Vanguard has long been a champion of low-cost investing, as is evident by its thousands of no-fee funds and commission-free brokerage service. In fact, Vanguard’s founder, Jack Bogle, was also the father of index funds, diversified investments with razor-thin transaction costs.
So it shouldn’t come as a shock that Vanguard’s brand-new robo-advisor, Vanguard Digital Advisor, is inexpensive and efficient. While it hasn’t been officially launched, the Vanguard has already announced the details of its Vanguard Digital Advisor service. And it looks like a great option for investors who want access to a robo advisor service worthy of the Vanguard name. We expect Vanguard to officially launch the Vanguard Digital Advisor service sometime in 2020.
In this review of Vanguard Digital Advisor, we’ll take an in-depth look at the newest kid on the robo-adivsor block to help you decide if it’s a good fit for you.
Product Name: Vanguard Digital Advisor
Product Description: Vanguard Digital Advisor is the newest offering from the world's leader in low-cost investing. Fees are low when compared to other robo-advisors, and the service has a lower required minimum than Vanguard's Personal Advisor Services. However, that minimum is still $3,000 -- which might prove a barrier to entry for some new investors.
When it comes to Commissions & Fees, this is the strongest suit for Vanguard Digital Advisor. The service’s advisory fee is only 0.15%, and the funds it invests in have minuscule underlying fees as well. The robo-advisor offers basic Account Options such as taxable accounts and IRAs. You won’t find niche options such as 529s. Investment Options & Asset Allocation are likely to be divisive. Expect just a few Vanguard ETFs in a portfolio. Some investors will prefer this simplicity; others will not. In addition, there are very few Tools & Resources compared with other robo-advisors. Likewise, simplicity is the name of the game when it comes to the Website / App / Ease of Use. Customer Service can be reached five days a week by phone.
Vanguard Digital Advisor Features
|Vanguard Digital Advisor||Features|
|Commissions & Fees||0.15%|
|Types of Investments||ETFs|
|Types of Accounts||Individual, Joint, Traditional IRA, Roth IRA|
|Asset Allocation||Portfolios of Vanguard Funds|
|Automatic Portfolio Rebalancing||As Needed|
|Human Advisor Availability||None|
|Banking Services||Money Market Accounts|
|App Availability||iOS, Android, Kindle, Mobile Optimized Website|
|Customer Service||Email, Phone|
|FINRA CRD Number||#106715|
|SEC Registration Number||#801-49601|
What Is Vanguard Digital Advisor?
Vanguard has been around since 1975, when Jack Bogle founded it as a client-owned mutual fund company. That was a revolutionary idea – because there wasn’t anyone seeking profits from the outside, Vanguard’s costs were kept remarkably low.
Over the years, Vanguard has stuck to its mission of making investing affordable for individuals. The company currently offers dozens of fee-free mutual funds and ETFs, and its brokerage service lets clients select from thousands of commission-free investments.
Of course, for some folks, that many choices can turn out to be a stumbling block. If you don’t enjoy the idea of DIY investing, you’d much rather let someone else do the heavy lifting for you. That’s why Vanguard rolled out its Personal Advisory Services (PAS). A “set it and forget it” robo-advisor with input from live financial advisors, PAS creates and maintains custom-tailored portfolios of Vanguard ETFs and mutual funds for its clients.
However, there’s a big barrier to entry with PAS. There’s a required account minimum of $50,000 to use the service.
In 2020, Vanguard will introduce Digital Advisor. It’s a 100% robo-investing platform with a low fee and a required minimum of only $3,000.
How Does Vanguard Digital Advisor Work?
Vanguard Digital Advisor works like most of the other robo-advisors we’ve reviewed. Like, say, Betterment or Wealthfront, it begins by asking you a series of questions about your investment timeline, risk tolerance, and goals.
Goals play a big roll in Digital Advisor. Each client has access to a financial goal dashboard where they can set up and tweak a goal such as retirement savings, an emergency fund, etc. Digital Advisor will also assess your risk attitude based on its questionnaire and assign you to one of five risk categories. However, at any time, you can customize your own risk attitude setting.
Digital Advisor can manage several different account types, including individual and joint accounts, as well as traditional and Roth IRAs. However, in computing your financial situation, the robo-advisor will examine all kinds of investment accounts you might have elsewhere.
