Author Topic: Fidelity zero fee index funds  (Read 715 times)

dgoldie

  • 5 O'Clock Shadow
  • *
  • Posts: 1
Fidelity zero fee index funds
« on: February 09, 2019, 11:59:36 PM »
Everyone touts Vanguard's low fee index funds. Fidelity recently introduced a few zero fee index funds. Sounds too good to be true! Is there a catch? Hidden fees? Or is it a legit loss leader to attract investors to their many other products? Are these funds constructed like other index funds, and will their performance mirror thot of similar US market and international index funds?

Beach_Stache

  • Stubble
  • **
  • Posts: 111
    • This Frugal Father
Re: Fidelity zero fee index funds
« Reply #1 on: February 10, 2019, 05:00:13 AM »
I think it's mostly just to bring new money in the door.  I tracked it for a few months when it first came out, and sold some of my higher cost funds and put it in a few of these funds and they seem to track pretty close w/the low cost index S&P Fidelity funds I am in, so I figured I might as well go for it.  I didn't put all my current low cost funds in there, as they dropped the rates on those from about 0.045% to like 0.015% (I can't remember), but I think there is a slightly lower return.  With the market up and down so much the last few months I haven't been looking as much lately.  I try to look at my funds when the market is up, not when it's down :)  I think generally they track their peers pretty well though.  I'm not about to sell all my other funds w/a proven track record though to put everything in here.

RWD

  • Magnum Stache
  • ******
  • Posts: 2807
  • Location: Mississippi
Re: Fidelity zero fee index funds
« Reply #2 on: February 10, 2019, 07:40:37 AM »

MustacheAndaHalf

  • Handlebar Stache
  • *****
  • Posts: 1531
Re: Fidelity zero fee index funds
« Reply #3 on: February 10, 2019, 09:47:50 AM »
Yes, Vanguard offers VTI (0.04%) and Schwab offers SCHB (0.03%) which are also total stock market, but ETFs.  In theory, the impact of fees would add up like this:

Fidelity 0.00%, 20 yrs: -0.0%, 40 yrs 0.0%
Schwab 0.03%, 20 yrs: -0.6%, 40 yrs -1.2%
Vanguard 0.04%, 20 yrs: -0.8%, 40 yrs - 1.6%

The compounding doesn't seem to make much difference from just multiplying.  But if you compare VTI and SCHB performance each quarter, you would expect Schwab to pull ahead by +0.01% overall.  But some quarters Vanguard is ahead, some quarters Schwab is ahead.  So at slight differences, it might matter less than other factors.

Maybe number of stocks is a factor, since Schwab has ~2500 while Vanguard has ~3700.  But if that's the case, Fidelity would be comparable to Schwab since it also holds ~2500 stocks.  I think it will be interesting to compare the performance of all three, but I wouldn't sell taxable investments to save less than 1% over 20 years.

COEE

  • Pencil Stache
  • ****
  • Posts: 578
Re: Fidelity zero fee index funds
« Reply #4 on: February 10, 2019, 10:26:27 AM »
There is a catch.  Security Lending.  Mutual fund companies lend out their securities to help cover costs.  With the zero fee funds you're just getting a bigger cut of this portion of the pie.  I'm not 100% sure if that means they lend more to get more, or if they are still lending the same amount and returning more of the profits to the investors (I haven't dug into the details that closely.  Perhaps someone here has, and can give us the scoop).  There are risks associated with security lending... reference 2008 Lehman Brothers.

Most index funds use security lending.  This is the red-headed stepchild of indexed investing, IMHO.

COEE

  • Pencil Stache
  • ****
  • Posts: 578
Re: Fidelity zero fee index funds
« Reply #5 on: February 10, 2019, 10:56:47 AM »
Fidelity 0.00%, 20 yrs: -0.0%, 40 yrs 0.0%
Schwab 0.03%, 20 yrs: -0.6%, 40 yrs -1.2%
Vanguard 0.04%, 20 yrs: -0.8%, 40 yrs - 1.6%

A much bigger impact to which fund is best for someone is the fund's tax efficiency (if held in a taxable account, of course).  I just don't want this analysis to imply to the OP that Fidelity zero funds are the best funds to hold.  Everyone's situation is different.

Would you mind comparing the following for tax efficiency over 20 and 40 years?

Fidelity 0.00% FZROX
Fidelity 0.015% FSKAX
Schwab 0.03% SWTSX
Vanguard 0.04% VTSAX

Here's a link to help: https://www.bogleheads.org/forum/viewtopic.php?t=242137

[ETA]  I remembered it will be hard to do this since FZROX hasn't been around for a for a full year yet!
« Last Edit: February 10, 2019, 10:59:53 AM by COEE »

FI-King_Awesome

  • 5 O'Clock Shadow
  • *
  • Posts: 21
Fidelity zero fee index funds
« Reply #6 on: February 20, 2019, 06:03:48 AM »
Started new thread.

My apologies to the OP :-)
« Last Edit: February 20, 2019, 07:19:57 PM by FI-King_Awesome »

MustacheAndaHalf

  • Handlebar Stache
  • *****
  • Posts: 1531
Re: Fidelity zero fee index funds
« Reply #7 on: February 20, 2019, 01:55:46 PM »
@FI-King_Awesome - It looks like you're trying to take someone else's thread and change it into your own topic.  Why not open a new thread, instead, and ask your question on it's own?

FI-King_Awesome

  • 5 O'Clock Shadow
  • *
  • Posts: 21
Re: Fidelity zero fee index funds
« Reply #8 on: February 20, 2019, 07:19:27 PM »
@FI-King_Awesome - It looks like you're trying to take someone else's thread and change it into your own topic.  Why not open a new thread, instead, and ask your question on it's own?

Fair enough. I thought we could continue the fidelity fund discussion here - didn’t mean to hijack OP’s thread.

Started a new post.

MustacheAndaHalf

  • Handlebar Stache
  • *****
  • Posts: 1531
Re: Fidelity zero fee index funds
« Reply #9 on: February 20, 2019, 11:03:35 PM »
Fidelity 0.00%, 20 yrs: -0.0%, 40 yrs 0.0%
Schwab 0.03%, 20 yrs: -0.6%, 40 yrs -1.2%
Vanguard 0.04%, 20 yrs: -0.8%, 40 yrs - 1.6%
A much bigger impact to which fund is best for someone is the fund's tax efficiency (if held in a taxable account, of course).  I just don't want this analysis to imply to the OP that Fidelity zero funds are the best funds to hold.  Everyone's situation is different.
If you're claiming that VTI and SCHB have significant tax differences, you should demonstrate your point with data.  I doubt that claim, since both of those ETFs are total stock market ETFs.  They both have turnover under 5%, both charge very low expense ratios, both aim to hold all U.S. stocks, and both aim to do as little buying or selling as possible.  I don't see why two total stock market ETFs would be significantly different in their tax impacts.  What data shows otherwise?