7 Low-Fee Fidelity Mutual Funds
Fidelity Investments is one of the biggest and best-known asset management companies in the world. Launched in 1946, the company has over $2.92 trillion in assets under management (AUM) as of June 2020, and offers mutual funds and exchange-traded funds (ETFs); it provides investment advice and manages qualified retirement plans.
- Fidelity Investments is one of the world's largest and best-known financial companies, with nearly $3 trillion in assets under management.
- Known primarily for its actively managed mutual fund strategies, the company also offers a range of low-cost index funds and active funds with competitive fees.
- Here, we take a brief look at just seven from among Fidelity's impressive family of funds.
Fidelity Fund Family
Among its large portfolio of mutual funds, Fidelity offers a wide variety of ultra-low-cost products. Low expense ratios and fees are particularly advantageous because fees eat directly into returns. While the potential return an individual sees on many investments is unknown, and expenses are the one-piece investors can control. Lower expenses mean more money in their portfolios, and ultimately their pockets.
Index mutual funds are typically the lowest-cost products available. Index funds passively replicate a chosen benchmark and do not require the additional costs of fund management and research teams. With many actively managed funds having difficulty matching their benchmark, index funds make for ideal core holdings within most portfolios. Many Fidelity index mutual funds, such as the ones listed below, offer a combination of solid historical performance and low fees.
Fidelity 500 Index Fund (FXAIX)
The Fidelity 500 Index Fund (FXAIX) is not only one of the largest mutual funds to track the Standard&Poor's (S&P) 500 Index, and it is also one of the cheapest. With a net expense ratio of just 0.015%, this fund ranks as one of the lowest-cost investments in the entire mutual fund universe. This expense ratio means that for every $1,000 invested in the fund, Fidelity charges just 15 cents per year in fees. With nearly $225 billion in assets under management, this no-load fund earns 4-stars from Morningstar.
Fidelity NASDAQ Composite Index Fund (FNCMX)
Sometimes, the concept of low cost is relative. While the Fidelity NASDAQ Composite Index Fund's (FNCMX) 0.30% expense ratio does not move this fund into the cheapest category, it is still among the cheapest funds tracking the NASDAQ Composite Index. This fund also holds the distinction of carrying a Morningstar five-star rating in the large-cap growth category.
Fidelity ZERO International Index Fund (FZILX)
International mutual funds tend to have higher expense ratios due to the added cost of factors such as global research and currency risk. Started in 1997, the Fidelity offered its Spartan International fund with a low fee of just 0,2%. However, more recently Fidelity has pivoted to a zero-fee model with its ZERO International Index Fund (FZILX). This fund tends to stick with larger global names to limit risk and has literally no expense ratio and no load.
Fidelity Mid Cap Stock Fund (FMCSX)
Fidelity offers a particularly robust lineup of mid-cap fund choices with eight different funds sporting a four-star or five-star Morningstar rating. The Fidelity Spartan Mid Cap Stock Fund (FMCSX) is one of those. With an expense ratio of 0.61%, it ranks as one of the best ways to get exposure to medium-size stocks around with professional active management that has earned annually around one extra point of return against its benchmark over the past 15 years.
Fidelity Estate Investment Portfolio (FRESX)
Real estate can be a notoriously risky place for investors to put their dollars to work, but the diversification benefits that come from adding this asset class to diversify a portfolio are notable. The Fidelity Real Estate Investment Fund (FSRVX) actively invests at least 80% of assets in securities of domestic and foreign companies principally engaged in the real estate industry and other real estate related investments.
Fidelity Inflation-Protected Bond Index Fund (FIPDX)
Treasury inflation-protected securities (TIPS) are a relatively new addition to the investing landscape, but they have gained much interest from those seeking protection from economic risk. The Fidelity Inflation-Protected Bond Index Fund (FIPDX) has not delivered much in the way of returns to investors due to the current low-rate, low-inflation environment, but it carries a four-star Morningstar rating and a 0.05% net expense ratio.
Fidelity ZERO Total Market Index Fund (FZROX)
The Fidelity ZERO Total Market Index Fund (FZROX) is similar to Fidelity's ZERO's 500 Index Funds, except this fund adds small-cap and mid-cap exposure to the mix in order to capture the entire U.S. equity market. It makes an ideal core "all-in-one" portfolio holding and charges no fees or loads.
Best index funds in October 2021
Index funds are popular with investors because they promise ownership of a wide variety of stocks, greater diversification and lower risk – usually all at a low price. That’s why many investors, especially beginners, find index funds to be superior investments to individual stocks.
Among the best are index funds based on the Standard & Poor’s 500 Index (S&P 500). The index includes hundreds of the largest, globally diversified American companies across every industry, making it a relatively low-risk way to invest in stocks. Of course, as 2020 showed, even the whole market can fluctuate dramatically, especially if something momentous happens.
This index is the very definition of the market, and by owning a fund based on the index, you’ll get the market’s return, historically about 10 percent per year. It’s among the most popular indexes.
Here’s everything you need to know about index funds, including five of the top index funds to consider adding to your portfolio this year.
Best index funds for October 2021
The list below includes S&P 500 index funds from a variety of companies, and it includes some of the lowest-cost funds trading on the public markets. When it comes to an index fund like this, one of the most important factors in your total return is cost. Included are two mutual funds and three ETFs:
1. Fidelity ZERO Large Cap Index
2. Vanguard S&P 500 ETF
3. SPDR S&P 500 ETF Trust
4. iShares Core S&P 500 ETF
5. Schwab S&P 500 Index Fund
1. Fidelity ZERO Large Cap Index (FNILX)
The Fidelity ZERO Large Cap Index mutual fund is part of the investment company’s foray into mutual funds with no expense ratio, thus its ZERO moniker. The fund doesn’t officially track the S&P 500 – technically it follows the Fidelity U.S. Large Cap Index – but the difference is academic. The real difference is that investor-friendly Fidelity doesn’t have to cough up a licensing fee to use the S&P name, keeping costs lower for investors.
