The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: wirednuke83 on August 01, 2018, 09:46:59 AM
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Just saw this article flash across my feed. https://www.reuters.com/article/us-fidelity-funds-fees/fidelity-to-launch-zero-cost-index-funds-idUSKBN1KM5D5 (https://www.reuters.com/article/us-fidelity-funds-fees/fidelity-to-launch-zero-cost-index-funds-idUSKBN1KM5D5)
That looks promising?
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There must be a catch right?
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Yea, thats what I'm thinking too. Unless they're just hoping a whole bunch of dumb people hook up to their managed portfolio program to buy the zero fee index fund?
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I'm sure there is some bait and switch to this and or some testing of a sample group that says if they offer this for -0- dollars they will end up with more profits over here for ?$'s...
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Here's an ongoing bogleheads thread with more discussion: https://www.bogleheads.org/forum/viewtopic.php?t=255356
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Interesting. Both mine and my wife's 401(k) plans are through Fidelity. Immediately I am curious if these funds will be added eventually to our available options. Probably not, considering that neither of us have access to even a total stock market fund.
But secondarily, depending on how this shakes out I may consider rolling over my wife's 401(k) to IRAs at Fidelity instead of Vanguard. Which pisses me off to some extent, since I like to keep things as simple as possible by reducing the number of accounts, not increasing.
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It looks like they must have found another way to make a profit. My company's 401k is also through Fidelity, curious to see how it plays out.
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It looks like they must have found another way to make a profit. My company's 401k is also through Fidelity, curious to see how it plays out.
I read that it won't be available in 401(k) plans, only to direct investors. Hearsay at this point since I can't find a link.
I'm not an expert in the behind-the-scenes stuff regarding index funds, but I guess they can make money via securities lending. But Vanguard funds do this as well, and pass the profits through to the fund itself.
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I'm not an expert in the behind-the-scenes stuff regarding index funds, but I guess they can make money via securities lending.
Exactly.
Virtually all index funds already profit in some way from securities lending and they each publicly justify it in different ways. Fidelity is just upping the ante by not also charging its clients a fee on top of the money they're already making behind the scenes. I imagine more funds will follow suit and we'll all benefit in the long run. While I'm personally not a fan of securities lending in general, this is positive news in the overall trend towards lower fees.
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The most interesting part of this, in my mind, is that they dropped the minimum investment from essentially all of their retail funds and are in the process of removing the distinction between "investor" and "premium" class on their index funds. The only funds that I could find that still had minimums were a handful of their premium class money market funds.
They also dropped expenses on most of their retail index funds. FSTVX is now 0.015%, for example. They haven't dropped on the Four-In-One fund, which is slightly disappointing. It already uses their institutional-class funds which didn't drop expenses (they were already pretty low).
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They also dropped expenses on most of their retail index funds. FSTVX is now 0.015%, for example. They haven't dropped on the Four-In-One fund, which is slightly disappointing. It already uses their institutional-class funds which didn't drop expenses (they were already pretty low).
Institutional class fund FSKTX expense ratio went from 3 basis points to 1.5. So, even though it was not listed on list of funds whose expenses had dropped, the expenses did drop on some institutional funds.
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Fidelity has really emerged as the new Vanguard. For beginning investors, the lack of a minimum investment is a great thing.
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I suspect that getting people in the door by eliminating the nominal fee on a low cost product probably saves them advertising money in the long run.
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So this will end up better than VTI and it's .04% expense ratio in a Roth IRA correct? Or is there something else I am missing?
I thought ETFs were the least expensive index route in an IRA but if this truly has a 0.0% expense ratio then I might need to switch.
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Yea, I just started my wife's Roth yesterday at Vanguard, so that's kind of annoying. On the bright side, my 401k and ROTH are at Fidelity and all the expenses went down substantially.
It might force Vanguard to follow in kind...
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Here is another article on this topic.
Fidelity one-ups Vanguard, iShares as first fund company to offer a no-fee index fund
Fidelity Investments is introducing two core equity index funds with no management fee, the first mutual funds to be offered without an expense ratio.
https://www.cnbc.com/2018/08/01/fidelity-one-ups-vanguard-first-company-to-offer-no-fee-index-fund.html
I have used Fidelity of many years and still have a about 25% of my portfolio with them, an old employers 401k.
I suspect that the "catch" others in this thread have suspected is that Fidelity hopes to use these funds as loss leaders to lure in new investors and then up-sell additional services. This business model is what upstarts like Mint, Personal Capital and others use successfully. If Fidelity wants to compete in the new financial economy they need to change with the times.
