Vanguard Digital Advisor is the brokerage’s new automated advisor service, combining their low-cost exchange traded funds (ETFs) with some of the services of a traditional financial advisor.
Investors can receive a personalized plan to help them reach their retirement goals using varying allocations of Vanguard’s ETFs.
What Is Vanguard Digital Advisor and How Does it Work?
Vanguard Digital Advisor is a new offering from the Vanguard Group, a brokerage offering some of the world’s most popular exchanged traded and mutual funds. This Vanguard funds product is an offshoot of another investment management service called Vanguard Personal Advisor Services. Personal Advisor Services helps clients with portfolios of at least $50,000 and Vanguard Digital Advisor offers a lower barrier to entry.
This fully automated investing service requires that you have at least $3,000 in a Vanguard brokerage account — choose from either a Traditional or Roth IRA, or a taxable account. If you’re not an existing client, then you’ll need to create a new account.
To continue signing up, you’ll need to answer a few questions including your employment status and then led to an overview of what you can expect from Vanguard Digital Advisor:
- Build your financial profile
- Create a goal
- Enrolling into the service and unlocking additional features
For each step, you’ll answer a series of questions, with explanations on why Vanguard is asking them — you can also connect external accounts to provide more insight. If you have other Vanguard accounts like your 401k, you can link those and the brokerage will help you manage them. Otherwise, external accounts will be accounted for in spending projections but Vanguard won’t manage them.
Other questions you’ll be asked include spending estimates for your household and your risk tolerance. You’ll be measured from a scale of one to one hundred, which will help to decide on the types of allocations recommended for your portfolio.
After you’re enrolled in the service, Vanguard will take your assets and invest it in a portfolio of four Vanguard ETFs:
- Vanguard Total Stock Market ETF
- Vanguard Total International Stock ETF
- Vanguard Total Bond Market ETF
- Vanguard Total International Bond ETF
The percentages or allocations will be customized to match factors such as your age and risk tolerance. Vanguard’s algorithms will monitor your account daily to ensure the allocations are at the desired percentages.
Vanguard Digital Advisor
Best for Best for Automating Retirement Investments
Key Features
- Invests in a mix of four different Vanguard ETFs
- Portfolios monitored daily
- Low fees
Vanguard Digital Advisor monitors your account and rebalances anytime your target allocation is off by 5% or more. There are online tools such as a debt payoff calculator, and the ability to unlock additional ETFs depending on how investors sign up.
Vanguard Digital Advisor
Minimum opening deposit
$3,000 ($5,000 for eligible 401k accounts).
Management or advisory fees
From 0.15% (waived for the first 90 days for new clients).
Accounts offered
Taxable (individual and joint), IRA (Traditional, Roth, and Rollover), 401k.
Important Features
Financial Tools
Vanguard Digital Advisor has various tools, such as offering suggestions on saving for unexpected events, optimizing debt payments, where to hold extra cash, and more. You’ll also be able to look at what your debt payoff journey may look like if you used different payoff strategies.
For instance, you can use the debt payoff calculator to look at accounts you’ve connected, such as your mortgage, car loan or student loans. You can look at using the avalanche payment strategy — paying off the one with the highest loan amount first — or if you were only to make the minimum payments.
Another tool you can use is learning how to handle a windfall — an unexpected sum of money you receive — like an inheritance or a bonus at work. You will be advised to either pay off debt or use it to invest toward a goal.
Commissions and Fees
Investors will need to pay around a 0.15% annual net advisory fee across all your enrolled Vanguard accounts.However your actual advisory fee will depend on what you have in each enrolled account.
How this works is that Vanguard Digital Advisor will start by applying a 0.20% annual gross advisory fee to manage your Vanguard brokerage accounts.Then, you’ll be credited for any revenue that the brokerage or its affiliates gets from the Vanguard expense ratios from funds in your portfolio.
Aside from that, you’ll pay expense ratios from the Vanguard ETFs held in your portfolio, which averages to about 0.05%.
Vanguard Digital Advisor at a Glance
| Feature | Details | Good to Know | ||
|---|---|---|---|---|
| Financial Tools | Debt payoff projections | Emergency savings advice | ||
| Portfolio Mix | 4 Vanguard ETFs | Access to 2 more | ||
| Automatic Rebalancing | Yes, with stipulation | 5% deviation | ||
| Account Types | 3 IRAs and a 401(k) | Ind. and joint taxable | ||
| Free Tax Loss Harvesting | None | Other tax help tools | ||
| Pricing and Fees | 0.15% advisory fee | Fee-free trial period | ||
| Customer Support | Online | 8am-8pm ET Mon. to Fri. |
Portfolio Mix
Vanguard’s proprietary algorithm, will take the information you provide in the initial questionnaire to recommend a portfolio, taking into account your asset allocation, time horizon, and risk tolerance that aligns with your goals.
There are four Vanguard exchange traded funds that may be recommended for your portfolio:
- Vanguard Total Stock Market ETF
- Vanguard Total International Stock Market ETF
- Vanguard Total Bond Market ETF
- Vanguard Total International Bond ETF
You may be able to access two additional ETFs: Vanguard FTSE Developed Markets ETF, and Vanguard FTSE Emerging Markets ETF. To do so, you’ll need to enroll in both Vanguard brokerage accounts and participant accounts.