Expense ratio: 0 percent. That means every $10,000 invested would cost $0 annually.
2. Vanguard S&P 500 ETF (VOO)
As its name suggests, the Vanguard S&P 500 tracks the S&P 500 index, and it’s one of the largest funds on the market with hundreds of billions in the fund. This ETF began trading in 2010, and it’s backed by Vanguard, one of the powerhouses of the fund industry.
Expense ratio: 0.03 percent. That means every $10,000 invested would cost $3 annually.
3. SPDR S&P 500 ETF Trust (SPY)
The SPDR S&P 500 ETF is the granddaddy of ETFs, having been founded all the way back in 1993. It helped kick off the wave of ETF investing that has become so popular today. With hundreds of billions in the fund, it’s among the most popular ETFs. The fund is sponsored by State Street Global Advisors — another heavyweight in the industry — and it tracks the S&P 500.
Expense ratio: 0.09 percent. That means every $10,000 invested would cost $9 annually.
4. iShares Core S&P 500 ETF (IVV)
The iShares Core S&P 500 ETF is a fund sponsored by one of the largest fund companies, BlackRock. This iShares fund is one of the largest ETFs and like these other large funds, it tracks the S&P 500. With an inception date of 2000, this fund is another long-tenured player that’s tracked the index closely over time.
Expense ratio: 0.03 percent. That means every $10,000 invested would cost $3 annually.
5. Schwab S&P 500 Index Fund (SWPPX)
With tens of billions in assets, the Schwab S&P 500 Index Fund is on the smaller side of the heavyweights on this list, but that’s not really a concern for investors. This mutual fund has a strong record dating back to 1997, and it’s sponsored by Charles Schwab, one of the most respected names in the industry. Schwab is especially noted for its focus on making investor-friendly products, as evidenced by this fund’s razor-thin expense ratio.
Expense ratio: 0.02 percent. That means every $10,000 invested would cost $2 annually.
Why are index funds so popular?
The S&P 500 index fund continues to be among the most popular index funds. S&P 500 funds offer a good return over time, they’re diversified and a relatively low-risk way to invest in stocks.
- Attractive returns – Like all stocks, the S&P 500 will fluctuate. But over time the index has returned about 10 percent annually. That doesn’t mean index funds make money every year, but over long periods of time that’s been the average return.
- Diversification – Investors like index funds because they offer immediate diversification. With one purchase, investors can own a wide swath of companies. One share of an index fund based on the S&P 500 provides ownership in hundreds of companies.
- Lower risk – Because they’re diversified, investing in an index fund is lower risk than owning a few individual stocks. That doesn’t mean you can’t lose money or that they’re as safe as a CD, for example, but the index will usually fluctuate a lot less than an individual stock.
- Low cost – Index funds can charge very little for these benefits, with a low expense ratio. For larger funds you may pay $3 to $10 per year for every $10,000 you have invested. In fact, one fund (listed above) charges you no expense ratio at all. When it comes to index funds, cost is one of the most important factors in your total return.
While some funds such as S&P 500 index funds allow you to own companies across industries, others own only a specific industry, country or even investing style (say, dividend stocks).
How to invest in an index fund in 3 easy steps
It’s surprisingly easy to invest in an index fund, but you’ll want to know what you’re investing in, not simply buy random funds that you know little about.
1. Choose an index fund to invest in
Your first step is finding what you want to invest in. While an S&P 500 index fund is the most popular index fund, they also exist for different industries, countries and even investment styles. So you need to consider what exactly you want to invest in and why it might hold opportunity:
- Location: Consider the geographic location of the investments. A broad index such as the S&P 500 owns American companies, while other index funds might focus on a narrower location (France) or an equally broad one (Asia-Pacific).
- Business: Which industry or industries is the index fund investing in? Is it invested in pharma companies making new drugs, or maybe tech companies? Some funds specialize in certain industries and avoid others.
- Market opportunity: What opportunity does the index fund present? Is the fund buying pharma companies because they’re making the next blockbuster drug or because they’re cash cows paying dividends? Some funds invest in high-yield stocks while others want high-growth stocks.
You’ll want to carefully examine what the fund is investing in, so you have some idea of what you actually own. Sometimes the labels on an index fund can be misleading. But you can check the index’s holdings to see exactly what’s in the fund.
2. Decide which index fund to buy
After you’ve found a fund you like, you can look at other factors that may make it a good fit for your portfolio. The fund’s expenses are huge factors that could make – or cost – you tens of thousands of dollars over time.
- Expenses: Compare the expenses of each fund you’re considering. Sometimes a fund based on a similar index can charge 20 times as much as another.
- Taxes: For certain legal reasons, mutual funds tend to be less tax-efficient than ETFs. At the end of the year many mutual funds pay a taxable capital gains distribution, while ETFs do not.
- Investment minimums: Many mutual funds have a minimum investment amount for your first purchase, often several thousand dollars. In contrast, many ETFs have no such rule, and your broker may even allow you to buy fractional shares with just a few dollars.
3. Purchase your index fund
After you’ve decided which fund fits in your portfolio, it’s time for the easy part – actually buying the fund. You can either buy directly from the mutual fund company or through a broker. But it’s usually easier to buy a mutual fund through a broker. And if you’re buying an ETF, you’ll need to go through your broker.
Things to consider when investing in index funds
As you’re looking at index funds, you’ll want to consider the following factors:
- Long-run performance: It’s important to track the long-term performance of the index fund (ideally at least five to ten years of performance) to see what your potential future returns might be. Each fund may track a different index or do better than another fund, and some indexes do better than others over time. Long-run performance is your best gauge to what you might expect in the future, but it’s no guarantee, either.
