Vanguard Digital Advisor is a low-cost robo-advisor for long-term investors who don’t want to pay more than they should for broadly diversified portfolios. Using a mix of Vanguard index and sector ETFs, the platform helps allocate your assets in keeping with your investing objectives and tolerance for risk.
Vanguard Digital Advisor’s annual advisory fee is no more than 0.20% of the value of your assets under management, or AUM. That’s much cheaper than most human financial advisors and many robo-advisors too. Its biggest drawback is a relatively high minimum investment for all account types except eligible 401(k)s — $3,000.
Vanguard Digital Advisor shares a nameplate and a collection of low-cost investment funds with two other Vanguard platforms: Vanguard Brokerage Services and Vanguard Personal Advisor Services. That’s about where the similarities end, though.
Key Features of Vanguard Digital Advisor
Vanguard Digital Advisor is a straightforward robo-advisor that’s ideal for investors seeking low-cost diversification. These are its most important features and capabilities.
Investment Options and Asset Allocation
Vanguard Digital Advisor builds your portfolio using just four Vanguard ETFs:
- The Vanguard Total Stock Market ETF
- The Vanguard Total International Stock ETF
- The Vanguard Total Bond Market ETF
- The Vanguard Total International Bond ETF
Based on your investing time horizon, objectives, and risk tolerance, Vanguard allocates your initial investment and future contributions to these funds.
If you’re relatively young, investing for retirement, and OK with significant market risk, Vanguard puts most of your money into the Total Stock Market and Total International Stock ETFs. If you’re older or can’t tolerate as much risk, your portfolio favors the two bond ETFs. If you’re somewhere in the middle, your portfolio reflects that.
As your investing objectives change with age and life events, you can adjust your asset allocation preferences as needed.
Investment Fees and Expenses
Vanguard Digital Advisor charges a gross advisory fee of no more than 0.20% of assets under management (AUM) each year. This fee is split between Vanguard’s fee for managing your portfolio and the fees charged by the component funds themselves. Depending on your asset mix, your expenses could be even lower than 0.20% AUM.
Vanguard doesn’t charge trading commissions or other account fees. You shouldn’t incur any fees other than advisory fees and fund expenses during your time with Vanguard Digital Advisor.
Account Types Available
Vanguard Digital Advisor offers the following account types:
Advisory fees and fund expenses remain constant across all account types.
Fee-Free Introductory Period
Vanguard Digital Advisor has a 90-day free trial period during which it waives all advisory fees and expenses. If you’re not satisfied with the service, just cancel before the 90 days are up and pay nothing.
Vanguard Money Market Fund
Any uninvested cash in your Vanguard Digital Advisor account sits in a Vanguard money market account. Basically, this is a cash management account with no fees and a negligible interest rate.
Vanguard typically invests the bulk of new deposits and reinvests dividends and capital gains, so it’s unlikely that your money market account will ever make up a significant portion of your portfolio.
Every day the markets are open, Vanguard checks your asset allocations against your targets. If your stock or bond holdings have shifted more than 5% from your ideal allocations, Vanguard brings them back into line by selling assets you have too much of and buying assets you have too little of.
Vanguard also takes the opportunity to nudge your portfolio toward your targets when you deposit new cash into your account.
Vanguard Digital Advisor doesn’t include access to or advice from human financial advisors. However, Vanguard’s investor support team is available during extended business hours, Monday through Friday, to answer basic questions about your account and help with technical issues.
Advantages of Vanguard Digital Advisor
Vanguard Digital Advisor has a lot going for it. It’s cheap and simple yet surprisingly investor-friendly.
- Very Low Fees. Vanguard Digital Advisor’s gross management fee is no more than 0.20% AUM. That’s much less than most human advisors charge and cheaper than many robo-advisors as well, including top competitors like Wealthfront and Betterment.
- Impressive Diversification With Few Funds. Vanguard Digital Advisor manages to build customized, well-diversified portfolios using just four broad-market funds. Although the approach isn’t perfect, it’s simple and clean for novice investors.
- Frequent Rebalancing If Needed. Vanguard Digital Advisor monitors your portfolio’s balance every trading day and nudges your allocations back toward your targets when necessary. There’s no additional cost for this service, although the transactions may incur tax expenses.
- IRAs and 401(k)s Available. You can open IRAs and 401(k) accounts with Vanguard Digital Advisor in addition to a taxable brokerage account.
- Virtually No Add-on Account Fees. Vanguard Digital Advisor charges virtually no account fees beyond the advisory fee and fund expenses, which are built into the advisory fee. You don’t have to worry about hidden fees eating into your returns here.
Disadvantages of Vanguard Digital Advisor
Vanguard Digital Advisor’s downsides include a high minimum investment requirement and important omissions like no socially responsible investing or tax-loss harvesting.
- High Minimum Investment. Vanguard Digital Advisor requires a minimum opening investment of $3,000. That’s more than many novice investors can afford.
- Limited Investment Options. Although it’s able to achieve impressive diversification with a limited fund lineup, Vanguard Digital Advisor doesn’t offer enough breadth for sophisticated investors. You can’t buy individual stocks, non-Vanguard ETFs, or even mutual funds here, to say nothing of alternative investments like forex and cryptocurrencies.
- No Socially Responsible Investing Option. Vanguard Digital Advisor doesn’t offer any socially responsible investment options here. When you invest in its total market ETFs, you’re investing in oil companies and tobacco firms alongside green energy companies and plant-based food manufacturers.
- No Tax-Loss Harvesting. Vanguard Digital Advisor doesn’t do tax-loss harvesting, which is when a human or automated advisor sells assets for a loss that offsets taxable gains and drives down net investment costs. This is a feature of other popular robo-advisors like Wealthfront.
- No Access to Human Financial Advisors. With Vanguard Digital Advisor, you don’t have access to a human financial advisor. You’ll need to upgrade to Vanguard Personal Advisor Services for that.
How Vanguard Digital Advisor Stacks Up
Vanguard Digital Advisor is one of many robo-advisors operating today. One of its closest competitors is Schwab Intelligent Portfolios, which is also backed by a huge financial institution known for diversified ETFs and super-low costs. Here’s how the two platforms stack up.
|Vanguard Digital Advisor||Schwab Intelligent Portfolios|
|Cost||No more than 0.20% AUM||0.05% to 0.18% AUM, depending on mix|
|Investment Options||Four broad market ETFs||50+ ETFs across 20 asset classes|
Vanguard Digital Advisor is a beginner-friendly robo-advisor with low expense ratios and diversified exchange-traded funds. It’s a good first investment portfolio for long-term investors comfortable with the level of customization that broad market index funds allow. In fact, it’s among the best robo-advisors on the market for straightforward situations.
But Vanguard Digital Advisor is not appropriate for everyone, including people with complex financial goals and those who can’t put up the $3,000 account minimum. For that, you’ll want a more fine-tuned advisory service — possibly one that blends human expertise and investment advice with automated market-making algorithms.