The allocations can change to match your risk exposure, time horizon for your retirement goals, and glide path trajectory (your asset allocation as you approach a target date). These allocations are based on fairly straightforward goals.
Keep in mind that recommendations from Vanguard Digital Advisor won’t guide you to purchase individual stocks, bonds, options, CDs, annuities, or other types of individual securities.
Portfolio Management
Clients’ portfolios consist of a well-diversified portfolio, which includes investments from different asset classes and market sectors — their ETFs broadly investing in US- and global-centric stocks and bonds. It doesn’t make any decisions based on short-term performance or market timing, and instead focuses on low-cost securities and indexing that’s based on long-term goals.
Vanguard Digital Advisor monitors portfolios daily and automatically rebalances if any asset allocation deviates by more than 5%. Rebalancing may also happen if there’s excess cash holdings.
Tax Efficiency
One of the main downsides to Vanguard Digital Advisor is that you won’t be able to take advantage of automatic tax loss harvesting for your account. Being about to use tax loss harvesting can help to minimize taxes — investments that have a loss are sold to offset any gains you made in your portfolio.
However, Vanguard Digital Advisor does try to help investors be more tax efficient by using the minimum tax cost basis method. It involves selling units of securities that have the greatest loss during each sale.
Vanguard also helps to optimize for taxes by making sure it puts less tax-efficient investments in retirement accounts, and more tax-efficient ones in taxable accounts — assuming you have both types.
Customer Service
You won’t be able to find any human financial advisors since Vanguard Digital Advisor is a completely digital experience. You can find customer service representatives to help you with questions (though don’t expect personalized financial advice) through their phone service. That’s available from 8 a.m. to 8 p.m., ET Monday through Friday.
If you want to stick with Vanguard but want access to human advisors, you can consider switching to Vanguard Personal Advisor Services, though you’ll need a higher investment minimum.
Pros and Cons of Vanguard Digital Advisor
As with any investing platform, there are pros and cons and we’ve rounded them up as part of our Vanguard Digital Advisor review.
Pros
- Low fees: Vanguard is known for its reputation as one of the world’s foremost investment experts. Its size allows the brokerage to reduce investor fees.
- Passive investing: Vanguard Digital Advisor is an affordable option for investors who want a more hands-off approach and aren’t bothered with seeking the help of a human advisor.
- Low expense ratios: Vanguards ETFs used have low expense ratios — an average of 0.05%. Plus, advisory fees are only 0.15%, much lower than what you’d find elsewhere.
- Free trial: You can try Vanguard Digital Advisor for free (no advisory fees) for the first 90 days.
Cons
- Limited ETF selection: There’s only four ETFs within Vanguard Digital Advisor’s selection so this robo advisor may not be the best fit if you want the ability to customize your portfolio.
- Solely focused on retirement: If you want to plan for multiple goals like purchasing your first home and starting a family, you’ll have to look elsewhere.
- Tax loss harvesting not available: You won’t get tax-loss harvesting at Vanguard Digital Advisor, though the brokerage does use tax-efficient ETFs.
Is Vanguard Digital Advisor Right for You?
Vanguard Digital Advisor is a great fit if you’re fine with not getting the help of a human financial advisor and instead use online tools and technology instead. It’s also best for those looking for a solution to help them with creating a retirement investment plan by investing in low-cost ETFs and designing a portfolio that’s aligned with their goals.
However, if you want to leverage multiple investment goals, be able to customize portfolio offerings, or have the option to work with a human financial advisor, you’re of luck. You may want to hold out to see if there are additional features in the future, or look at other alternatives.
Frequently Asked Questions (FAQs)
Does Vanguard Digital Advisor Offer Tax Loss Harvesting?
Vanguard Digital Advisor doesn’t offer tax loss harvesting to its clients. If you want to offset your capital gains, Vanguard Digital Advisor does use the minimum tax cost basis method and puts less tax efficient investments into your retirement accounts. However, it may not be as effective as tax loss harvesting — you’ll need to look elsewhere if this feature is a priority for you.
How Often Does Vanguard Digital Advisor Rebalance My Account?
Vanguard Digital Advisor monitors your account daily and whenever your target allocation is off by more than 5%, it’ll automatically rebalance your portfolio. That is to say, there is no set time when the brokerage will rebalance your account.
Are There Downsides to Using a Robo Advisor?
A main advantage of robo advisors is that it helps you to automatically allocate your money into investments designed to help you reach your financial goals. However, a main downside is that you may not have a lot of flexibility as an investor when it comes to customizing your portfolio. Plus, not all investors are best suited for robo advisors, especially those who benefit from working with a human financial advisor.
What Are the Fees for Vanguard Digital Advisor?
Advisory management fees for Vanguard Digital Advisor comes in at around 0.15% annually, though the exact amount you’ll be charged depends on the types of investments you hold in your portfolio. You’ll also need to pay investment expense ratios or each ETF you hold, and that averages to about 0.05%. These fees are lower than what you may pay with other robo advisors or even if you were to have a traditional financial advisor manage your funds.
Contributor Sarah Li-Cain is a personal finance writer based in Jacksonville, Florida, specializing in real estate, insurance, banking, loans and credit. She is the host of the Buzzsprout and Beyond the Dollar podcasts.
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