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Very cool news from Fidelity today. This Friday, August 3rd, 2018, they’ll introduce 2 new total market funds with ZERO management expenses and NO minimums to start investing.
Plus, they’ve slashed fees and minimums on several other funds, effective immediately. I just logged into my account and already see lower expenses.
I wrote about the best IRA accounts and which banks let you start investing right away with a single $1. What’s cool with Fidelity is you can pair your IRA with the Fidelity Visa, which earns 2% cashback on every purchase. Then sweep the cashback rewards into one of these free index funds. The card is free to have – so it’s literally free money to invest into free funds.
Everyone should have an IRA account. Here’s more info on Fidelity’s new mutual funds.
Fidelity Zero index funds
On August 3rd, 2018, Fidelity is starting 2 brand new index mutual funds:
- Fidelity ZERO Total Market Index Fund (FZROX)
- Fidelity ZERO International Index Fund (FZILX)
They’ve also cut expense ratios on hundreds of other funds and removed transaction fees on others. Very, very cool.
If you earn free cashback rewards with the Fidelity Visa, and use them to purchase these free funds, you can invest in an IRA for free. With the traditional IRA, you get a tax break for contributing. Or with the Roth version, never pay any fees or taxes if you wait to withdraw.
First thing I noticed was both of these funds are for stocks. A total market index fund is a great core investment – it’s most of my portfolio. It would be awesome if there could be a free bond fund. Although, I don’t think that could really ever happen.
I’m currently heavily invested with the Fidelity Total Market Index Fund (FSTVX). Yesterday, the fee was 0.035%. Today it’s 0.015% – and the minimum to invest is completely gone.
The expense ratio is so close to zero now that I won’t sell off and buy into the new Total Market fund. But going forward, I will invest into the new Zero fund – and keep my Long-Term Treasury Bond index (FLBIX), now with .03% expense ratio and no minimums (very cheap for a bond fund).
Overall, I think the stock symbol says it all: Fidelity Zero ROX (FZROX)! 🤑
A few thoughts
There’s a lot to unpack here. Fidelity pulled a huge punch. And no doubt, other firms will react.
Really interesting how this commissions and fees war is playing out between Vanguard, Fidelity, and Schwab. They’re not fighting on quite the same fronts.
Vanguard’s making all non-leveraged ETFs trade free but not lowering its cheap but not-cheapest expense ratios.
Schwab is pushing both its very big no-comm ETF marketplace and its lowest ETF index expense ratios, and its $1 minimums on index mutuals, $100 on other mutuals. And just a week or two ago started disclosing, and promoting, its price improvement on trades (something Fidelity has promoted and disclosed for years.)
Fidelity is hitting back at a slightly different angle that has aspects of what Schwab did last year, but outdoing them on it, while further undercutting Vanguard on index mutual fund expenses and minimums, but avoiding going head-to-head on ETF commissions.
Plus, Fidelity is creating a brand new index. What’s in that index, and the company percentages, will all be factors – so will securities lending. But the fact remains this will be a Total Market index that will let anyone with a single dollar touch a huge array of the most popular stocks.
Admittedly, Fidelity doesn’t have a cool, colorful app and its dated website isn’t sleek – you just kinda get used to it.
But with these new prices and minimums – literally nothing – this is a great chance to grow your money for free.
My current return on the Total Market fund is 11.25%. Of course, it’s dipped and peaked a lot lately. But overall, a return of over 10% is amazing. I’m curious to see how the new Zero funds will perform.
I love the Fidelity ecosystem
At this point, I have:
- My IRAs (and rollovers) with Fidelity
- Their fantastic Cash Management checking account
- The 2% cashback Fidelity Visa
Basically, they’re my bank. Which is kinda weird and cool.
I realize there are better cashback cards out there (the USAA Limitless card comes to mind, if you got it while it was around). But Fidelity does a good job of rewarding ongoing spending. I constantly get offers for bonus points – including one from this morning:
I can get 3% cashback after spending $150 (up to $20 in bonus points). Now that Costco only accepts Visa, I’ll def make a Costco run this month and score more for my IRA – and I’ll buy the new Zero Total Market index fund with it.
They make it worth my while to stick around. I’m a happy Fidelity customer – although I admit Vanguard and other banks have great advantages. I’m glad they all keep innovating. Why?
Well, as I always say: when banks compete, you win. 💰
Well dang, now I have to say Fidelity might be the best place to start an IRA account. I’ve used them for years and have maxed mine many times. Most of that is in their Total Market index fund.
But now, I’ll have to give their new Fidelity ZERO Total Market Index Fund (FZROX) a try. This fund, and its international counterpart, have no expense fees or minimums to start investing. That’s a nice industry shakeup that will no doubt cause other firms to react.
There’s already a lot of discussion going on about this, but the upshot is: anything that gets people saving and investing is good news. Fidelity is making it easier. And ultimately, that makes everyone a winner.
Will these new funds and changes make you give Fidelity another look?
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