Fidelity ZERO Funds--Free, But are they Worth the Cost?
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- Опубліковано 15 чер 2024
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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 viewer named Samir 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.
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Here's the article with links to references in the video: robberger.com/fidelity-zero-funds-review/
What site did you own and sell?
The thing is these indexes can be tracking the same stocks, they just don’t use the index trademarked name. Vanguard does same thing with their “500” fund, it follow sp 500 but doesn’t use the name to keep fees low, most large brokerages have funds like this but aren’t scrutinized the same.
The logic is clear. People come to Fidelity because of zero funds and then end up adding up other funds with expenses
Exactly. It's a loss leader.
Another thing to mention is that some of the zero funds pay out dividends once a year vs other funds that pay out quarterly.
21:00 The only small issue is Zero funds are not transferable out of fidelity as far as I know. I do not care because my current 401k is with fidelity and I just opened my first Roth IR with them to buy and hold some of their mutual index funds and ETFs.
simply explained, but also very thorough and well-researched-perfect!
Love the work behind the opinion. No emotion, just facts.
I like the total stock market zero fund it performed similar to the pay indexes in up markets and when markets are down at least you're not paying to lose money.
Thanks for the detailed research into this!
This video is insightful. & helpful. There are so many “flashy” videos out here that lack the in depth information viewers like I look for. Thank you for sharing this.
I invested $10K in FNILX in May 21. 4 months later it is at $11K. Excellent video. Thank You
Do you recommend fzrox and fnilx for a Roth ira?
@@23janneter Absolutely. But the FNILX is performing substantially better than FZROX the last few years. Large cap is outperforming the total market, basically.
Very educational and well-articulated Rob. I, too, am curious how my Zeroes will compare long term with my comparable holdings in Vanguard and only time will tell. Some say we’re splitting hairs at this point, but I find this all quite interesting. Thank you for the work you’re doing!
Wow this is a very solid video and very solid work and research presented in a simple format. Very informative, thank you!
Great video, Rob! Very timely, per usual.
Thank you for the thorough and detailed analysis. I found it very helpful.
Thanks for the explanation of these funds.
On the otherhand, my FZROX is sitting at +51% since 1/24/19. Using portfolio visualizer to compare VTI vs. FZROX since 2019, 1 basis point difference. That's 0.01% difference! So, I am ok with FZROX in my HSA. My onlyr gripe is that FZROX is a mutual fund and I would rather have control of my limit order price when I buy or sell. Thanks for the detailed video.
Distributions don’t matter. NAV decreases proportionally to the distribution.
You need to educate yourself better. You lack knowledge of just how dividends and cap gains work.
@@nickv4073 Though stock dividends do not result in any actual increase in value for investors at the time of issuance, they affect stock price similar to that of cash dividends. After the declaration of a stock dividend, the stock's price often increases. However, because a stock dividend increases the number of shares outstanding while the value of the company remains stable, it dilutes the book value per common share, and the stock price is reduced accordingly.
@@nickv4073 the difference of divided frequency between fskax and fzrox is not the determining factor of out performance. Educate yourself.
@@nickv4073 For example:You own 500 shares at $11 per share at year-end, for a total worth of $5,500. There is a $1 per share dividend. Therefore, net of accumulated dividends in the fund, your fund is worth $10 per share. Assuming dividends are reinvested, you'll get $500 ($1 x 500 shares) reinvested in the fund. $500 / $10 per share = 50 additional shares. Now you own 550 shares at $10 each, which equals your original $5,500.
My hope is that Fidelity offers a ZERO Fund for Bonds and hopefully many more competitive ZERO mutual funds. I am undeterred by their proprietary methodology. They add competitive pressure to the marketplace and all benefit from that.
Me too. I have FXNAX in my taxable account.
Was wondering about this exact thing a few days ago. Perfect timing!
Rob, do you favor equal weighted or market cap weighted funds for a retiree?
I look at the same data and reached the exact opposite conclusion - all of these are within margin of error.
Rob, have you done a video on the Vanguard index funds which follow their proprietary CRSP indices (their family of lowest cost index funds)? I know Blackrock/iShares has a lot to say about it. Also, why do you think Vanguard and Fidelity have created their own index funds? Aside from cost savings and in the case of the ZERO fund's marketing advantage? Why else would you do it?