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I'm not that impressed. Fidelity don't work for free, they have just moved their expenses to a riskier and less transparent format (securities lending). Ten years from now you will look back on trailing performance and realize the supposedly lower expense ratio had no effect. In fact, Fidelity will probably stick mostly with large liquid stocks to keep trading costs low, and VTSAX will come out fractionally ahead.
This is not a case where a lower nominal expense ratio will help you. I don't expect it to really hurt you either, just that it won't matter.
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yep the securities lending is how they are making money. we'll see how it shakes out but i cant imagine its really going to make a large difference in the long run. and Vanguard may win. we're talking minimal fractions of a percent and Vanguard funnels the security lending they do back into the funds performance.
Basically this is a loss leader for Fidelity to lure people in and try to get them in more expensive funds.
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I'm not that impressed. Fidelity don't work for free, they have just moved their expenses to a riskier and less transparent format (securities lending). Ten years from now you will look back on trailing performance and realize the supposedly lower expense ratio had no effect. In fact, Fidelity will probably stick mostly with large liquid stocks to keep trading costs low, and VTSAX will come out fractionally ahead.
This is not a case where a lower nominal expense ratio will help you. I don't expect it to really hurt you either, just that it won't matter.
Ditto. Seems pretty much like a non-event. I am going to take a look at asset managers who sold off yesterday (apparently) on this. We will see what happens.
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Vanguard funds do something special with distributions to lower tax implications. If you hold fidelity funds in non tax advantages accounts you will pay higher taxes despite the lower ER. For large amounts this can be significant.
I have most of my personal funds at fidelity but plan on opening a vanguard account and put all new investments there.
Sent from my iPhone using Tapatalk
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More competition is never a bad thing. For years, Vanguard was really the only game in town for low cost index funds. It's good to see Fidelity and Schwab are stepping their game up.
Even if they treat index funds as a loss leader of sorts, it's still wise. It will cause people to open investment accounts with Fidelity where they'll make commissions on stock trades and other services. Smart on their part.
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I'm not that impressed. Fidelity don't work for free, they have just moved their expenses to a riskier and less transparent format (securities lending). Ten years from now you will look back on trailing performance and realize the supposedly lower expense ratio had no effect. In fact, Fidelity will probably stick mostly with large liquid stocks to keep trading costs low, and VTSAX will come out fractionally ahead.
This is not a case where a lower nominal expense ratio will help you. I don't expect it to really hurt you either, just that it won't matter.
If Fidelity is mostly sticking with larger liquid stocks then it could not possibly be following the same total market index as VTSAX is, right? As long as they are both following the same index they should be identical, right?
I don't disagree that it won't really matter; the fees are already so low that dropping them to zero doesn't make much of a difference.
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Does securities trading pose a risk to our principle? Any chance that greedy folks can lose our money by trading the money we give for the index and wasting it?
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I'm not that impressed. Fidelity don't work for free, they have just moved their expenses to a riskier and less transparent format (securities lending). Ten years from now you will look back on trailing performance and realize the supposedly lower expense ratio had no effect. In fact, Fidelity will probably stick mostly with large liquid stocks to keep trading costs low, and VTSAX will come out fractionally ahead.
This is not a case where a lower nominal expense ratio will help you. I don't expect it to really hurt you either, just that it won't matter.
If Fidelity is mostly sticking with larger liquid stocks then it could not possibly be following the same total market index as VTSAX is, right? As long as they are both following the same index they should be identical, right?
I don't disagree that it won't really matter; the fees are already so low that dropping them to zero doesn't make much of a difference.
I don't necessarily agree with Radagast's suggestion that Fidelity will only use larger stocks, but they won't follow the same index. VTSAX currently follows the CRSP US Total Market Index (according to the footnotes here: https://investor.vanguard.com/mutual-funds/profile/VTSAX) which they pay a fee to license. Fidelity plans to save money by creating their own index (no licensing fee), but that does mean you need to trust that they'll design the index in the way they say they will (such that it follows the total US stock market).
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I think they've been doing the loss leader thing a while. I was thinking of going to Vanguard, but there seems to be little advantage.
https://www.fidelity.com/mutual-funds/investing-ideas/index-funds (https://www.fidelity.com/mutual-funds/investing-ideas/index-funds)
I may still go back to Vanguard because as it has been explained the customer is the owner whereas Fidelity is owned by someone else. Fidelity must serve the owner and the customer. With Vanguard, they are one and the same and I like that.
In my present situation, I have an available Fidelity office to help me whereas the help from Vanguard is more limited. This is part of the reason that they can keep their costs down.
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I'm a big Fidelity fan, had them for years. If you can tolerate an occasional marketing email and saying no to their managed portfolios when you need help, its a great platform
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PTF
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I have some major reservations about this fund as compared to Vanguard's who I think has the better business model and is well worth the higher minimums and slightly larger expense ratios.
