with Vanguard, the robo-advisor will try to optimize the placement of assets within those portfolios to minimize taxes. For example, more highly taxable assets could go into tax-advantaged accounts such as an IRA, while those with a lower potential tax impact would go into a taxable account. 

No cash management account

A cash management account is a standard feature on a robo-advisor account these days, and the best of them – those by Betterment and Wealthfront – offer all the convenience of a checking and savings account and other added features, too. Unfortunately, Vanguard’s robo offering doesn’t provide a cash management account, though idle cash is swept into an interest-bearing fund containing U.S. government bonds. So your cash will be safe but will likely earn very little while it waits for investment.

You can’t purchase fractional shares

Vanguard doesn’t purchase shares in its funds in fractions, so you’ll end up with only whole shares in your account. That won’t mean much as your account really grows, but as you get started, it could mean that your portfolio is not as diversified as your target allocation says it should be. In addition, it means less of your money is being put to work where it should be. 

Limited account types

For now, Vanguard has a limited selection of account types that are available on its Digital Advisor account: individual and joint taxable accounts, as well as IRAs (Roth, traditional and rollover). That’s less than typical robo-advisors offer, though Vanguard may expand this selection. 

However, Vanguard offers something that other robo-advisors really don’t touch: You may be able to have your employer-sponsored 401(k) managed if it’s held at Vanguard. Not all 401(k) accounts will be eligible, and your company must have authorized the program. A 401(k) account may also be invested in a wider variety of ETFs not offered in the standard account.