- Expense ratio: The expense ratio shows what you’re paying for the fund’s performance on an annual basis. For funds that track the same index, such as the S&P 500, it makes little sense to pay more than you have to. Other index funds may track indexes that have better long-term performance, potentially justifying a higher expense ratio.
- Trading costs: Some brokers offer very attractive prices when you’re buying mutual funds, even more so than the same mutual fund company itself. If you’re going with an ETF, virtually all major online brokers now allow you to trade without a commission. Also, if you’re buying a mutual fund, beware of sales loads, or commissions, which can easily lop off 1 or 2 percent of your money before it’s invested. These are easy to avoid by choosing funds carefully, such as those from Vanguard and many others.
- Fund options: Not all brokers will offer all mutual funds, however. So you’ll need to see whether your broker offers a specific fund family. In contrast, ETFs are typically available at all brokers because they’re all traded on an exchange.
- Convenience: It may be a lot easier to go with a mutual fund that your broker offers on its platform rather than open a new brokerage account. But going with an ETF instead of a mutual fund may also allow you to sidestep this issue.
Can an index fund investor lose everything?
Putting money into any market-based investment such as stocks or bonds means that investors could lose it all if the company or government issuing the security runs into severe trouble. However, the situation is a bit different for index funds because they’re often so diversified.
An index fund usually owns at least dozens of securities and may own potentially hundreds of them, meaning that it’s highly diversified. In the case of a stock index fund, for example, every stock would have to go to zero for the index fund, and thus the investor, to lose everything. So while it’s theoretically possible to lose everything, it doesn’t happen for standard funds.
That said, an index fund could underperform and lose money for years, depending on what it’s invested in. But the odds that an index fund loses everything are very low.
What is considered a good expense ratio?
Mutual funds and ETFs have among the cheapest average expense ratios, and the figure also depends on whether they’re investing in bonds or stocks. In 2020, the average stock index mutual fund charged 0.06 percent (on an asset-weighted basis), or $6 for every $10,000 invested. The average stock index ETF charged 0.18 percent (asset-weighted), or $18 for every $10,000 invested.
Index funds tend to be much cheaper than average funds. Compare the numbers above with the average stock mutual fund (on an asset-weighted basis), which charged 0.54 percent, or the average stock ETF, which charged 0.18 percent. While the ETF expense ratio is the same in each case, the cost for mutual funds generally is higher. Many mutual funds are not index funds, and they charge higher fees to pay the higher expenses of their investment management teams.
So anything below the average should be considered a good expense ratio. But it’s important to keep these costs in perspective and realize that the difference between an expense ratio of 0.10 percent and 0.05 percent is just $5 per year for every $10,000 invested. Still, there’s no reason to pay more for an index fund tracking the same index.
Is now a good time to buy index funds?
If you’re buying a stock index fund or almost any broadly diversified stock fund such as an S&P 500 fund, it can be a good time to buy. That’s because the market tends to rise over time, as the economy grows and corporate profits increase. In this regard, time is your best friend, because it allows you to compound your money, letting your money make money. That said, narrowly diversified index funds (such as funds focused on one industry) may do poorly for years.
Investors need to take a long-term mindset, however, and experts recommend adding money to the market regularly. You’ll take advantage of dollar cost averaging and lower your risk. A strong investing discipline can help you make money in the market over time. Investors should avoid timing the market, that is, jumping in and out of the market to capture gains and dodge losses.
Index fund FAQ
If you’re looking to get into index funds, you may still have a few more questions. Here are answers to some of the most frequently asked questions that investors have about them.
How do index funds work?
An index fund is an investment fund – either a mutual fund or an exchange-traded fund (ETF) – that is based on a preset basket of stocks, or index. This index may be created by the fund manager itself or by another company such as an investment bank or a brokerage.
These fund managers then mimic the index, creating a fund that looks as much as possible like the index, without actively managing the fund. Over time the index changes, as companies are added and removed, and the fund manager mechanically replicates those changes in the fund.
Because of this approach, index funds are considered a type of passive investing, rather than active investing where a fund manager analyzes stocks and tries to pick the best performers.
This passive approach means that index funds tend to have low expense ratios, keeping them cheap for investors getting into the market.
Some of the most well-known indexes include the S&P 500, the Dow Jones Industrial Average and the Nasdaq 100. Indexing is a popular strategy for ETFs to use, and most ETFs are based on indexes.
What sort of fees are associated with index funds?
Index funds may have a couple different kinds of fees associated with them, depending on which type of index fund:
- Mutual funds: Index funds sponsored by mutual fund companies may charge two kinds of fees: a sales load and an expense ratio.
- Dusk mane necrozma pokemon sword
- If 3 x 4 then
- Organ music sheets for beginners
- Water parks in renton wa
Fidelity Investments rocked the investment world last August with its bombshell offer of zero-fee index funds. In the race to the management fee bottom, Fidelity changed the game. But, there’s more to this move than meets the eye.
Fidelity offers three zero management expense ratio funds and many zero minimum investment amount funds.
Fidelity’s No-Fee Index Fund Facts
Fidelity ZERO Large Cap Index (NASDAQ:FNILX) targets the returns of the large-cap U.S. equity market. The fund has no minimum investment requirement, unlike competitor Vanguard. The fund does not charge a fund management fee.
InvestorPlace - Stock Market News, Stock Advice & Trading Tips
Fidelity ZERO Total Market Index (NASDAQ:FZROX) seeks to provide returns commensurate with the total U.S. stock market. This fund also has no minimum investment requirement or fund management fees.
The third no-management-fee fund is Fidelity ZERO International Index (NASDAQ:FZILX). This fund seeks to replicate the returns of both developed and developing international stocks. As is the case with the other two ZERO funds, this one also has no management fees or investment minimums.