My major issues with these two funds are that they are tracking an index Fidelity has chosen themselves, not one set up externally like most index funds. VTSAX uses the one from the Center for Research in Security Prices which I think is even better than a commercially driven index. Also, as people have alluded to, I believe Vanguard has a proprietary method for reducing capital gains distributions in their mutual funds by funneling the gains to the ETF of the same index since they are technically different classes of the same fund (like Investor vs Admiral class). Lastly, I just took a quick peak at the prospectus and as others have said they will be lending securities. What I found interesting though is that Fidelity's prospectus specifically listed Securities Lending Risk while Vanguard's did not. Are they going to be lending in a way that increases the risk relative to Vanguard's index fund?
That said, I only really use my Fidelity Brokerage for company stock programs and cash back from Fidelity's credit card which eventually I was hoping to replace. But I think I might take a stab at these funds when I get my next deposit, why not, they have 0% minimums which is awesome, especially for new investors.
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Glad I found this thread. Found an email this morning from fidelity with this:
Introduced two index mutual funds (FZROX and FZILX) with a zero expense ratio^2
2 - As of August 3, 2018 the Fidelity ZERO Total Market Index Fund (FZROX) and Fidelity ZERO International Index Fund (FZILX) are available to individual retail investors who purchase their shares through a Fidelity brokerage account.
Has anyone bought any yet?
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I don't buy the whole "Vanguard has a better business model" thing. Vanguard has a deeply weird business structure that's only legal because of a series of SEC special rulings. It's not a non-profit. It's not a mutual company by any conventional definition. It's almost completely opaque (a real mutual company would release annual reports for the entire enterprise to it's members). It's very strange and I don't think it warrants praise.
At this point Vanguard doesn't have much going for it compared to the other gigantic retail houses other than inertia. Their expenses are higher, their minimums are higher, their customer service is by most accounts worse, their platform is old and difficult to use. Fidelity and Schwab are better in every regard and their motivations are relatively transparent.
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Received this email this am as well. I only have a solo 401k with them and the email said that the new no fee funds were available in my account. I’m going to play around with it later today to see if that’s true.
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I don't buy the whole "Vanguard has a better business model" thing. Vanguard has a deeply weird business structure that's only legal because of a series of SEC special rulings. It's not a non-profit. It's not a mutual company by any conventional definition. It's almost completely opaque (a real mutual company would release annual reports for the entire enterprise to it's members). It's very strange and I don't think it warrants praise.
At this point Vanguard doesn't have much going for it compared to the other gigantic retail houses other than inertia. Their expenses are higher, their minimums are higher, their customer service is by most accounts worse, their platform is old and difficult to use. Fidelity and Schwab are better in every regard and their motivations are relatively transparent.
Fidelity et al. are only in a race to the bottom for expense ratios because of Vanguard's "weird" business model. It has sufficiently eaten into their profits to make them become competitive for an increasingly cost conscious investor. Vanguard directly or indirectly has saved investors billions in fees. Some of your criticisms are valid but I think Vanguard's motivations are pretty clear and transparent, even without Bogle at the helm (no pun intended). I know it must be hard for some people to understand how an organization would do something without the #1 desire being profit, but that's not a reason to withhold praise for an organization that has probably saved you a nice sum of money.
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All of my index funds are from Vanguard. I'm sure you can do well with Fidelity's offerings too. Assuming the fees are the same, the performance should be pretty much all else being equal.
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I have all my investment accounts with Fidelity - I started with my company 401K in there and in the interests of simplicity, I kept everything with Fidelity. I notice that FUSVX is now considerably cheaper on the expenses @ 0.015%
Last week it was 0.03%
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I started with Fidelity, but later opened a vanguard account because everyone told me how low their expense ratios are.
I was a rookie opening 2 accounts, and have been slowly selling off my vanguard account to switch into Fidelity. I value simplicity, my company 401k is through fidelity, so I'm stuck with fidelity.
I thought I was going to pay more in fees using fidelity, but after reading the announcement and other index's they have... It looks like Fidelity I lower in cost on 9 of the 10 index funds!
Overall I'm happy to hear that consolidating my accounts doesn't mean I'm losing out on cheap indexs.
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There isn't much data about FZROX on morningstar.com, but it does show 0.0% management fees and lists no expense waiver:
http://financials.morningstar.com/fund/expense.html?t=FZROX
If the fund was a "loss leader", Fidelity would pay some of the costs, and that shows up as an "expense waiver". Either morningstar's data is incomplete, or Fidelity plans to make a profit despite the 0.00% expense ratio.