Thanx for the video I was stuck on which to choose now I know which ones
Another superb and informative video. Thank you for your in-depth information about The Zero funds.
Excellent video Rob. I add your video to a recent post by Nick Doyle on this site. I'm sincerely impressed by your background, going from trial atty to financial counselor. Thanks for this wonderful and deep expose on the Zero fee Fidelity Funds.
Yes, your correct not enough data right now. However as long as it continues to beats my personal goal of minimum 8%-12% return I good. Obviously keeping an eye on your quarterly statement is always a good thing. Remember that its in the ballpark to follow the overall market. If it falls slightly short and as long as it doesn't go below my above mentioned expectations I can call it a win.
Zero is Zero, that's not a stunt, it may be used to get attention, but it's still, actually, ZERO
Subscribed! Starting them now.
Great review of these funds Rob
I have both FXAIX ($143.06) and FNILX ($14.52). I see the FNILX not for its dividends but for its potential growth. It may not claim to follow the S&P500, so long as it has the same companies and in similar percentages it should have a similar performance. If in 10 years the fund price is similar to the current price of FXAIX, I think it is worth the investment during its infancy.
In the article you wrote that you walk thorugh in the video, you've got a typo in the second paragraph of the FZROX section, where Dow Jones is listed as Down Jones, which does sound like the name of a fictional character but is probably not what you meant. Thanks for the good overview.
Very insightful
Nor, did it ever say that it did / does track the S&P Fund. Not even close to False advertising. They are Similar products, but not the SAME.
You do a great job Rob. Wish I could have a beer with you. Thanks.
Excellent video Rob! This topic is very timely for me as just yesterday I had conversation with a Fidelity financial advisor and asked a very similar question that your analysis addresses. My question was comparing the Fidelity Large Cap No Cost Index Fund to the Vanguard S & P 500 Index Fund. The short answer was that the two funds are close to being identical which doesn’t seem to be supported by your analysis, albeit, even though you are comparing funds within the Fidelity family of funds. Anyway, I’m very impressed with the research you’ve conducted and presented in this video. Great job Rob!
For a brokerage account would an ETF be more tax efficient than the zero funds?
So the return CAGR is net of the expense ratio fee? I have always wondered that.
Hey Mr. Berger, I watched the entire video start to finish. Seems like your only two reasons against the Zero Expense Ratio funds are basically not much history and it doesn't track a major index. With that being said, if we are going to "give them more time" wouldn't we be missing out on that growth while we sit back and wait to see if their proprietary tracking pays off or not? Anyway, the reason I ask is because I've recently opened an account for my 5 month old baby and have strictly thrown all those dollars into the FNILX fund. I figured since she has a long way ahead of her might as well make it so she at least doesn't lose money on expense ratios throughout the years as it grows. What do you think of that approach?
P.s sorry for the super long comment.
Almost 2024 I think this concept of ZERO has changed. Do you think you can make another updated comparison for today?
Yes, I agree, there is now just about 5 years or data. How about also comparing the ZEROs to some of their Vanguard counterparts as well as some comparable ETFs?
Rob, very insightful, question: aren’t returns reported after substruction of expense ratio %?
Wouldn't the CAGR include the fund expenses? I've never been able to verify this for index funds, since fees are so tiny.
Almost positive the CAGR includes expense ratios.
@@merrymerkin That's what I've assumed. Thanks!
All the performance shown are after expenses.
Thank you Rob 👍
Rob I appreciate your videos but I got to tell you the Fidelity planner is so much better than a personal capital that you always refer to and is so much user-friendly and the graphics are so good I just wanted to put that out there
Thanks Rob. I own the FNILX as the main component in my self-directed IRA (there's another one that Fidelity manages a group of individual stocks). When I asked Fidelity about the ZERO funds, I took from it that they use their own formulation (as you point out) but that it's also kind of a tool to get maybe new investors into the Fidelity World as well. I rolled everything out of 401k / pension into these IRA's in early 2019, and, even after the fees, every dang month, their managed IRA outperforms! I totter on just letting them do all my equities.
