Any long-term issues with starting my teen out with Fidelity?

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SMV
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Any long-term issues with starting my teen out with Fidelity?

Post by SMV »

My teen has had a few jobs over the past years, and now has more than 10k saved. In the past year, I've had him transfer it from a local credit union to at UTMA account at Fidelity. I have him invested in Fidelity ZERO Total Market Index Fund - which has a zero percent expense ratio.

We would have done Vanguard instead, because we're long-time Vanguard investors, but that zero percent expense ratio tempted us. Also, the fact that Fidelity had a very low minimum balance.

Now that he has a substantial amount of money in this account, I'm starting to think - is it a good idea to keep it all at Fidelity? Are there long-range issues that I'm not aware of? In general, I prefer Vanguard.

And - what's Fidelity's long-term plan for a mutual find with a zero percent expense ratio? How can this possibly work for them?

Thanks for bringing up any potential issues that I'm not seeing right now.
bondsr4me
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Re: Any long-term issues with starting my teen out with Fidelity?

Post by bondsr4me »

Fidelity is just as good as Vanguard IMHO.
I see no advantage to using one over the other; now that he is started with Fido, I would keep him there.
The more important point is to keep him "investing" and not "trading".
Sounds like you have done a good job with guidance.
Nobody can tell what the future is with these funds, whether they are Fido or VG funds.
Just keep him at Fido and encourage him to keep "investing".
Good luck.
livesoft
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Re: Any long-term issues with starting my teen out with Fidelity?

Post by livesoft »

My then high school age daughter started at Fidelity about 10 years ago. Now that she has been out of college for awhile all her corporate 401(k) plans have been with Fidelity. No issues, no problems, no long-term drawbacks.

As for the zero-expense-ratio funds, who knows? No one can predict the future. When e.r.'s are so low, I don't think minor differences in expense ratio can distinguish one fund from another. If you find 10 years from now that the zero funds had 0.5% or 0.1% or 0.2% worse performance than an index fund without an expense ratio of 0.05%, then what are you going to do?
Last edited by livesoft on Wed Sep 02, 2020 12:22 pm, edited 1 time in total.
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cjclueless
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Re: Any long-term issues with starting my teen out with Fidelity?

Post by cjclueless »

I switched from Vanguard to Fidelity about 4 years ago after some questionable experiences at Vanguard.

I couldn't be happier and while I don't have UTMA accounts there I do have a range of other account types. If there is an office near you that can be a good source for those elusive medallion signatures when required.

Rock bottom index ERs are happening everywhere but these guys know there is still money to be made from others.

My dedicated rep is around, but I don't need him for anything. Their semi-annual requests for sit-down or email Insights are pretty easy to ignore. Their chat/phone support is consistently excellent for me.

Congratulations to your son for such a good start! Would he consider also using a Roth IRA?

CJ
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Vulcan
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Re: Any long-term issues with starting my teen out with Fidelity?

Post by Vulcan »

They are just staring out in a rapidly changing world.

VTWAX captures that world, and you can only buy it commission free at Vanguard.
If you torture the data long enough, it will confess to anything. ~Ronald Coase
bondsr4me
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Re: Any long-term issues with starting my teen out with Fidelity?

Post by bondsr4me »

Vulcan wrote: Wed Sep 02, 2020 12:21 pm They are just staring out in a rapidly changing world.

VTWAX captures that world, and you can only buy it commission free at Vanguard.
VTWAX ER = .10%
VT (ETF) ER = .08% and is commission free....should be commission free at Fido.
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SD2SR
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Re: Any long-term issues with starting my teen out with Fidelity?

Post by SD2SR »

We're long-time Fidelity customers here as well, with a mix of tIRA's, Roth IRA's, a brokerage account, 401(k), and two UTMA's for our kids (4 y/o and 2 y/o). No complaints at all, IMO they're just as good as (and some cases, better than (i.e. customer service)) Vanguard in terms of offerings. My only "gripe", if you could call it that, is that despite their overt efforts to compete directly with Vanguard in the index space (their flagship S&P 500 index fund, FXAIX, alone holds over $259 billion in net assets!), they are still predominantly an "active fund" broker and will feature their active MF's at every opportunity.