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I started with Fidelity, but later opened a vanguard account because everyone told me how low their expense ratios are.
I was a rookie opening 2 accounts, and have been slowly selling off my vanguard account to switch into Fidelity. I value simplicity, my company 401k is through fidelity, so I'm stuck with fidelity.
I thought I was going to pay more in fees using fidelity, but after reading the announcement and other index's they have... It looks like Fidelity I lower in cost on 9 of the 10 index funds!
Overall I'm happy to hear that consolidating my accounts doesn't mean I'm losing out on cheap indexs.
It's all relative. At vanguard when they lease securities that money goes back to the investor. Also who knows what the makeup of these funds will be. They could be less diversified and heavier on the stocks that Fido knows they can lease.
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It's all relative. At vanguard when they lease securities that money goes back to the investor. Also who knows what the makeup of these funds will be. They could be less diversified and heavier on the stocks that Fido knows they can lease.
Fidelity has apparently confirmed that this is a loss leading plan for them and they receive no revenue from securities lending in their new funds.
http://citywireusa.com/professional-buyer/news/no-money-no-problem-how-fidelity-can-cash-in-on-free-funds/a1143805
Regarding the company selection, here's what they say in the FZROX prospectus:
Normally investing at least 80% of its assets in common stocks included in the Fidelity U.S. Total Investable Market Index, which is a float-adjusted market capitalization-weighted index designed to reflect the performance of the U.S. equity market, including large-, mid- and small-capitalization stocks. Using statistical sampling techniques based on such factors as capitalization, industry exposures, dividend yield, price/earnings (P/E) ratio, price/book (P/B) ratio, and earnings growth to attempt to replicate the returns of the Fidelity U.S. Total Investable Market Index℠ using a smaller number of securities.
So it's a custom Fidelity index tracking the total US market that both eliminates fees paid to outside index providers and reduces internal trading fees by managing the company count. Practically speaking, I expect that means the large cap holdings will be exactly as you'd expect, the mid and small caps will be a little more selective, and the overall performance will be very similar to any other total market fund. But we'll see.
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This is huge. I think we can all agree that removing barriers (investment minimums) are a fantastic way to get people started early who may not have the money nor the balls to start with $3,000 (or $1,000 with no choices)
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In a somewhat related topic - Fidelity also announced that they were reducing many of the ER of their funds - some drastically.
https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/mutual-funds/Fidelity-lower-expense-ratios-index-mf_FAQs.pdf
It does appear that my 401k was somewhat effected. I hold FSEVX in my 401k. So the ER dropped on it by 2.5 bp. Pretty much a non event.
What's more interesting to me is that I have been thinking about rolling over my 401k from a previous employer to my current employer's Fidelity 401k. However, there's a "management fee" on all of the funds effectively doubling the ER of the available funds. So now it's cheaper for me to move them to a Fidelity tIRA because the ER are lower and I don't have gigantic minimums to get access to those low ERs. But here's the catch - doing so (401k to tIRA rollover) will cause me headaches when doing backdoor roth because I'll have to keep track of the pre-tax vs post-tax ratios and pay additional taxes (while in a high tax bracket) on the pre-tax portion - which I don't want.
I wonder if my company will have any leverage to remove the "management fee" from the 401k. With the latest announcement. I'll have to mention it to HR.
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Has anyone looked at the actual historical performance of the vg vs the fido total market funds? I mean absolute returns, not compared to their respective benchmarks. Seems silly to get worked up about lowering the ER by 0.015 if one of them has been averaging 0.1% higher than the other, for what is supposed to be an equivalent investment.
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I have, and VTSAX did better than FTSVX over the maximum common length, the last 10 years, last 5 years, last 3 years, last year, year to date, and last three months compared to the existing Fidelity total market index, despite both in theory being total market indices and Fidelity having a lower expense ratio. At this level, expense ratio is not a primary consideration. After taxes VTSAX would have done even better. I expect something similar to happen with the new fund: it will trail VTSAX by a consistent and perhaps insignificant amount, because the expense ratio is just advertising. For the international funds, the countries they actually invest in will make a far greater difference in outcome than the expense ratio even decades later.