Familiar Names in Portfolios
Large cap-focused FNILX holds names such as Apple (NASDAQ:AAPL), Berkshire Hathaway (NYSE:BRK-B) and Johnson & Johnson (NYSE:JNJ) among the portfolio’s top five positions, as of Dec. 31. The 506-stock fund is up 11.94% in 2019, compared to the S&P 500 index‘s 11.4% gain.
In contrast, FZROX holds a much larger range of equities, some 2,500, in its portfolio. The fund’s value has increased 12.64% this year.
FZILX, with its international focus, has a portfolio that’s heavy in financial and industrials stocks, with those two sectors making up a combined 32.24% of its 2,295 holdings. The top 10 holdings include HSBC Holdings PLC and Alibaba (NYSE:BABA). Developed markets stocks accounted for about 70% of the portfolio, while emerging markets represented 23% of the holdings. The fund is up 10.15% year to date.
How Can Fidelity Afford to Offer Zero Management Fee Funds?
It’s just common sense that if there’s zero management fee, then there’s no way to make money. Or is there?
Sometimes the goal isn’t solely to make money.
Fidelity can build a relationship with valuable younger investors, who may ultimately invest in other, more lucrative Fidelity funds and products. Nobel economics laureate Richard Thaler and his co-author Cass Sunstein write in Nudge: Improving Decisions About Health, Wealth, and Happiness about how inertia keeps most people from acting. So, once these young investors are in the Fidelity system, it’s likely that they’ll remain.
Consider these Fidelity No Fee Funds like a loss leader. The grocery offers a discounted item — such as a gallon of milk — to get you in the store. Once you’re in, it’s likely you’ll buy other items with higher margins and net a profit for the grocery store.
Are Fidelity’s Zero-Fee Funds Good Investments?
Fees are important, but so is performance. There are a sea of index-mimicking large-cap U.S., total market U.S., and international stock funds. Most benchmark their returns against well-known gauges like the S&P 500.
To keep costs down, Fidelity is avoiding the typical licensing fee for a common index fund benchmark. Instead the firm created their own benchmarks — The Fidelity U.S. Total Investable Market index and others.
But the real question is performance. You can invest in the Vanguard Total Stock Market ETF (NYSEArca:VTI) for 0.04% or 40 cents annually per $1,000 invested. This tiny expense ratio would be worth it if the Vanguard fund outperforms Fidelity’s.
So, before jumping into these new free index funds, wait until performance information is out. Then if returns are comparable with other low-fee index funds, by all means, go for the Fidelity funds.
Consider Tax Consequences
Before you jump in with both feet and gobble up these enticing zero-fee index funds, think about the tax consequences. If you need to sell other assets in order to purchase the Fidelity funds, be aware of your cost basis. If you incur taxable gains after selling existing assets to free up capital for the new purchases, it might not be worth it.
For example, if you have a specific percentage of your assets in VTI with a 40% gain, then you’ll have to pay taxes on that gain in the year that you sell.
And, if you sell existing assets for a loss, before deploying the proceeds in a Fidelity zero-fee fund, review the wash sale rules. You must wait 30 days after selling an asset for a loss before buying a similar asset. So, don’t sell VTI for a loss and turn around and buy Fidelity ZERO Total Market Index fund, because the loss will likely be denied, and you’ll have to add the loss to the cost of the new fund purchase.
Fidelity’s New Zero-Fee Funds Worth it?
It depends. If returns are comparable or better to similar index funds, then sure, buy in. Just remain aware of the tax implications.
Today, investment fees have declined so much that it’s easy to keep costs down when investing passively in index funds. Even managed accounts like the FidelityGo robo-advisor option allow investors to grow their wealth without forking over huge fund management fees.
More From InvestorPlace
The post Fidelityâs No-Fee Index Funds — Are They Worth it? appeared first on InvestorPlace.
Fidelity ZERO Funds–Are They Worth the Cost?
Fidelity launched its ZERO index funds in 2018 to much fanfare. As their names suggest, these funds carry no expense ratios, a first in the industry.
As great as a “free” mutual fund may sound, however, many wonder whether there is a catch. Recently a subscribe to my YouTube channel asked the following questions:
Could you please share your thoughts on Fidelity ZERO funds vs their fee based funds?Fidelity ZERO International Index Fund (FZILX)Fidelity ZERO Total Market Index Fund (FZROX)Fidelity ZERO Large Cap Index Fund (FNILX)Fidelity ZERO Extended Market Index Fund (FZIPX)
Is FNILX + FZIPX = FZROX ?
ZERO funds have no fees, but other than cost, do you see any reason why one should invest in fee based instead of zero funds?
If you could please create video and share your thoughts, that would be very helpful.
Let’s dive into the details to get a better understanding of the Fidelity ZERO funds.
4 Fidelity Zero Funds
The ZERO funds consist of four index funds. These funds charge no fees in the form of an Expense Ratio, although they do pass on transaction costs to investors. There are also no minimum investment requirements.
The catch, if you want to call it that, is that the funds track proprietary indexes Fidelity created. That means, for example, that the Fidelity ZERO Large Cap index fund does NOT track the S&P 500, as one might expect.
Here are the details on each fund’s tracking index. (Note that Fidelity does not offer a ZERO fund for bonds.)
Fidelity ZERO Large Cap Index Fund (FNILX)
The Fidelity ZERO Large Cap Index Fund tracks the Fidelity U.S. Large Cap Index. The index is a float-adjusted market capitalization-weighted index. That simply means it tracks companies based on the number and value of shares outstanding in the market. Its focus is on the U.S. large capitalization equity market.
The index tracks the top 500 companies. It can, however, have fewer companies based on liquidity and investing screens that Fidelity uses. For example, the index (and the other two U.S. indexes discussed below) exclude companies with capitalizations under $75 million or with limited trading volume.