Don't do it. Actively managed funds are a scam and a great disservice to the investor public. The evidence is clear and overwhelming. Over the LONG term, actively managed funds rarely beat APPROPRIATE index funds. We need to get Congress to make a law that requires that 401Ks ONLY offer index funds. If an employee insists on being in actively managed funds, then they can roll their money into an actively managed IRA. Actively managed funds are a giant SKIMMING OPERATION, that are making the world's investors worse off. Jack Bogle figured this out decades ago. At any point in time, an actively managed fund will beat index funds, but this is irrelevant. As investors, the only thing we care about is our LONG term return. And lastly and most importantly, actively managed funds publish FAKE growth of $10,000 charts. Don't rely upon them. Use Morningstar growth of $10,000 charts that use APPROPRIATE comparison index returns. The actively managed growth of $10,000 charts use INAPPROPRIATE index comparison funds, which of course, they beat out.
Hi Rob. I thought that the CAGR already accounted for the expense ratio. In other works, isn't the CAGR the return after expenses are already subtracted out?
Yes.
Great video, thank you!
Interestingly, if you look at it again, one year later, the results are different. Zero Large Cap loses slightly, Zero extended market, total market, and International wins slightly. I know the basis points are minimal on the non-ZERO funds, but over time, maybe the ZERO basis points works out. Portfolio differences are not that great. Probably still too early to tell. I have most of my retirement money in ZERO funds. I know the index fund fees are minimal, but ZERO is still ZERO and I hate paying fees in a down market.
It’s my understanding that if you own Fidelity Zero (FZ) funds and one day, for some reason, you decide to move from Fidelity to Schwab, you cannot transfer the FZ funds to Schwab (or to any other broker). You’d have to sell them, take the tax hit, then purchase new funds. Sound right?
Yes. The fidelity zero funds can only be held in fidelity account
@@alexanderb4465 I've seen this criticism. But couldn't you just exchange the Zero fund for a fund that can be transferred? FNILX becomes FXAIX with a simple exchange.
Unless they changed it, and unless you mentioned it while I was distracted, another thing to consider is dividend payout. Aren’t the standard index funds paying out quarterly while the ZERO Funds are only paying out once per year? Seems there’s more flexibility with the standard “OG” index funds.
This - the money you gain from compounding your dividend payments quarterly rather than annually more than pays for the expense ratio. I think that this is really where Fidelity is making the money on these funds. They're collecting the dividend payments throughout the year from the index companies, and investing them on an essentially interest free loan from the fund holders until they have to pay out at the end of the year.
@@richardm123 Can they really do that? Ideally the dividend money from the held companies that the fund holds should go to the NAV of the fund. In which case it doesn't matter how often they pay (not counting tax implications), since the dividends over time just go to NAV and increase your unit price, until the fund pays a distribution and NAV/unit price go down by the same amount.
Mutual funds may pay out dividends at various times. There is no industry standard. The dividend rule is based on SEC regulations defining "mutual fund." You, the shareholder, are responsible for taxes on dividends, NOT the mutual fund.
What a nothing burger.
Maybe I missed it, but you mention transaction costs early on, but don't talk about how they impact net returns/costs of the ZERO funds.
Is it because transaction costs are negligible, or . . . ?
Excellent!
Yes fidelity zero funds are awesome or I wouldn't be there! Don't be silly get in and enjoy this great benefit and company fidelity!
Fidelity is garbage
Any differences between vanguard and Fidelity, in terms of their Total Market Index funds and snp500 index funds?
No
Yes. Vanguard has a patent where their index funds are identical to ETFs in any meaningful way. So they're more tax efficient than index funds from other companies. Other than that, no.
@@SKITTLELA what are your recommended investments to put in a stndard brokerage account and tax advantaged account (IRA)?
I don't have $3,000 to open a Vanguard account. You can open with $1 at Fidelity.
Tried all but the extended market zero fund. Eventually transferred money to traditional funds. Need the extra dividends to reinvest.
Fidelity zero funds also only pay annual dividends once a year as opposed to their traditional funds which pay bi-annually. This was created as a starter fund which will eventually introduce newbies to their other investment funds with expense ratios.
Maybe Fidelity chose to only declare dividends once a year, for their ZERO funds, to control their expenses.
Dividends don’t matter whether quarterly, annually, or never. Dividends cause a decrease in the NAV
@@justinm7621 if div gets reinvested it maters
@@inout804 TheCoppergoat was stating Zero funds pay dividends once a year and their traditional funds pay bi-annually. I am saying this has no impact on performance because yes the dividends will be reinvested at the lower NAV. Net asset value decreases by the exact same amount as the dividend. If there is no dividend there is no decrease in NAV. Dividends either annually versus bi-annually will not cause one to perform better than the other was my point.
