Fidelity's New Zero Funds - Free Index Fund Investing Is Here!

-
Courtesy Pexels.com
I have to admit I was excited when Fidelity announced their new Zero Index Funds.  They now offer new Total Market, International, Extended Market, and Large Cap Index Funds with zero annual expenses.  This is a fantastic development for long term passive investors like myself.  Over the long term, the expenses charged by fund managers can significantly eat into an investor’s returns.  For instance, $10,000 invested in the an S&P 500 index fund over 30 years at an 10% rate of return will have a final portfolio value of $174,494.02.  If that mutual fund were to charge 1% in fees, the annual return lowers to 9%.  After 30 years the portfolio would be worth only $132,676.78.  That’s a significant loss incurred by the investor. 

So why is Fidelity foregoing profits to help out the little guy investor?  Trust me they’re not-the idea is steal market share from other brokerages like Vanguard and Schwab.  Also, most investors don’t just invest in a single fund-while they’re perusing the Fidelity website they’ll likely invest in other Fidelity funds that do charge fees. 

In addition to their new Zero funds Fidelity has also lowered fees on their other index funds and expanded their Ishares ETF offerings.  Before I think I paid 0.035% on their FUSVX S&P 500 Index fund.  They’re now charging .015% or 15 cents versus 35 cents per $1000 dollars invested annually.  I can also now purchase the Russell 2000 Small Cap (IWM) and Russell Midcap (IWR) index funds with zero trading fees.  Before it was $4.95 for every trade or just investing in the S&P 600 Small Cap (IJR) and S&P 400 Midcap (IJH) Index ETF’s which could be purchased free of charge.  The only cost effective option for bimonthly savers was to buy Fidelity’s own Russell Index Mutual funds which can be purchased free of charge (but are less tax efficient that ETF due to capital gain disbursements in a taxable account) or buy IJR and IJH ETFs.  You can argue that investors are probably better off with the S&P’s small and midcap indices due to the quality criteria to be included in their index versus the Russell’s  which include all companies but it’s still nice to have the option.

Anyway it’s a great day for passive Fidelity investors who will pay lower costs and have greater flexibility.  

Comments

Post a Comment

Popular posts from this blog

The Million Dollar 401k – Who Wants to Be a Millionaire?

-
Image
Every few months the financial press releases an article on the increasing number of 401k millionaires.“Number of 401k Millionaires reaches all time high”“41% increase in number of million dollar 401k accounts”.  The standard advice is offered on achieving this milestone-401k millionaires stay at the same job for years, are high earners, save enough to get a company match-in fact up to 15% of their earnings, and start saving at an early age.Easy right? Of course the ~150,000 401k millionaires at Fidelity represent less than 1% of their total number of retirement accounts.If it’s so easy why is the average American’s retirement savings only $95k?
The average salary in the United States is $56,000 before taxes.Federal taxes drop that number down another 20% (assuming you live in a no state income tax state). After housing-$12,000 rent, transportation $9,000, food $6,000, health care $4,000, and miscellaneous expenses $5-$10,000 there’s not much left for retirement savings.Add in the un…
Read more

Index Investing 2018 YTD Portfolio Results

-
Image
Happy 4th of July!  

I'm continuing my journey to financial freedom despite this depressing market. I thought I'd share a portfolio update as we go into the second half of the year. 








July 2018 YTD Portfolio Performance: Dec 31, 2017 Balance: $234,975.18July 4, 2018 Balance: $265,376.22Total 2017 Contributions (including employer): $26,294.89Allocation: 8-10% bonds depending on the month, delta stocks2018 July YTD Total Return: 1.75%Old Target Date Fund Return including fees: 0.71%FUSVX S&P 500 Index Fund YTD Return: 2.94%
Ugh 2018 Market Returns!  Technically, because of all the volatility this year-I've been able to pick up shares on the cheap...but they keep giving back gains a few months later.  Not that this year's returns matter because I am investing for the long term. At least I’m beating my crappy old target date fund-but I still underperformed the S&P 500. Basically my contributions have made up most of my portfolio gains so far this year.  These are the …
Read more

Market's Finally Headed in the Right Direction!

-
Image
I know intellectually that I shouldn’t pay attention to the day to day whims of the market but it feels so good to see the market finally headed in the right direction again-up! Yay! As you are no doubt aware the market has been in correction for the past 3 months with the S&P 500 dropping from a peak of 2872 January 26 to a low of 2581 February 26. Since then it’s been pretty much been going sideways until Friday of last week. Today the S&P is at 2722-not back at its January highs but headed in the right direction (see pic below-I’m so not a fan of the new Google Finance format BTW-hard to do long term research). I’ve heard full year forecasts of 2800-3000 for end of year 2018-here’s hoping.
Now I know what you’re thinking-I thought we were buy and hold investors, over the long term the market goes up 8-10% a year, and that we should celebrate these opportunities to buy stocks at cheaper prices? All true-but it I have to admit it’s psychologically disheartening to see my bi…
Read more