It can also have more than 500 stocks if some companies have multiple share classes. Fidelity rebalances the index annually on the third Friday in February (so mark your calendars!).
The index is similar to the S&P 500 index, but there are some differences, as we’ll see below.
Fidelity ZERO Extended Market Index Fund (FZIPX)
The Fidelity ZERO Extended Market Index Fund (FZIPX) tracks the Fidelity U.S. Extended Investable Market Index. Its designed to track U.S. mid- and small-cap stocks. It is a subset of the Fidelity U.S. Total Investable Market Index (see below), excluding the 500 largest companies.
Perhaps the closest comparison of this index is the the Dow Jones U.S. Completion Total Stock Market Index. The primary difference is that the Fidelity index is limited to 2,500 companies, whereas the Dow Jones index has just under 3,500 companies.
Fidelity ZERO Total Market Index Fund (FZROX)
The Fidelity ZERO Total Market Index Fund (FZROX) tracks the Fidelity U.S. Total Investable Market Index. This index is effectively a combination of the Large Cap and Extended Market indexes described above. As such, it is limited to 3,000 companies.
Its closest comparison is the Dow Jones U.S. Total Stock Market Index. It’s not an exact match, however, as the Down Jones index tracks nearly 4,000 companies.
Fidelity ZERO International Index Fund (FZILX)
Finally, the Fidelity ZERO International Index Fund (FZILX) tracks the Fidelity Global ex. U.S. Index. Fidelity designed this index to track mid- and large-cap companies headquartered outside the U.S. The index is created by selecting the top 90% of stocks as measured by market cap in each country.
This index is similar to the MSCI ACWI Ex USA Index. This index, however, holds about 4,700 companies, while the free version holds about 2,300 companies.
How Fidelity ZERO Funds Compare
While free funds offer an initial appeal, one wonders if investors are getting what they paid for. Are the Fidelity indexes used by the ZERO funds generating the same or better returns as the more widely used indexes? This is particularly important given that other Fidelity index funds, while they charge a fee, are still very close to $0 in cost (generally 6 basis points or less).
To getting a better understanding, I compared each of Fidelity’s ZERO funds with a close counterpart offered by Fidelity.
FNILX vs FXAIX
Fidelity’s Large Cap ZERO fund is arguably the closest to its most comparable index, the S&P 500. A comparison of the fund to Fidelity’s S&P 500 index fund (FXAIX) in Morningstar shows very similar style boxes and the same top 10 holdings. The notable difference is in the percentage held of each of the top 10 companies (the ZERO fund is on the left in each snapshot).
Performance data on the ZERO funds is limited as the funds were launched in 2018. Nevertheless, since then the ZERO Large Cap fund has outperformed Fidelity’s S&P 500 index fund by substantially more than its 1.5 basis point fee:
Whether the ZERO fund will continue to outperform the S&P 500 index only time can tell. As you’ll see below, however, the other ZERO funds have performed as well.
FZIPX vs FSMAX
Fidelity’s Extended Market Index fund (FSMAX) tracks the Dow Jones U.S. Completion Total Stock Market index. Think of it as everything except the companies in the S&P 500. As such, it covers about 1,000 more companies the Fidelity’s proprietary completion index used for the ZERO extended fund. Its cost is just 3.5 basis points.
In the short time FZIPX as been available, it has significantly underperformed FSMAX even with the same volatility. Here are the comparisons:
FZROX vs FSKAX
Fidelity’s Total Market Index fund (FSKAX) is the closest comparable to its ZERO Total Market fund. FSKAX charges just 1.5 basis points and gives investors exposure to over 3,700 stocks. The ZERO fund, in contrast, holds about 2,600 equity holdings.
While returns thus far have been nearly identical, FSKAX has managed to edge out the ZERO fund by 2 basis points. The comparable performance is likely driven by the similar returns amongst the larges U.S. companies in these cap-weighted funds.
FZILX vs FTIHX
Fidelity’s Total International Index (FTIHX) charges 6 basis points and tracks the MSCI ACWI ex USA Investable Market index. The style box for this and the ZERO International Index are nearly identical. The free fund, however, hold just under 2,400 stocks while FTIHX holds over 4,700 stocks. And FTIHX has edged out the ZERO fund in performance thus far.
The cost of most index funds have fallen dramatically over the last few decades. Today one can invest in an index fund for 10 basis points or less. In many cases, a fund costs less than 5 basis points. For that reason, Fidelity ZERO funds seem more like a marketing strategy than a product that meets investors’ needs.
Certainly free beats even a very small cost. The problem is that fidelity achieves a 0% Expense Ratio by tracking its own proprietary indexes. I’m not sure that’s worth saving a few basis points each year. And thus far, with perhaps the exception of the Large Cap ZERO fund, these funds have trailed their Fidelity counterparts by more that the cost savings.
That said, I would have no reservations investing in one of these funds in a 401k if it were my best option.
Filed Under: BloggingSours: https://robberger.com/fidelity-zero-funds-review/
Funds index fidelity free
Read This Before Buying Fidelity's Zero-Fee Funds
There are a few things in life you can expect to get for free: T-shirts, pens, and maybe the occasional koozie. But rarely do financial firms offer to manage your money at no cost at all. That's exactly what Fidelity is doing with its line of zero-fee funds, four index funds that look a lot like some of the most popular funds on the market, with the exception that they cost nothing at all.
It's a loss leader for Fidelity, but it could be a boon for some penny-pinching investors. Here's what you need to know about the four no-minimum, no-fee funds Fidelity will let you buy and hold without paying a dime in expenses.
A fund for (almost) every U.S. stock
Nothing says "index fund" quite like a total market index fund. The Fidelity ZERO Total Market Index Fund(NASDAQMUTFUND:FZROX), and funds like it, essentially invest in every single company listed on U.S. markets with only a few exceptions.