https://quotes.morningstar.com/chart/fund/chart.action?t=FSTVX®ion=usa&culture=en-US&dataParams=%7B%22zoomKey%22%3A9%2C%22version%22%3A%22US%22%2C%22showNav%22%3Atrue%2C%22defaultShowName%22%3A%22name%22%2C%22mainSettingId%22%3A%22main%22%2C%22navSettingId%22%3A%22nav%22%2C%22benchmarkSettingId%22%3A%22benchmark%22%2C%22sliderBgSettingId%22%3A%22sliderBg%22%2C%22volumeSettingId%22%3A%22volume%22%2C%22defaultBenchmark%22%3Afalse%2C%22id%22%3A%22FOUSA05CL6%7CFOUSA00L83%22%2C%22type%22%3A%22FO%7CFO%22%2C%22region%22%3A%22USA%22%2C%22name%22%3A%22XNAS%3AFSTVX%7CXNAS%3AVTSAX%22%2C%22baseCurrency%22%3A%22USD%22%2C%22defaultBenchmarks%22%3A%5B%22%22%2C%22%22%5D%2C%22chartType%22%3A%22growth%22%2C%22startDay%22%3A%2208%2F04%2F2008%22%2C%22endDay%22%3A%2208%2F04%2F2018%22%2C%22chartWidth%22%3A955%2C%22SMA%22%3A%5B%5D%7D
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I'm curious what the "cash" investment percentage might be with these funds.
The John Hancock trick (a 401k I'm sadly stuck with for now) is lower fees than Vanguard for four times the money held in cash. All my JH investments are in Vanguard, but they still soak a .8 or .9% "advisory fee."
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... VTSAX did better than FTSVX over the maximum common length, the last 10 years, last 5 years, last 3 years, last year, year to date, and last three months compared to the existing Fidelity total market ...
I compared the individual performance pages on morningstar, and it looks like less than +0.05% performance per year. When compounded over 20 years, that's less than 1% total.
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I wrote a C++ program a couple years back thatcompares the 2 main Vanguard and Fidelity us index fund over 100 various starting points and ending points lasting at least a year. It takes all the dividends, reinvests them at the price, I downloaded the Excel from Yahoo data. Surprising to me, Fidelity won out most time periods.
I can post the program if anybody wants to see it.
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I already keep my IRA funds from previous employer 401k's at Fidelity. And I already had it split between the two precursors to these funds (FSTVX and FSGDX), so I just swapped them out today. The fees were already really low, wonder if they'll just phase out those 2 older funds. This change might save me like a hundred bucks a year though. The real prize is the zero fee international. That mutual fund also includes emerging markets, so these two funds alone can really serve as your entire stock allocation for worldwide exposure should you choose to do so.
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For those thinking about rolling a 401k into an IRA. Remember that in the event of a lawsuit your "retirement funds" are protected. IRA's have the same protection but not in all states.
So if you live in an unprotected state (or might move to one at some point) then your IRAs are open to litigation loss... The more money you have the bigger the target you are.
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Has anyone looked at the actual historical performance of the vg vs the fido total market funds? I mean absolute returns, not compared to their respective benchmarks. Seems silly to get worked up about lowering the ER by 0.015 if one of them has been averaging 0.1% higher than the other, for what is supposed to be an equivalent investment.
Very good point Sol. It is easy to get hung up on reducing fees when ultimately net return is what matters. Lower fees are good but if they are coupled with lower returns you lose.
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RE: there has to be a catch.
"will be available free to selected investors in certain fee-based accounts"
I was hoping this would be available via Robinhood or Vanguard (it's not), but seems like it must be in a Fidelity account and only an account where you are already paying some sort of fee like their robo service. Still, another nice option, but feels like to me they're shuffling the chairs a bit
http://citywireusa.com/professional-buyer/news/fidelity-unveils-13-no-fee-funds-but-theres-a-catch/a1110074 (http://citywireusa.com/professional-buyer/news/fidelity-unveils-13-no-fee-funds-but-theres-a-catch/a1110074)
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I tried to move into FZILX today in my 401(k) and it said "Fund closed to new investments."
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Maybe there is a catch, but it is not clear to me why so many assume there is. Supermarkets and other stores have for a long time sold loss-leaders to lure a person into the store (the catch). On average, it works, but there is nothing preventing someone from going into the store just to purchase the loss-leaders. Yes, going to the supermarket and purchasing this "loss-leader" may not yet be an option (don't know), but we are closer to this than ever before.
I also do not see a 0% expense as a floor to fees. I think they could go negative.
I believe this is good a development and I am happy Fidelity is doing this. The prices for mutual funds have come way *way* down from when I started investing. Vanguard gets most of the credit for this, but I'll take the competition from any place it comes and if someone wants to leap frog Vanguard I'll cheer them on all the way.
I have no current plans of use these zero expense funds, but my institutional Fidelity funds came down in price as part of the roll out, so I'm happy.
