Vanguard Digital Advisor Review – A Brand-New, Low-Cost Robo-Advisor
In this Vanguard Digital Advisor review, we'll check out the newest robo advisor by the leader in low-cost investing. Find out if it's right for you.
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Vanguard has long championed low-cost investing, as shown by its thousands of no-fee funds and commission-free brokerage service. In fact, Vanguard’s founder, Jack Bogle, also pioneered index funds, diversified investments with razor-thin transaction costs.
So it shouldn’t be a shock that Vanguard’s brand-new robo-advisor, Vanguard Digital Advisor, is inexpensive and efficient. Vanguard launched Digital Advisor in 2020. It is a 100% robo-investing platform with low fees and a $3,000 minimum.
In this review of Vanguard Digital Advisor, we’ll take an in-depth look at the newest kid on the robo-advisor block to help you decide whether it’s a good fit.
Vanguard Digital Advisor Review
Vanguard Digital Advisor
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 u002du002d which might prove a barrier to entry for some new investors.
Vanguard Digital Advisor Features
| Vanguard Digital Advisor | Features |
|---|---|
| Minimum Investment | $3,000 |
| 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 |
| Tax-Loss Harvesting | No |
| 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 no one was seeking profits from the outside, and Vanguard kept its costs 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.
For some folks, though, that many choices can be a stumbling block. If you don’t enjoy DIY investing, you’d rather let someone else do the heavy lifting. 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, PAS has a big barrier to entry. The service requires a $50,000 account minimum.
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 Betterment or Wealthfront, it begins by asking you a series of questions about your investment timeline, risk tolerance, and goals.
Goals play a significant role in Digital Advisor. Each client has access to a financial goal dashboard where they can set up and adjust goals such as retirement savings, an emergency fund, and more. Digital Advisor will also assess your risk attitude based on its questionnaire and assign you to one of five risk categories. However, you can customize your risk attitude at any time.
Digital Advisor can manage several account types, including individual and joint accounts, as well as traditional and Roth IRAs. However, when assessing your financial situation, the robo-advisor will consider any investment accounts you may have elsewhere.
The service will then create a portfolio for you and maintain it automatically. If your financial situation changes, 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 much like any other robo-advisor: It assesses your current financial situation, considers your goals, builds 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. Frankly, their impact 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 primarily consist of Vanguard-branded funds. Most portfolios will include an equity portion made up of the Vanguard Total Stock Market ETF and the Vanguard Total International Stock Market ETF. The fixed-income portion will include the Vanguard Total Bond Market ETF and the Vanguard Total International Bond Index ETF. Of course, your risk attitude and goals will determine how much of your portfolio you allocate to each.
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.
You can learn more at the Vanguard website.
Vanguard Digital Advisor Fees
Because Vanguard Digital Advisor portfolios focus on Vanguard ETFs, you’ll see meaningful savings on fees.
First, 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 Empower’s (formerly Personal Capital) Wealth Management service costs 0.49% to 0.89%, depending on your portfolio size. Plus, you still pay underlying fees for the funds in your portfolio.
Vanguard ETFs have tiny expense ratios. That means your all-in annual cost for Digital Advisor is about 0.20%, making it among the lowest-cost robo-advisors available.
Vanguard Digital Advisor Pros & Cons
- 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 offers simple portfolios built from solid, low-cost funds. Not much can go wrong there.
- Low Fees. With all-in fees expected around 0.20%, 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 adjust them over time.
- 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.
- Minimum Investment. $3,000 is much less 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. Because of the simple composition of these portfolios, there’s little opportunity to cut investment losses with tax-loss harvesting.
Conclusion
With its relatively minuscule fees and no-nonsense, goal-based approach, Vanguard Digital Advisors is a strong new contender in the robo-advisory space.
However, some users may be disappointed by the limited 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 use 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 start investing toward your long-term goals. And I think Jack Bogle would have appreciated that.
You can learn more on the Vanguard website.