In this case, the fund excludes companies that have a market cap of less than $75 million and six-month trading volume of less than $25 million. Buying shares of smaller companies is hard to do without moving the market, so index funds generally avoid the smallest of public companies. Index funds and "nanocap" companies are like oil and water -- they don't mix very well.
Image source: Getty Images.
Even so, this fund is as diverse as it gets, given it has about 2,500 holdings. Because it invests more money in the most valuable companies on the market, large-cap stocks make up the majority of its portfolio (the 10 largest stocks make up 18% of the portfolio).
This fund is just like any other fund that bears the "total stock market" or "total market index" name, making it most comparable to a Russell 3000 index fund. When you buy this fund, you own virtually every single U.S.-listed stock in proportion to its worth as a percentage of all U.S.-listed stocks out there. That's why funds like these are the closest thing to truly passive stock investing.
A copycat of the biggest and most popular index funds
It doesn't take much investigative work to figure out that the Fidelity ZERO Large Cap Index Fund(NASDAQMUTFUND:FNILX) is designed to replicate the most popular stock index funds on the market -- S&P 500 index funds. Of course, Fidelity will never advertise it as such, because doing so would require that Fidelity pay a hefty licensing fee to borrow the S&P 500 brand name. (Technically, this fund tracks the nondescript Fidelity U.S. Large Cap Index.)
The case for investing in the S&P 500 is simple: The roughly 500 monstrous companies that make up the index together comprise a little more than 80% of the U.S. stock market's value.
Fidelity's copycat has only a short operating history, but it's managed to perform roughly in line with the S&P 500 over the three-month period since its launch, lagging by about 0.08%. I suspect that the fund's ability to match the returns of the S&P 500 will improve as it grows. At $227 million in assets, it simply doesn't have the scale (yet!) to match the index as well as larger, true S&P 500 funds.
Top off your portfolio with some smaller stocks
An extended-market index fund is typically a complement for another fund. In this case, the Fidelity ZERO Extended Market Index Fund(NASDAQMUTFUND:FZIPX) is meant to be paired with the Fidelity ZERO Large Cap Index Fund because it holds stocks that are too small to get included in the large-cap party.
Whereas the Fidelity ZERO Large Cap Index Fund invests in roughly 500 of the very largest companies on U.S. exchanges, this fund invests in the 2,000 stocks that didn't make it in because of their size. To put it simply, if you add the stocks in this fund to the stocks in the Fidelity ZERO Large Cap Index Fund, you'll have all the holdings in the Fidelity ZERO Total Market Index Fund.
This fund is yet another knockoff. It's basically designed to be an alternative to funds that are based on the S&P Completion Index, which includes roughly 3,000 stocks that aren't in the S&P 500. It holds roughly 500 fewer stocks than the S&P Completion Index, but arguably those smaller companies are a rounding error, given the market cap weighting (more money is invested in larger companies).
Invest abroad...for free
It's a simple fact of life that international stock funds typically carry higher fees, but Fidelity ZERO International Index Fund(NASDAQMUTFUND:FZILX) is completely free. The fund is designed to invest in the vast majority of the most valuable companies listed on international exchanges. If you combine this fund with the Fidelity ZERO Total Market Index Fund, you'll own a piece of just about every investable stock in the U.S. and abroad.
This fund is another knockoff that, for practical purposes, is designed to produce returns similar to those of funds that track the MSCI ACWI Ex USA Index, including the Fidelity Total International Index (NASDAQMUTFUND:FTIHX). The difference between Fidelity's free ZERO fund and almost-free Total fund (it carries an expense ratio of 0.06% per year) is that the free alternative holds substantially fewer stocks. The ZERO fund has over 2,300 holdings versus nearly 4,700 holdings in Fidelity Total International Index.
Data source: Morningstar. Chart by author.
When it comes to performance, though, these funds differ very little -- at least so far. In the fourth quarter of 2018, the only full quarter in which both funds were in operation, the ZERO fund modestly outperformed its comparable non-free Fidelity fund. Whether one outperforms the other will largely come down to international small caps, which are included in the Total fund but generally excluded from the ZERO fund.
Should you use Fidelity's free funds?
Free is good, but it's not always great.
It's important to remember that Fidelity's ZERO funds compete with funds that are already among the least expensive on the market. Plain-vanilla index funds can be found with expense ratios of 0.10% or less, which means you'd pay all of $0.10 per $100 invested to invest in those "name-brand" funds with long operating histories to analyze.
For investors who are just getting started, the benefits of a $0 minimum investment and no expenses is tough to beat. The only cost associated with investing in Fidelity's free funds is using a Fidelity brokerage account. If you're a new investor who just wants an inexpensive way to start investing small amounts of money, Fidelity's free funds are incredibly compelling.
Investors who have larger sums to invest, as well as those who invest in taxable accounts, may want to stick with the tried and true for now. Fidelity's free funds are still minnows compared to the established, low-cost index funds against which they compete. Until we have more history, it's smart to assume Fidelity's ZERO funds will likely generate returns that deviate from the indexes they "track."
In any given year, the Fidelity ZERO Large Cap Index Fund could easily post returns that are 0.2 percentage points higher or lower than the S&P 500, for example, which may negate the cost savings of a nonexistent expense ratio. (To be clear, that fund doesn't claim to track the S&P 500, though it is as close as it gets to being an S&P 500 index fund without actually being one. Wink, wink.) If you have $1 million in the market, a hypothetical 0.2-percentage-point divergence from the index is material ($2,000) and the differences only compound over time.
For investors who use taxable accounts, mutual funds of any kind -- even free ones -- are an easy "pass." For reasons that go far beyond the scope of this article, if you have the choice between an ETF or a mutual fund, and both track the same or very similar index, you're almost always better off with the ETF. The reason is that ETFs are often far more tax efficient than mutual funds, meaning ETFs generate fewer taxable capital gains than comparable mutual funds. According to one study, investors who held the 25 largest ETFs in 2015 effectively dodged taxes on nearly $60 billion of gains.