For example:You own 500 shares at $11 per share at year-end, for a total worth of $5,500. There is a $1 per share dividend. Therefore, net of accumulated dividends in the fund, your fund is worth $10 per share. Assuming dividends are reinvested, you'll get $500 ($1 x 500 shares) reinvested in the fund. $500 / $10 per share = 50 additional shares. Now you own 550 shares at $10 each, which equals your original $5,500.
Does the fact that the dividends and rebalancing only happen once per year effect the returns ? If the fund is just holding the dividends in its account, that might very well underperform another fund that reinvests the dividends quarterly, even more than the minimal fees that their other funds charge.
In a taxable account, paying taxes on dividends once is better than four times.
@@geoffgordon9569 You still pay taxes once either way, on the next year's Apr 15. How many dividend payments you receive makes no difference, because the four quarterly payments will equal the one annual payment, the only difference is you get some of the payments earlier with the pay fund.
@@sprinkle61 thanks for the info.
Dividend yields are different for each fund as percentage share to each company is not the same.
Excellent
Very helpful
Do your comparisons include dividends?
Portfolio visualizer allows to compare with and without dividends reinvested, so, yes.
Yes.
How does Fidelity make money on these 0% funds? They are not a charity, they are in business to make money. I have wondered if they have put some of their costs into the transaction fees. Is there anyway to compare transaction fees between funds?
You can find transaction fees in the Statement of Additional Information. That said, I'm guessing thy view the cost as a marketing expense. And because the track their own proprietary indexes, costs are minimal.
They don't
Make money from interest free loan from shareholders who get dividends once a year instead of four times. They can invest the borrowed money to make interest before distributing back to shareholders.
These funds are loss leaders. Fidelity makes money by obtaining you as a customer, and hopefully by selling other products to you later on.
Is SFY similar?
Choose month to month on portfolio visualizer to go back to inception.
I think FNILX outperformed FXAIX because it included TSLA earlier than s&p500 by like a few quarters.
Standard and Poors are idiots to have waited as long as they did to add TSLA to the index, I think it was like top 20 on the list before they added it, effectively buying the top, and missing all the mad gains along the way. The WHOLE point of indexing is that you passively get the returns of the stock market, but if they wait until the new and dynamic companies reach peak speculation before buying in, then you really are not getting the benefit of indexing you were expecting. Fidelities funds also have this problem, because they only buy and sell once a year. The trick is to get in early enough to get the big move, preferably before it cracks the top 400, which should probably have at least 2 buys and sells a year, so you can get on the rocket early enough.
Of course they are
Well done. I had tracked the zero cost fidelity sp500 fund and found about the same results. I think its performance is close but not exact.
It's so close that the difference in performance truly doesn't matter.
If you're already in the zero funds, is it worth moving it to the regular funds or just add new contributions to the regular funds?
No, free is the better option.
Just add to new fund. I would wait till I have at least $1,000 in old fund that I will keep. Then add to new one. Diversified portfolio lowers risk.
Hi sir.. i m from india.. should i invest in nasdaq or s&p 500.. my age 21 .. so which index to follow
You will be able to purchase US S&P funds soon. Keep checking in Zerodha App or whoever is your broker.
@@yeraori okk sir.. is motilal oswal fof sndp are not good
If i sell FNILX at a loss and the next day buy SPY will I trigger a wash sale violation?
iT IS NOT THE SAME COMPANY .I DID IT .NO WASH SALE.
No.
I really hope you didn't panic sell FNILX because of this video
Heard about you from your interview with Todd
Free. The fund manager and his staff work for free out of the goodness of their hearts. God bless them.
LOL. The sarcasm is strong with this one.
@@davegiddings2545 He no Jedi.
Seems to me the Fidelity 500 fund (FXAIX) is one to have.
i didn't get how do they make money when MER is zero?
They get u into their ecosystem.
You left out that they only pay out dividends once a year rather than quarterly!!
Doesn’t make a difference. Fskax pays out semiannually compared to its zero counterpart, not quarterly. And ftihx also pays out annually just like its zero fee counterpart.
