Vanguard Digital Advisor at a glance
Pros: Where Vanguard Digital Advisor stands out
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 many 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).
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.
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 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.
For now, Vanguard Digital Advisor is still something of a work in progress, having launched in the middle of 2020. Still, it can offer a lot for investors:
- Digital Advisor makes a better pick for newer investors and those who have a Vanguard account already and simply want Vanguard’s robo-advisor to run the show at a modest cost.
- The low all-in cost is one of the best reasons to consider this robo-advisor, with your cost capped at $20 annually for every $10,000 invested. And you’ll also get Vanguard’s educational offering and its tools, which can help you manage your financial decisions.
- However, the lack of more standard features such as a cash management account or higher-end features such as tax-loss harvesting mean the account may be less attractive for more sophisticated investors.
Those looking for another low-cost option with strong street cred might turn to Schwab Intelligent Portfolios, which doesn’t charge a management fee and uses Vanguard funds, too. Other feature-rich picks include Betterment and Wealthfront, both independent robo-advisors. If cost is your only consideration, SoFi Automated Investing or M1 Finance could be good options.
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