FZROX utilizes a proprietary benchmark, the Fidelity U.S. Total Investable Market Index, which is what gets you the 0.0% ER. I have found, and others have observed, the proprietary index has some tracking inconsistency vs. FSKAX (Fidelity's answer to Vanguard's VTSAX). The fund is also relatively new, so not a lot of performance data to track, but so far impact seems minimal.
Last edited by SD2SR on Wed Sep 02, 2020 12:42 pm, edited 3 times in total.
bogledogle87
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Re: Any long-term issues with starting my teen out with Fidelity?

Post by bogledogle87 »

bondsr4me wrote: Wed Sep 02, 2020 12:28 pm
Vulcan wrote: Wed Sep 02, 2020 12:21 pm They are just staring out in a rapidly changing world.

VTWAX captures that world, and you can only buy it commission free at Vanguard.
VTWAX ER = .10%
VT (ETF) ER = .08% and is commission free....should be commission free at Fido.
VT is definitely commission free at Fidelity, plus eligible to trade partial shares (via app), and can automatically reinvest dividends. Only downside would be the lack of automatic investment directly into the fund - must manually purchase from the cash position
VTWAX and chill
HomeStretch
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Re: Any long-term issues with starting my teen out with Fidelity?

Post by HomeStretch »

For earned income, your child should consider making contributions to a Roth IRA versus a Taxable account. Roth accounts grow tax free.

IMO the Fidelity zero funds are fine in tax-advantaged accounts. For a Taxable UTMA account, the zero funds are not my first choice. Zero ER but the funds are proprietary to Fidelity. As such, I don’t believe the funds can be transferred to another brokerage at this time. So if your child wanted to switch brokerages in the future, funds that cannot transfer in-kind would need to be sold (which could result in taxable income) in order to transfer the funds.
FoolStreet
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Re: Any long-term issues with starting my teen out with Fidelity?

Post by FoolStreet »

Agree with HomeStretch to consider the Roth IRA for earned income.
retiredjg
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Re: Any long-term issues with starting my teen out with Fidelity?

Post by retiredjg »

I think Fidelity is fine as long as a person does not get mixed up with a Fidelity "advisor". I'm sure there are good ones, but some are just as predatory as we see elsewhere. A person who knows the difference probably does not need an advisor.

I'm not excited about the Zero funds because they cannot be moved away from Fidelity. That might be fine in an IRA, but I would not want that in a taxable account in case I wanted to move the money.

For a taxable account, I think the Fido mutual funds are somewhat less tax-efficient than the Vanguard mutual funds...but still probably good enough. For someone who wants to use ETFs, I think Fidelity has an excellent selection and I hear they are all now transaction free.
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Vulcan
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Re: Any long-term issues with starting my teen out with Fidelity?

Post by Vulcan »

bondsr4me wrote: Wed Sep 02, 2020 12:28 pm
Vulcan wrote: Wed Sep 02, 2020 12:21 pm They are just staring out in a rapidly changing world.

VTWAX captures that world, and you can only buy it commission free at Vanguard.
VTWAX ER = .10%
VT (ETF) ER = .08% and is commission free....should be commission free at Fido.
VT's premium/discount fluctuations (0.63%/-0.36%) dwarf the puny 0.02% ER difference.

Not to mention the hassle.
If you torture the data long enough, it will confess to anything. ~Ronald Coase
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Vulcan
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Re: Any long-term issues with starting my teen out with Fidelity?

Post by Vulcan »

bogledogle87 wrote: Wed Sep 02, 2020 12:37 pm
bondsr4me wrote: Wed Sep 02, 2020 12:28 pm
Vulcan wrote: Wed Sep 02, 2020 12:21 pm They are just staring out in a rapidly changing world.