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Here's where I think there is legitimate gripe (maybe). If you can only get these funds thru Fidelity Go, which has an underlying advsiory fee of .35% (I don't have Fidelity so maybe someone can chime in if that's still accurate), then it seems somewhat sketchy to put out a bunch of press releases with the headline focusing on "zero-fee". It's not untrue, but a little cagey IMO when VTI with .04% and no required advsiory fee is still cheaper overall. I could be wrong though
But yes, still cheering on the trend of low expense passive
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Here's where I think there is legitimate gripe (maybe). If you can only get these funds thru Fidelity Go, which has an underlying advsiory fee of .35% (I don't have Fidelity so maybe someone can chime in if that's still accurate), then it seems somewhat sketchy to put out a bunch of press releases with the headline focusing on "zero-fee". It's not untrue, but a little cagey IMO when VTI with .04% and no required advsiory fee is still cheaper overall. I could be wrong though
But yes, still cheering on the trend of low expense passive
Definitely not accurate. I just put an order in (and then cancelled it) for one of these funds in my ordinary taxable account. No warnings or errors of any sort.
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Good to know. Has anyone else been able to get these thru a non-Fidelity account? Or are they exclusive to Fidelity accounts?
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Definitely not accurate. I just put an order in (and then cancelled it) for one of these funds in my ordinary taxable account. No warnings or errors of any sort.
+1. Didn't place the order, but I checked my own account and they're clearly available to normal Fidelity investors.
Here's what Fideilty says in the FZROX prospectus:
Shares of the fund are available only to individual retail investors who purchase their shares through a Fidelity brokerage account, including retail non-retirement accounts, retail retirement accounts (traditional, Roth and SEP Individual Retirement Accounts (IRAs)), health savings accounts (HSAs), and stock plan services accounts.
So you do have to purchase them through a Fidelity brokerage account, but the claim that they're only available to fee-based accounts appears to be false.
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A Morningstar arcticle on the new funds for those that might be interested.
https://www.morningstar.com/articles/877443/what-fidelitys-nocost-index-funds-mean-for-investo.html (https://www.morningstar.com/articles/877443/what-fidelitys-nocost-index-funds-mean-for-investo.html)
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I'm still looking for some more info on these funds, but assuming they track roughly the same, I can't see any reason not to sell off ITOT in my Roth IRA and buy FZROX.
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I tried to move into FZILX today in my 401(k) and it said "Fund closed to new investments."
I saw the same with my solo 401k. I don’t mind that Fidelity is only offering a fee free fund for accounts that have some type of income generation for them but I am irritated that they included me in the spam email that made it seem otherwise.
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As mentioned earlier, I bought both of these funds in my Fidelity IRA. Nothing special about it and I don't pay them for any other services. Didn't have any problems.
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I'm still looking for some more info on these funds, but assuming they track roughly the same, I can't see any reason not to sell off ITOT in my Roth IRA and buy FZROX.
Fidelity's disclosures say they can charge 0.01 to 0.03 per share of ITOT sold depending on the holding period. I probably wouldn't sell it for the new fund as that amount owed will shrink over time.
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Fidelity's disclosures say they can charge 0.01 to 0.03 per share of ITOT sold depending on the holding period. I probably wouldn't sell it for the new fund as that amount owed will shrink over time.
To be clear, that's a standard fee mandated by the SEC that all brokerages collect. Vanguard calls it a "securities transaction fee". And it's per $1000, not per share. That works out to an average fee of about 0.002% per sell order, and depending on your situation could be well worth it to reduce your annual fees by quite a bit more than that.
https://www.sec.gov/fast-answers/answerssec31htm.html
https://www.bogleheads.org/forum/viewtopic.php?t=212346
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No catch that I could find. Only risk I saw was up to 20% in cash and them following their own index.
If they make a few bucks off lending out stocks to option buyers, I don't see how that affects us. 0.0% looks like a winner to me!
I doubt any 401k plans offer the fund directly, but you might be able to get it inside a 401k if your plan offers a Brokeragelink option. I moved a good chunk of my Roth IRA at Fidelity to FZROX & FZILX!
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If they make a few bucks off lending out stocks to option buyers, I don't see how that affects us. 0.0% looks like a winner to me!
Since Vanguard doesn't report their security lending impact [that I am aware of] on actual MERs how close do you think the low cost Vanguard funds are to these Fidelity funds?
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No catch that I could find. Only risk I saw was up to 20% in cash and them following their own index.
That's a pretty damn big risk. I'd wait to learn what the cash component is - 20% cash is a comically bad deal next to a Vanguard expense ratio.
https://www.nytimes.com/2018/08/10/business/fidelity-mutual-funds-fees.html
They didn't see much either, other than cross selling - but I'd bet the story is in the cash component.
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I liked the discussion the White Coat Investor had on these zero fee funds.
https://www.whitecoatinvestor.com/expense-ratios/
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No catch that I could find. Only risk I saw was up to 20% in cash and them following their own index.
