Anyone switching from Vanguard to Fidelity for zero expense ratio funds?

[afuera]

I recently switched jobs and called fidelity to start the process of rolling my 401K over to a vanguard IRA when he told me about the new zero expense ratio funds that Fidelity is offering.  I've been using Vanguard for all personal IRAs and taxable brokerage accounts for 10 years but have been using Fidelity for 8 years with previous employer.   I'm thinking about switching everything over to Fidelity though and was wondering if anyone else on here has done the same?  Is it too good to be true?

Link: https://www.fidelity.com/mutual-funds/investing-ideas/index-funds

[Knapptyme]

Maybe now that I have seen it.

I always knew Fidelity was a decent competitor to Vanguard, but the numbers don't lie.

[Michael in ABQ]

I started Roth IRAs for my kids and went with Fidelity. They're invested in FZROX - Fidelity ZEROŽ Total Market Index Fund - https://fundresearch.fidelity.com/mutual-funds/summary/31635T708

It's not really worth it to move my existing Roth IRA from Vanguard and VTSAX with its whooping 0.04% expense ratio. $4 a year for every $10k invested.

[EvenSteven]

Fidelity is a good brokerage, so I don't think switching everything over will be at all harmful.

However, the difference in expense ratio and performance between VTI and FZROX won't really move the needle on your retirement plans.

[dandarc]

Fidelity is a good brokerage, so I don't think switching everything over will be at all harmful.

However, the difference in expense ratio and performance between VTI and FZROX won't really move the needle on your retirement plans.

Partly because VTI sometimes will slightly outperform in spite of the higher expense ratio - when expense ratios are below 0.05%, sometimes other differences with the funds cause the more-expensive to do better than than the less-expensive fund, even if it is essentially the same portfolio. Whereas if the spread on ER is 0.5% or 1% or forbid 2%, then it is extremely likely that the lower ER is going to win out.

[ATtiny85]

Be sure to only do this in tax deferred/ free accounts. A lot could change in the future, and these zero fee funds can only be held in a Fidelity account. Low risk of an issue, but still.

[dizzy]

I've been planning to do this but life/work has been so busy I haven't gotten to it yet.
I have my solo 401k and trad IRA with Schwab but originally went to Fidelity for their fee-free HSA.  Have since opened regular brokerage there as well.  FZROX n chill?


Their solo401k is also supposed to be good/free but I'd prefer to do the transfers in person, lotta forms and stuff to deal with.  We have branches nearby but I just haven't had time.

[NoEllipsis]

I simply prefer Fidelitys interfaces over Vanguard. I think they are both close enough investments that the differences and fees won't be noticed, but I just never liked navigating through Vanguard for some reason.

[MustacheAndaHalf]

In my view Fidelity and Schwab are better than Vanguard on customer service and website, but equal or better in costs.

I believe the way Fidelity Zero funds make money is with block trades of institutional investors.  If you sell $1,000 worth of stock, the market absorbs it.  But if someone dumps $10 million of mid-cap stock, the price can fall as they sell.  This "market impact" incentivizes institutional investors to find another way of selling.  So they reach out to a large mutual fund, and pay to sell their $10 million in stock.  The institutional investor pays less in fees than they would in "market impact" costs, and Fidelity Zero can use the money to pay for expenses.  They could be other things going on as well, but I thought an example of how this could actually work may help.

One downside is the Fidelity Zero funds were only created 4 years ago, in 2018.  But it's been a dramatic 4 years, so not a bad test of their model.

Personally I prefer ETFs, so I'd rather VTI or ITOT than stick with a Fidelity mutual fund.  The 0.03% expense ratio is $3/year on $10,000 invested.  That's unlikely to impact retirement plans.

[sparkytheop]

I have my Roth IRA in VTSAX (I want to invest all $6k at one go and not worry about having full shares for VTI), and my HSA with Fidelity, in FZROX, as well as TDA, in SWTSX.  No plans to change anything.  The fact that other brokerages are now offering zero fee funds shows just how strong of a leader Vanguard has been.  They need to do something to entice more customers.  (Don't care enough about app or website differences for it to make a difference to me, I don't mess with stuff often.)

[MustacheAndaHalf]

The fact that other brokerages are now offering zero fee funds shows just how strong of a leader Vanguard has been.  They need to do something to entice more customers. 

The problem with your theory is that Vanguard hasn't been leading on low costs for awhile.  Those $0/trade stocks and ETFs?  Vanguard was a laggard - both Fidelity and Schwab introduced that first.  Vanguard can't be a leader when it's last.

Look at "options" prices right now.  Schwab and Fidelity charge $0.65/contract, while Vanguard chages $1.00/contract.  Vanguard refuses to negotiate margin rates, offering far worse interest than other brokerages.  And on, and on ...

After John Bogle stepped down, I haven't seen Vanguard lead in any low cost area.  Right now their website claims Vanguard robo advisor costs $0, and then in fine print says "for the first 90 days".  Low cost leaders don't use "teaser rates" that expire in 3 months.

[index]

Fidelity wins in my book due to offering a HSA brokerage account. I can have a traditional brokerage account, IRA's, cash management (bank account with unlimited international ATM withdrawal reimbursement), and a HSA all in one place. I had my accounts at Vanguard for more than 10 years, but Fidelity is far superior imo. 

[Reynold]

I didn't switch TO Fidelity, I had been a Fidelity customer for decades, since my grandmother opened small accounts for us grandkids, and now actually live in an area where I was able to talk to their local rep.  Since I'm FIREing next year, I have a fair amount of assets there, and they have been wanting me to come in and talk to them whenever I was willing.  I told the rep I was planning to buy a Vanguard index fund, and he told me about these new (as of a couple years ago) zero expense products, so I bought one of those instead.  I asked them how they planned to make money on those products, and he basically said they were willing to run them as a loss leader to keep customers at their brokerage. 

I suspect the kinds of customers who actually understand and care about expense ratios are high enough net worth that Fidelity will find ways to make some money from them with other products, even if it is just buying and selling stocks with "play money" on the side or something.   Grocery stores sold things like milk at breakeven or a slight loss for years (don't know if that is still the case) because people would buy the rest of their groceries there as well. 

[mattpew]

Vanguard funds are still cheaper. See: https://www.investopedia.com/how-vanguard-patented-a-system-to-avoid-taxes-in-mutual-funds-4686985

[MustacheAndaHalf]

The investors suing Vanguard for massive tax bills would probably disagree with you.  But even if Vanguard's patent is a big advantage, the patent expires next year.

"Three target-date fund investors claim Vanguard violated its legal duties by triggering thousands of dollars in surprise tax bills."
...
"In this case, investors in the higher-cost funds got distributions at least 40 times larger than previous years, according to the lawsuit."

https://www.cnbc.com/2022/03/15/vanguard-created-big-tax-bills-for-target-date-fund-investors-lawsuit-claims.html