To boil it all down: Fidelity's free funds may not be perfect -- no funds are -- but their value proposition is most clear for beginning investors who plan to invest in a tax-advantaged retirement account.
Check out all our earnings call transcripts.
Free Fidelity funds are flying off the shelves
Fidelity Investments’ bold move of launching a suite of mutual funds charging zero fees in August and September of 2018 looked at the time like a classic marketing gimmick.
But after nearly three years of keeping the funds’ fees at zilch for retail investors on the Fidelity platform, the combined assets in the four funds are closing in on $18 billion. Yet no other mutual fund provider has yet tried to copy Fidelity’s strategy.
“The absence of a fee is clearly getting retail money in the door,” said Todd Rosenbluth, director of mutual fund and ETF research at CFRA.
To be clear, the no-fee funds are passively managed, broad market index funds that offer the kind of exposure that could be found elsewhere for just a few basis points. Fidelity isn’t really giving up a lot in the way of fees, but it is giving up something.
For example, if the $10 billion Fidelity Zero Total Markets Index (FZROX) charged just 4 basis points like the comparable Vanguard Total Stock Market Index (VTSAX), Fidelity would be collecting $4 million in annual fees from investors in that fund.
Applying a hypothetical 4-basis-point fee across all four funds, including the $4 billion Fidelity Zero Large Cap Index (FNILX), the $2.6 billion Fidelity Zero International Index (FZILX), and the $1.2 billion Fidelity Zero Extended Market Index (FZIPX), the total annual fees collected from the suite would be around $7.2 million.
Granted, $7.2 million might look like small potatoes to a global enterprise like Fidelity that manages $10.4 trillion, but as Rosenbluth put it, “$7.2 million is not nothing.”
For Fidelity, the motive is obvious: Use zero fees to get retail investors on the platform and then expand the relationship with those investors to allocate assets into other products that do charge fees.
A Fidelity representative was not available for an interview, but emailed comments from Scott O’Reilly, head of index, sector, thematic and factor products at Fidelity, confirmed that the strategy is working as planned.
“We’ve heard very positive feedback from our clients,” said O’Reilly, who added that the zero-fee funds have “helped us achieve our goals of building relationships with new customers and forming deeper connections with existing clients.”
In conjunction with the launch of the suite of zero-fee funds, Fidelity provided further enticement to retail investors by offering them zero minimums to open accounts, zero account fees and zero domestic money movement fees.
Another curious aspect the $18 billion that has flowed into the four mutual funds is the funds are still a few months shy of the coveted three-year mark, which is the point at which funds start earning performance-based star ratings from fund trackers like Morningstar.
That same asset-flow phenomenon has also been emerging in the ETF space, where transparent indexed strategies are gathering assets right out of the blocks.
Low fees and fee wars continue across the asset management space, as was shown last week by Invesco’s launch of two exchange-traded funds that track indexes being abandoned by competitor BlackRock. Invesco is hoping to capture a share of the $18 billion potentially in motion by offering investors a six-month fee waiver.
While the fee lever is being pulled in various forms across financial services, it appears there are places that some fund providers will not go.
Inquiries to some of the major fund platforms prove that Fidelity is likely to hold this patch of turf alone for a while.
A spokesperson for The Vanguard Group said there are no plans to launch zero-fee mutual funds. A T. Rowe Price Associates representative declined to comment for this story, and representatives from Charles Schwab Corp. did not respond to a request for comment.
“Zero fees are still a marketing opportunity to bring investors onto the platform, and it’s a competitive advantage to say you can invest for free with us,” Rosenbluth said. “The amount of marketing advantage this has or could have likely offsets whatever they’re giving up in a few basis points of fees.”
For reprint and licensing requests for this article, click here
- 1994 polaris 300 4x4 specs
- Ryzen 7 2700x gaming pc
- Car rentals bucks county pa
- Top hotels in mobile al
- Written test for driving permit
- Smith mountain lake waterfront lots
- Bad bunny logo svg
- Current calculator series circuit
- Baofeng uv 5r mobile antenna
- Fnaf sl in real life
- Audi a7 fuse box location
- Love yourself tear photocards
We're raising the bar on value
IMPORTANT FEE INFORMATION: Vanguard funds may charge an annual account service fee of $20 for fund balances below $10,000. Vanguard offers other share classes of these funds with different investment minimums and expense ratios.
Please note: When comparing funds, please consider all important factors, including information pertaining to fund fees, fund features, and fund objectives. While funds may track an index, the indexes and strategies employed in seeking to achieve an investment goal may be different. Each fund's investment object and strategy and index tracked to achieve investment goals may differ. For new investors, funding investment minimums may be different.
ETFs are subject to market fluctuation and the risks of their underlying investments. ETFs are subject to management fees and other expenses. Unlike mutual funds, ETF shares are bought and sold at market price, which may be higher or lower than their NAV, and are not individually redeemed from the fund. ETFs are subject to market fluctuations of their underlying investments and may trade at a discount to NAV.
1. Fidelity beats Vanguard on expenses on 24 of 24 comparable stock and bond index funds, across all Vanguard share classes with a minimum investment of less than $3 billion. Total expense ratios as of December 30, 2020. Please consider other important factors including that each fund’s investment objectives, strategy, and index tracked to achieve its goals may differ, as well as each fund’s features and risks.
2. Fidelity now offers the Fidelity ZERO Large Cap Index Fund (FNILX), Fidelity ZERO Extended Market Index Fund (FZIPX), Fidelity ZERO Total Market Index Fund (FZROX) and Fidelity ZERO International Index Fund (FZILX) available to individual retail investors who purchase their shares through a Fidelity brokerage account.