The service will then create a portfolio for you and automatically maintain it for you. Whenever there’s a change in your financial situation, you can alert Vanguard, and your portfolio may be rebalanced to better suit your new needs. You can also alter your goals and risk tolerance at any time.
So far, Vanguard Digital Advisor operates pretty much like any other robo-advisor: It assesses your current money situation, takes your goals into account, devises an allocated portfolio, and gets to work.
Vanguard Digital Advisor Portfolios
The selections that Vanguard Digital Advisor makes for your portfolios is what sets it apart from the rest of the robo pack. And, frankly, their effect on fees is what makes this service so appealing, as we’ll see in the next section.
As you might have guessed, Vanguard Digital Advisor portfolios will be made up primarily of Vanguard-branded funds. Most portfolios will have an equity portion that likely consists of the Vanguard Total Stock Market ETF and the Vanguard Total International Stock Market ETF. Then there will be a fixed-income portion comprised of the Vanguard Total Bond Market ETF and the Vanguard Total International Bond Index ETF. Of course, how much of your portfolio will be allocated to each will be determined by your risk attitude and goals.
Over time, portfolio components may vary, and Vanguard states in its Digital Advisor prospectus that recommendations will be limited to both Vanguard and non-Vanguard funds and collective investment trusts.
Vanguard Digital Advisor Fees
Because Vanguard Digital Advisor portfolios have a focus on Vanguard ETFs, you’ll see some impactful savings when it comes to fees.
First of all, Vanguard Digital Advisor charges a net advisory fee of only 0.15%. That’s particularly cheap when compared to other top robo-advisors. For example, Wealthfront charges 0.25%, while Personal Capital’s Wealth Management service costs 0.49% to 0.89%,, depending on the size of your portfolio. What’s more, you still have to pay underlying fees for the funds in your portfolio.
Vanguard ETFs have tiny expense ratios. That means, all-in, your annual costs for Digital Advisor will be about 0.20%, making it among the lowest-cost robo-advisors available.
Vanguard Digital Advisor Pros & Cons
Vanguard Digital Advisor Pros
- Simplicity. If there’s one thing I appreciate in investing, it’s the mantra of “KISS” – Keep It Simple, Stupid. When it comes to your money, you do not want to be in over your head. Vanguard Digital Advisor promises simple portfolios made of solid low-cost funds. There’s not much that can go wrong there.
- Low Fees. With all-in fees expected around 20%, Vanguard Digital Advisor is remarkably cheap for a robo-advisor.
- Goal-Based Investing. With this robo-advisor, you can set your investing and saving goals and alter them as time goes on.
- Fiduciary Status. Vanguard and its advisors are classed as fiduciaries. That means you can rest assured that investment decisions will be made with your best interest in mind, not because someone has been offered a free cruise.
Vanguard Digital Advisor Cons
- Minimum Investment. $3,000 is a whole lot less money than the $50,000 required for a Vanguard Personal Advisor Services account. But it’s still quite a chunk of change for a new investor. By comparison, Betterment Digital has no minimum, and Wealthfront requires only $500.
- Few Features. Don’t get me wrong – I like the simplicity of Vanguard Digital Advisors. But some folks prefer lots of tools and calculators to play around with. If this sounds like you, you might be better off with a service such as Betterment, Wealthfront, or Personal Capital.
- Low Potential for Tax-Loss Harvesting. Due to the simple composition of this service’s portfolios, there’s not really any way to cut investment losses with tax-loss harvesting.
With its relatively minuscule fees and a no-nonsense approach to efficient, goal-based investing, Vanguard Digital Advisors is a strong new contender in the robo-advisory sphere.
However, some users might be disappointed by the lack of features and tools. After all, some other robo-advisors let you take a holistic look at your financial picture. They even provide budgeting tools.
In addition, investors looking to take advantage of complex strategies such as smart beta and tax-loss harvesting will find this service lacking. This is strictly a simple set-it-and-forget-it robo-advisor that’s best for people with little to no investing experience. I like products that focus on what they do best. In this case, it’s low-cost investing for the long term, rather than monitoring your daily expenses.
Overall, I’m looking forward to seeing what Vanguard Digital Advisors can do over time. I think it’s a great way to get started investing toward your long-term goals. And I think Jack Bogle would have appreciated that.