That's a pretty damn big risk. I'd wait to learn what the cash component is - 20% cash is a comically bad deal next to a Vanguard expense ratio.
https://www.nytimes.com/2018/08/10/business/fidelity-mutual-funds-fees.html
They didn't see much either, other than cross selling - but I'd bet the story is in the cash component.
This is pretty much boiler plate in all of the total market index funds. Schwab, Fidelity, Vanguard, etc.
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No catch that I could find. Only risk I saw was up to 20% in cash and them following their own index.
That's a pretty damn big risk. I'd wait to learn what the cash component is - 20% cash is a comically bad deal next to a Vanguard expense ratio.
https://www.nytimes.com/2018/08/10/business/fidelity-mutual-funds-fees.html
They didn't see much either, other than cross selling - but I'd bet the story is in the cash component.
This is pretty much boiler plate in all of the total market index funds. Schwab, Fidelity, Vanguard, etc.
Maybe the disclaimer is boilerplate, but real results are much, much better than 20% in any fund worth having. Almost nobody here would accept hanging out 20% of a sizeable portfolio in cash.
http://quote.morningstar.com/fund-filing/Annual-Report/2017/12/31/t.aspx?t=VTSAX&ft=N-CSR&d=270d78d8129d352032f09f6a8308846a
0.2% short-term reserve. Thanks Vanguard.
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Maybe the disclaimer is boilerplate, but real results are much, much better than 20% in any fund worth having. Almost nobody here would accept hanging out 20% of a sizeable portfolio in cash.
http://quote.morningstar.com/fund-filing/Annual-Report/2017/12/31/t.aspx?t=VTSAX&ft=N-CSR&d=270d78d8129d352032f09f6a8308846a
0.2% short-term reserve. Thanks Vanguard.
An equivalent established index fund at Fidelity would be FSTVX. Currently "Cash & Net Other Assets" are at -0.1%.
https://fundresearch.fidelity.com/mutual-funds/fees-and-prices/315911800 (https://fundresearch.fidelity.com/mutual-funds/fees-and-prices/315911800)
(Check the Monthly Fact Sheet).
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Not sure how they went negative, but, hey, great!
The important thing really is to check the cash amounts on your own with any fund.
There is no such thing as an equivalent fund to a new, zero-fee fund. Half the people in the 401k I mentioned earlier have 10% in cash at John Hancock because they didn't read the fact sheet, which is sometimes what the companies are hoping for. People here are right to be suspicious of a free fund - this is the sort of thing they should check.
I don't carry garlic to ward off Fidelity - they, Schwab, and Vanguard are all quite competitive now. I'm just saying everyone should read the fine print.
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A few observations:
FSTVX dropped to 0.015%, so even if you don't do anything (and hold this already), you're saving money. FZROX does not follow the same index as FSTVX, so they won't likely give you the exact same returns.
I have exactly one good fund in my 401k. FUSEX (S&P 500) and it just dropped its ER to 0.015%.
I split my US equity position at Fidelity last week. Half staying in FSTVX (total US market) and half into FZROX (zero ER similar).
I'm not scared that these funds don't follow exactly the same index. I understand they're different. I hold SCHB and VTI as well. To me, they're all heavily weighted large cap US index funds.
I am absolutely sure that Abigail Johnson would not let any fund be a loser to the company. They are pretty aggressive in securities lending and make money doing that. You want to short a stock? You pay a fee to Abby. I pay zero ER. Everybody happy.
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I've been with Fidelity for years.
ETF trades are almost free.
There are index ETFs (which is what I trade).
The name of the fees have changed over the years. Now it's listed as "account assessment fee".
My last few were $0.27 - $1.20 per sell transaction.
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Zero is a great number. Thanks, Fidelity! As other posters have noted, they have dropped ERs on a number of index funds, and have eliminated minimum initial investment requirements on a number of funds as well.
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I'd like to mention that even for people who are not paying attention to their accounts, they're potentially saving money. Since I know that 401k accounts don't always follow the ERs of brokerage accounts, I decided to update my investment spreadsheet. Everywhere that I hold either total US market OR S&P 500 shares with Fidelity, my ER dropped to 0.015%. I noticed my Fidelity total bond fund ER dropped to 0.025% as well. Since there's no access to FZROX in my 401k, it was nice to see my S&P dropped to 0.015%. Overall, with a $2.3MM portfolio, my formerly low $805 a year total fee dropped to $510.99. I have seen people poo poo that kind of percentage savings. I'll take an extra $300 anytime.
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Wow, $2.3 million! Nice job.