3. Zero account minimums and zero account fees apply to retail brokerage accounts only. Expenses charged by investments (e.g., funds, managed accounts, and certain HSAs) and commissions, interest charges, or other expenses for transactions may still apply. See Fidelity.com/commissions for further details.
4. Expense ratio is the total annual fund operating expense ratio from the fund's most recent prospectus. As of March 1, 2019, Fidelity contractually lowered fund operating expense ratios on all comparable funds.
IMPORTANT FUND OBJECTIVE/COMPARISON INFORMATION: Fidelity® 500 Index Fund (tracks S&P 500®), Vanguard 500 Index Fund (tracks S&P 500®); Fidelity® Extended Market Index Fund (tracks DJ US Completion Total Stock Market Index), Vanguard Extended Market Index Fund (tracks S&P Completion Index); Fidelity® Total Market Index Fund (tracks Dow Jones U.S. Total Stock Market Index), Vanguard Total Stock Market Index Fund (tracks CRSP U.S. Total Market Index); Fidelity Large Cap Growth Index Fund (tracks Russell 1000 Growth Index), Vanguard Large Cap Growth Index (tracks CRSP US large Cap Growth Index); Fidelity Large Cap Value Index Fund (tracks Russell 1000 Value Index), Vanguard Large Cap Value Index Fund (tracks CRSP US Large Cap Value Index); Fidelity® Mid Cap Index Fund (tracks Russell Midcap® Index), Vanguard Mid-Cap Index Fund (tracks CRSP U.S. Mid Cap Index); Fidelity Mid Cap Growth Index Fund (tracks Russell Midcap Growth Index), Vanguard Mid-Cap Growth Index (tracks CRSP US Mid Cap Growth Index ), Fidelity Mid Cap Value Index Fund (tracks Russell Midcap Value Index), Vanguard Mid-Cap Value Index (tracks CRSP US Mid Cap Value Index), Fidelity Small Cap Index Fund (tracks Russell 2000 Index), Vanguard Small Cap Index Fund (tracks CRSP US Small Cap Index); Fidelity Small Cap Growth Index Fund (tracks Russell 2000 Growth Index), Vanguard Small-Cap Growth Index (tracks CRSP US Small Cap Growth Index), Fidelity Small Cap Value Index Fund (tracks Russell 2000 Value Index), Vanguard Small-Cap Value Index (tracks CRSP US Small Cap Value Index), Fidelity International Index Fund (tracks MSCI EAFE Index), Vanguard Developed Markets Index Fund (tracks FTSE Developed ex US All Cap Index); Fidelity® Global ex U.S. Index Fund (tracks MSCI ACWI ex U.S. Index), Vanguard FTSE All-World ex-US Index Fund (tracks FTSE All-World ex-US Index); Fidelity Total International Index Fund (tracks MSCI ACWI ex US IMI Index), Vanguard Total International Index Fund (tracks FTSE Global All Cap ex US index); Fidelity Emerging Markets Index Fund (tracks MSCI Emerging Index), Vanguard Emerging Markets Index Fund (tracks FTSE Emerging Markets All Cap China A Transition Index); Fidelity® Real Estate Index Fund (tracks MSCI US IMI Real Estate 25/25 Index), Vanguard REIT Index Fund (tracks MSCI US REIT Index); Fidelity US Bond Index fund (tracks Bloomberg Barclays U.S. Aggregate Bond Index), Vanguard Total Bond Market Index Fund (tracks Bloomberg Barclays U.S. Aggregate Float Adjusted Index); Fidelity Municipal Bond Index Fund (tracks Bloomberg Barclays Municipal Bond Index), Vanguard Tax-Exempt Bond Index Fund (tracks S&P National AMT-Free Muni Bond Index), Fidelity Short Term Treasury Bond Index Fund (tracks Bloomberg Barclays 1-5 Year U.S. Treasury Index), Vanguard Short-Term Treasury Index Fund Admiral (tracks Bloomberg Barclays U.S. 1–3 Year Government Float Adjusted Index); Fidelity Intermediate Term Treasury Bond Index Fund (tracks Bloomberg Barclays 5-10 Year U.S. Treasury Index), Vanguard Intermediate-Term Treasury Index Fund Admiral (tracks Bloomberg Barclays U.S. 3–10 Year Government Float Adjusted Index); Fidelity Long Term Treasury Bond Index Fund (tracks Bloomberg Barclays U.S. Treasury Long Index), Vanguard Long-Term Treasury Index Fund Admiral (tracks Bloomberg Barclays U.S. Long Government Float Adjusted Index).; Fidelity Short-Term Bond Index Fund (tracks Bloomberg Barclays U.S. 1 – 5 Year Government/Credit Bond Index), Vanguard Short-Term Bond Index Fund (tracks Bloomberg Barclays U.S. 1 – 5 Year Government/Credit Bond Index); With the exception of the Fidelity 500 Index Fund and Vanguard 500 Index Fund which both track the S&P 500, the Vanguard and Fidelity funds track different indexes, which may have different characteristics an investor should consider. Fidelity and Vanguard funds have similar investment objectives. Fidelity MSCI Sector ETFs are passively managed ETFs indexed to the MSCI USA IMI Sector Indexes. Vanguard Sector ETFs are passively managed ETFs indexed to the MSCI U.S. IMI 25-50 Sector Indexes.
Third-party trademarks and service marks are the property of their respective owners. All other trademarks and service marks are the property of FMR LLC or its affiliated companies.
Indexes are unmanaged. It is not possible to invest directly in an index.
System availability and response times may be subject to market conditions.
Diversification does not ensure a profit or guarantee against loss.
Because of their narrow focus, sector funds tend to be more volatile than funds that diversify across many sectors and companies.
Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money.
Before investing in any mutual fund or exchange-traded fund, you should consider its investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus, an offering circular, or, if available, a summary prospectus containing this information. Read it carefully.
Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917