VTWAX captures that world, and you can only buy it commission free at Vanguard.
VTWAX ER = .10%
VT (ETF) ER = .08% and is commission free....should be commission free at Fido.
VT is definitely commission free at Fidelity, plus eligible to trade partial shares (via app), and can automatically reinvest dividends. Only downside would be the lack of automatic investment directly into the fund - must manually purchase from the cash position
It's not "the only advantage" (though it is an important one). See my post above.
If you torture the data long enough, it will confess to anything. ~Ronald Coase
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Vulcan
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Re: Any long-term issues with starting my teen out with Fidelity?

Post by Vulcan »

FoolStreet wrote: Wed Sep 02, 2020 12:40 pm Agree with HomeStretch to consider the Roth IRA for earned income.
We provide a 100% match on our teens' earned income. They keep their money in the bank (or invest in taxable), we fund their Roths with the amount of earnings.
If you torture the data long enough, it will confess to anything. ~Ronald Coase
bondsr4me
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Re: Any long-term issues with starting my teen out with Fidelity?

Post by bondsr4me »

Vulcan wrote: Wed Sep 02, 2020 12:48 pm
bondsr4me wrote: Wed Sep 02, 2020 12:28 pm
Vulcan wrote: Wed Sep 02, 2020 12:21 pm They are just staring out in a rapidly changing world.

VTWAX captures that world, and you can only buy it commission free at Vanguard.
VTWAX ER = .10%
VT (ETF) ER = .08% and is commission free....should be commission free at Fido.
VT's premium/discount fluctuations (0.63%/-0.36%) dwarf the puny 0.02% ER difference.

Not to mention the hassle.
you just never know what the cost difference will be.
I like to know what my investment will cost me when I buy, which is why I prefer ETF's.
You don't know what the MF cost/sh will be until the end of the day; you may have more or less shares because of the MF pricing.
Everyone has their preference....neither is wrong.
MrJedi
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Re: Any long-term issues with starting my teen out with Fidelity?

Post by MrJedi »

My impression is that the Zero fee funds are likely loss leaders to get you in the door with Fidelity. While at Fidelity, they love to advertise their AUM-fee style services and also show off their actively managed funds over their index funds. For a disciplined Boglehead-type investor I don't think there's any issue, but somebody else, especially somebody less finance-savvy, could be persuaded toward high fee investments. I could especially see this if somebody inherits an account at Fidelity.

Disclosure: I have accounts at both Fidelity and Vanguard.
whereskyle
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Re: Any long-term issues with starting my teen out with Fidelity?

Post by whereskyle »

SMV wrote: Wed Sep 02, 2020 12:01 pm My teen has had a few jobs over the past years, and now has more than 10k saved. In the past year, I've had him transfer it from a local credit union to at UTMA account at Fidelity. I have him invested in Fidelity ZERO Total Market Index Fund - which has a zero percent expense ratio.

We would have done Vanguard instead, because we're long-time Vanguard investors, but that zero percent expense ratio tempted us. Also, the fact that Fidelity had a very low minimum balance.

Now that he has a substantial amount of money in this account, I'm starting to think - is it a good idea to keep it all at Fidelity? Are there long-range issues that I'm not aware of? In general, I prefer Vanguard.

And - what's Fidelity's long-term plan for a mutual find with a zero percent expense ratio? How can this possibly work for them?

Thanks for bringing up any potential issues that I'm not seeing right now.
I much prefer everything about Fidelity's online interface and the conveniences it provides for ETF trading.

But nearly all of my holdings at Fidelity are Vanguard funds.

So long as this arrangement costs me nothing extra, I'll keep my ETFs at Fidelity and my mutual funds at Vanguard.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
snailderby
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Re: Any long-term issues with starting my teen out with Fidelity?