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https://fundresearch.fidelity.com/mutual-funds/summary/315911800
So, looking at Fidelity Total Stock Market Premium Class, I see that over the past year it has precisely matched its index, with both returning 14.79% after expenses. This is in spite of the fact that FSTVX had an expense ratio of 0.035% during that year. Does a new, lower expense ratio mean that FSTVX will now lead its index by 0.02% for the next year? Because I would find that very concerning, with a race to "pay investors more" for owning a passive index. But I do not expect that to happen. I think the most likely result of the new, lower expense ratios is that FSTVX will continue to match its index after expenses.
I do not think these new lower expenses are a change for the worse. I think they are not any change at all.
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Remember that all the brokerages make good money lending out securities that YOU own. There's where they're making their money. The ER is just icing on the cake. As others have mentioned, there's no reason why ERs have to be positive. They can become negative and start looking like bank interest. Think about it......what do banks do with money you put in them? They look for ways to make YOUR money earn THEM more than they pay you in interest. Maybe they're buying stocks. Maybe they're originating mortgages. Maybe they're making porn and collecting the online fees. I don't see a difference with the brokerages. It's about time they pay me to hold my money instead of me paying them.
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Bloomberg vid on Fidelity: https://www.youtube.com/watch?v=GtgCZq1UU2Y
At 2 min into the video, they show a chart and the guy explains that an ETF like ITOT has a negative actual cost to hold when you factor in the profit from securities lending, some of which goes to the investor (they put the total cost at -0.03). I really had no idea that a company like BlackRock would share in the securities lending profit. So could an ETF like ITOT (3 basis pts) be better than a mutual fund like FZROX (0 basis pts) because of this? I know there are other factors than just the overall cost of an index or mutual fund, but a negative 0.03 seems quite good.
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I tried to move into FZILX today in my 401(k) and it said "Fund closed to new investments."
Tried today, I got the same result in my brokerage link.
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Bloomberg vid on Fidelity: https://www.youtube.com/watch?v=GtgCZq1UU2Y
At 2 min into the video, they show a chart and the guy explains that an ETF like ITOT has a negative actual cost to hold when you factor in the profit from securities lending, some of which goes to the investor (they put the total cost at -0.03). I really had no idea that a company like BlackRock would share in the securities lending profit. So could an ETF like ITOT (3 basis pts) be better than a mutual fund like FZROX (0 basis pts) because of this? I know there are other factors than just the overall cost of an index or mutual fund, but a negative 0.03 seems quite good.
Interesting. I have been using ITOT for a few years now, did not realize it had a negative fee. Out of the free trade fidelity ETFs, I prefer DGRO for this part of my asset allocation and have recently switched even with the .08 fee.
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Interesting. I have been using ITOT for a few years now, did not realize it had a negative fee. Out of the free trade fidelity ETFs, I prefer DGRO for this part of my asset allocation and have recently switched even with the .08 fee.
What's your justification for the switch and fee??
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I tried to move into FZILX today in my 401(k) and it said "Fund closed to new investments."
Tried today, I got the same result in my brokerage link.
Weird. I just moved some money into both FZROX and FZILX. This was in a Roth and an HSA, no issues. However - I was already invested in FZROX since inception. But not FZILX, so probably doesn't have anything to do with it really.
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I tried to move into FZILX today in my 401(k) and it said "Fund closed to new investments."
FYI, both of the new Zero funds are not available in 401k plans. This is the case for either a Solo 401k or a 401k through an employer. This is based on a phone call with someone who I deemed as a knowledge rep. He also stated that he didn't see that rule changing in the near future either.
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Interesting. I have been using ITOT for a few years now, did not realize it had a negative fee. Out of the free trade fidelity ETFs, I prefer DGRO for this part of my asset allocation and have recently switched even with the .08 fee.
What's your justification for the switch and fee??
DGRO and it's older brother SDY have beat the total market and it is a more defensive which I prefer. I really like ITOT still, I just prefer DGRO now as it filters out FANG type stocks which have burned me in the past.
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Personal Capital is a great and easy way to track both the annual expenses you pay and the amount of cash held by the ETFs you hold.
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I also put in an order for FZROX, no issues. You don't need an advisor or premium account of any time. I think the ball is now in Vanguard/Schwab's court to match Fidelity, and you'd figure they will sometime in the future. For those saying there's a "catch', no, there really isn't. It's a common business strategy to bring customers in with a 0% profit margin product (or even a loss-leader) when you have many higher margin products/services available and you know many of the new customers will use them.
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It appears to just be a trend for all brokerages....E-trade offers tons of zero fee, low cost ratio funds. I buy VTI, VOO, and ITOT there for free. There are many other funds (perhaps a 100 or more?) available commission free. Bond funds, international funds, index funds, etc. Lots of options and all commission free.