Another nagging question answered by the best UA-cam channel money can buy. Thanks Rob!
👍🏾
I never switched over to zero funds when I used Fidelity. Funny enough, I actually switched to Vanguard's equivalent ETFs away from Fidelity mutual funds even though they have slightly higher expense ratios.
Why though?
@@gmagogsfm I wanted to use ETFS at M1 Finance, and I liked Vanguard's Philosophy.
I just opened up a ROTH IRA this year and starting investing in these funds due to their zero fees.
The $0 minimum to start investing is a fantastic feature. When I started at Vangaurd, the minimum was $1k for VFINX and now it's up to $3k.
Sense fidelity zero funds will show five-year historical results this year, you may want to look at how they pay dividends, which we believe or not as regular as their traditional funds.
The zero extended fund is designed to mimic the Vanguard Small Cap Index Fund, not the fund you compared it to.
What do you think now that the 0 fee funds are out performing the standard funds at Fidelity
I have a Fidelity Freedom Index 2030 Fund which doesn't appear to produce a 10 year rate of return as good as any of the other Fidelity funds you mentioned. I'm thinking I better exchange ASAP.
Only if you like to rebalance yourself. Otherwise let the fund managers do it for you.
@@geoffgordon9569 well I have the actively managed Fidelity Freedom FXIFX. The rate of return will never be as good as the FXAIX even if you have it set for aggressive growth. That's because it's 40 percent bonds/25 percent international. There's no rebalancing with an S&P 500 Index. Stocks within it are tweaked based on how well they do.
Vanguard is still the/my winning choice. Nice work though Rob!
How does Fidelity earn money from these funds if there is no fee?
They don't. It's a marketing tactic. But, by pulling in more customers they can sell some of their other services. I suspect it is a smart strategy. I know I have told friends about these ZERO funds.
It is hard to move them in a taxable account without triggering capital gains. So that keeps people from moving to Schwab. In a tax-advantaged account, it is an ideal fund to own.
What does Rob’s reply mean?
@@tonygrantham3213 I assume it is a fake reply. It's somebody (or computer program) that is pretending to be Rob. If you call the number, then someone will probably try to sell you something.
They don't
"Big hairy catch"?
Are you sure it's not a cold and slimy catch?
I wonder if those funds are free, how does Fidelity makes their money?
Loss leaders. They hope to sell you other products down the line.
For the free funds Fidelity uses in-house indexes rather than paying S&P, Dow Jones, MSCI, etc to license an index. Long term performance will be virtually identical. Funny how people panic over 5 basis points but won't use the free indexes...
Which index funds so you recommend?
@@23janneter S&P or Total Stock Market and Total International Fund. That should get you well diversified to lower risk.
Typo
Down Jones....
Hmmm, question, anyone! Would you invest in a Vanguard S&P 500 0.07% or Invesco MSCI USA 0.05% one?
What are the initial investment requirements?
Why don't Fidelity do these zero funds in the UK ?
Costs. There's always a premium for foreign investment. Doesn't matter what your native country is.
I knew there had to be a catch when I was looking for an investment for my niece's UTMA. I'm glad I went with the regular index funds.
What was the catch? I didn’t see one.
@@cameronpoole174 Receive dividends only once a year instead of quarterly or semi-annually.
Personally think this is a more emotional choice, I personally love vti & I wouldn’t swap it just to save .0.15% total portfolio cost for me is 0.08% and I sleep well at night knowing I’m globally invested at a low cost
My bad 0.015%*
I invest $100 every 2 weeks into 21 Fidelity Funds. It is pretty much in line with the market. I plan to keep doing this for the next 15 years. I also follow the 3 major indexes + Russel 2000. If they drop 10% from their high I put $5,000 into the Fidelity Fund that mirrors the index. If they drop another 10% then another $5,000. So far this has worked for me.
Honest question - how is this better than investing in a single total market fund?
The expense ratios are going to add up and will lower your profit expectations. You might want to consolidate some funds.
21? 🤯
Well looks like they closed the Zero index funds to new investors
I have FZROX and it’s as good as any total market fund.
FZROX 💪
Have another look at these funds. FNILX is outperforming it. Substantially.
Almost 2024 I think this concept of ZERO has changed. Do you think you can make another updated comparison for today?