Post by snailderby »

Three thoughts:

1. Fidelity is a great brokerage.

2. In a taxable account, I would avoid Fidelity's ZERO funds because they are not transferable to other brokerages. In addition, Fidelity's mutual funds are less tax-efficient than their comparable ETFs.

3. If your teen has any earned income, consider using a Roth IRA instead of a UTMA account.
gjlynch17
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Re: Any long-term issues with starting my teen out with Fidelity?

Post by gjlynch17 »

My 16 year son opened a Roth IRA at Fidelity earlier this year (50% matched by his parents). He invested 50% in Fidelity Zero Total Market Fund and 50% Zero Total International Fund. Fidelity is great for smaller investors due to their no minimums and variety of low cost (or zero cost) index funds.

I agree with other comments on the benefits of using a Roth IRA and avoiding the Zero funds in taxable accounts.
peterwantstosave
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Re: Any long-term issues with starting my teen out with Fidelity?

Post by peterwantstosave »

Fidelity is great, I have accounts there.

Much prefer them to VG.

Hope this helps, Peter
403b: 54% VTSAX, 36% BTMKX 10% QCBMRX | GSRA: 100% Money Market (100% QCBMRX on Dec 11, 2020) | Roth IRA: 100% FIPFX | Taxable: 100% FSKAX
HomeStretch
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Re: Any long-term issues with starting my teen out with Fidelity?

Post by HomeStretch »

I found Fidelity was a good fit for my kids and might be for your teen too.

Fidelity offers a good package - Taxable account, Roth IRA, cash management account with ATM/debit card, online access and app with mobile check deposit. I believe having accounts there helped them get their 1st credit card (Fidelity 2% VISA). I found it convenient to transfer money from my Fidelity account to their accounts - called and transfer was made immediately by a rep.
peterwantstosave
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Re: Any long-term issues with starting my teen out with Fidelity?

Post by peterwantstosave »

Homestretch is right.

Fidelity is more full service than any other firm I've encountered. You could even hold physical bullion there (if you wanted to).

P
403b: 54% VTSAX, 36% BTMKX 10% QCBMRX | GSRA: 100% Money Market (100% QCBMRX on Dec 11, 2020) | Roth IRA: 100% FIPFX | Taxable: 100% FSKAX
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BroIceCream
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Re: Any long-term issues with starting my teen out with Fidelity?

Post by BroIceCream »

All good recommendations so far... adding my slightly different promotion for Fidelity.
My kids had a local bank account for their teen jobs (Bank of America). That bank did not exist at their out-of-state university - so they needed an alternative bank.

We opened a Fidelity Cash Management account. After years of school, they absolutely love it.
The no-fee at any ATM transactions, free checks. Plus they've opened a Roth IRA and have been moving non-nearterm money into it regularly (buying total market funds).
dbr
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Re: Any long-term issues with starting my teen out with Fidelity?

Post by dbr »

For overall financial services it would be Fidelity hands down over Vanguard.

But, as mentioned by another poster, be wary of being sold advisory services or talked into expensive or inappropriate funds by someone. Other than possible pressure to enter VPAS a 0.3%pa Vanguard will not have any costly alternatives one can get trapped in. A person should not have to talk to anyone at Fidelity except the occasional account support issue and if they do call or interject a sales pitch one just says one is not interested.
L82GAME
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Re: Any long-term issues with starting my teen out with Fidelity?

Post by L82GAME »

dbr wrote: Wed Sep 02, 2020 2:56 pm For overall financial services it would be Fidelity hands down over Vanguard.

