Fidelity Reaches The Finish Line First In The Race To Zero Fees

Aug. 06, 2018 11:04 AM ET13 Comments2 Likes

Summary

  • Race to zero finishes with Fidelity reducing all minimums, account fees, and transfer fees to zero.
  • They introduced two new mutual funds with zero expense ratios.
  • Fidelity ZERO Total Market Index Fund and Fidelity ZERO International Index Fund.
  • This idea was first discussed with members of my private investing community, Yield Hunting: Alt Inc Opps. To get an exclusive 'first look' at my best ideas, start your free trial today >>

As the race to the first trillion dollar company reached its end... Another race in the financial world came to an end as well: The race to zero fees! Fidelity became the first broker/ index fund provider to offer core index funds without any management fee. In addition, all account fees and minimums were removed, they eliminated all domestic money transfer fees, and lastly they lowered the expense ratios on all Fidelity stock and bond index mutual funds.

"Investors will pay a 0.00 percent fee, regardless of how much they invest in either fund, while gaining exposure to nearly the entire global stock market," Fidelity said in a release.

The two free index funds will track market cap-weighted Fidelity indexes. The Fidelity ZERO Total Market Index Fund will invest in the largest 3,000 U.S. companies based on float-adjusted market cap. The Fidelity ZERO International Index Fund will hold the top 90 percent of stocks within various developed international and emerging countries.

The new fees on their stock and bond index mutual funds reduces them to below their major competitors. Only so many firms have the scale to follow Fidelity’s lead. And many that do, such as Vanguard, BlackRock, and Schwab, already offer comparably priced funds.

(Source: CNBC.com)

Fidelity is second to Vanguard in index funds in the US and Blackrock iShares is the largest ETF provider. So time will tell where this race to zero will continue now that zero has been achieved.

One thing is certain: the retail investor is the big winner here as nothing eats away at long term gains more than fees. Even a small change can have a large effect over time. Remember, an investor pays an increasing amount of fees over time since they're calculated on a percentage of assets. Nerdwallet, an financial blog, did an analysis and found that even a drop from .1% to .05% could mean the difference between retiring at age 70 versus retiring at 73.

So, while it may not seem like a lot, it could have profound effects on your portfolio over several decades.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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