But, as mentioned by another poster, be wary of being sold advisory services or talked into expensive or inappropriate funds by someone. Other than possible pressure to enter VPAS a 0.3%pa Vanguard will not have any costly alternatives one can get trapped in. A person should not have to talk to anyone at Fidelity except the occasional account support issue and if they do call or interject a sales pitch one just says one is not interested.
+1, agreed. I have helped others disengage from expensive AUM and fund arrangements at Schwab and Fidelity. You just can’t get into such overly expensive profit-driven constructs with VG. Fidelity and Schwab are great if you’re an informed investor; otherwise, buyer beware...
“Simplicity is the ultimate sophistication.” - Lao Tzu
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Cam894
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Re: Any long-term issues with starting my teen out with Fidelity?

Post by Cam894 »

Fidelity will serve him just fine his whole life. He may diversify into multiple brokerages when he gets the big bucks or 401k at another firm.

Give him a pat on the back for saving that much. He could have been buying vape paraphernalia instead. :D
RetiredAL
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Re: Any long-term issues with starting my teen out with Fidelity?

Post by RetiredAL »

SMV wrote: Wed Sep 02, 2020 12:01 pm My teen has had a few jobs over the past years, and now has more than 10k saved. In the past year, I've had him transfer it from a local credit union to at UTMA account at Fidelity. I have him invested in Fidelity ZERO Total Market Index Fund - which has a zero percent expense ratio.

Thanks for bringing up any potential issues that I'm not seeing right now.
You and your teen, if you don't know this already, should learn about tax gain harvesting to minimize your teens future tax burden. See the BH wiki on Kiddie Tax. Do be aware when gain harvesting, that some/many/most brokerages take a dim view of selling and then quickly re-buying the same fund. I use ETF's for that reason in my grand-kid's UTMAs.
bondsr4me
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Re: Any long-term issues with starting my teen out with Fidelity?

Post by bondsr4me »

Cam894 wrote: Wed Sep 02, 2020 3:25 pm Fidelity will serve him just fine his whole life. He may diversify into multiple brokerages when he gets the big bucks or 401k at another firm.

Give him a pat on the back for saving that much. He could have been buying vape paraphernalia instead. :D
+1
Topic Author
SMV
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Re: Any long-term issues with starting my teen out with Fidelity?

Post by SMV »

Thanks for all the great comments!

I forgot to mention - yes, he is mostly in the Roth IRA, since it's all earned income.
FinanceGeek
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Re: Any long-term issues with starting my teen out with Fidelity?

Post by FinanceGeek »

We started our teenage son with a UTMA account at Fido. He owns 1 share each of a few household name companies. Really captured his engagement level, he tracks his portfolio value on yahoo nearly daily and reads articles about each company. We'll teach indexing, avoiding frequent trading, etc. as time passes, but for now owning a few hundred dollars worth of individual companies captures his interest in becoming financially literate in investments...

We tried to create a Fidelity login for him, hoping he could have view-only access to his account (no trading allowed). No dice, he's gotta be 18 to accept the account agreement and create his own login. :oops:
bondsr4me
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Re: Any long-term issues with starting my teen out with Fidelity?

Post by bondsr4me »

FinanceGeek wrote: Wed Sep 02, 2020 5:44 pm We started our teenage son with a UTMA account at Fido. He owns 1 share each of a few household name companies. Really captured his engagement level, he tracks his portfolio value on yahoo nearly daily and reads articles about each company. We'll teach indexing, avoiding frequent trading, etc. as time passes, but for now owning a few hundred dollars worth of individual companies captures his interest in becoming financially literate in investments...

We tried to create a Fidelity login for him, hoping he could have view-only access to his account (no trading allowed). No dice, he's gotta be 18 to accept the account agreement and create his own login. :oops:
+1. sounds like a great way to get him started in learning about investments.
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8foot7
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Re: Any long-term issues with starting my teen out with Fidelity?

Post by 8foot7 »

I can understand not switching from Vanguard to Fidelity if one is already well-entrenched, but given Vanguard's well-documented customer service challenges and limited services at this point, I can't imagine starting from zero that Fidelity or Schwab does not provide a better overall value. The things that matter are completely free and a wider range of convenience services (cash management, cards, ATM access) that are also no-cost.
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