Fidelity Files for Four Fidelity ZERO℠ Funds (0.00% ER)

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wolf359
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by wolf359 » Wed Aug 08, 2018 6:32 am

WanderingDoc wrote:
Sun Aug 05, 2018 1:23 pm
Thanks. I will be waiting a month, maybe 3. I transferred my USAA taxable account to Vanguard last year, that resulted in a ~$1400 capital gains tax payment. Since then, it has been in VTSAX, with about $7600 in gains, so that would result in a ~$2000 capital gains tax payment if I sell this to move to Fidelity. Starting to rethink things here :P
The Fidelity ZERO will save you $24 a year over Vanguard. With a $2,000 capital gains cost to moving, it will only take 83 years and 3 months to break even. It's actually a little more because during that whole time period Fidelity will kick out more capital gains distributions and the Vanguard structure doesn't do that.

In addition, you have not yet held your money at Vanguard long enough to recoup your tax cost from moving from USAA (if you consider expense ratios only.) Making major moves in your financial accounts is like handling a bar of soap. Too much handling will shrink it dramatically.

I'm not even moving money out of my existing FIDELITY Total Stock Market fund into this new product! The savings are insignificant compared to the tax cost of moving.

Recognize that this is a brilliant MARKETING MOVE. But costs are already so low in our Vanguard accounts that eliminating them doesn't actually make much difference.

However, the new ZERO funds are perfect for new money. The fact that there's no minimum means I don't see why I wouldn't divert my new money to this fund. My only concern now is if the new funds will perform as well as the Vanguard funds. The differences in revenue sharing on securities lending will have an impact, but only time will tell if it is material.

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GoldStar
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by GoldStar » Wed Aug 08, 2018 6:35 am

12 pages of responses here....
Can someone summarize for the simple minded how these funds really differ from the prior Fidelity total market funds?

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whodidntante
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by whodidntante » Wed Aug 08, 2018 7:16 am

GoldStar wrote:
Wed Aug 08, 2018 6:35 am
12 pages of responses here....
Can someone summarize for the simple minded how these funds really differ from the prior Fidelity total market funds?
That was discussed already in the 12 pages. We've gone on to discuss philosophy.

TwstdSista
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by TwstdSista » Wed Aug 08, 2018 7:48 am

GoldStar wrote:
Wed Aug 08, 2018 6:35 am
12 pages of responses here....
Can someone summarize for the simple minded how these funds really differ from the prior Fidelity total market funds?
My limited understanding: Fidelity ZERO Total Market Index Fund (FZROX) ER 0.00% is a Total US Stock Market fund comparable to Fidelity Total Stock Market Index Fund Premium Class (FSTVX) ER 0.015%.

Fidelity ZERO International Index Fund (FZILX) ER 0.00% differs from Fidelity Total International Market Index Fund Premium Class (FTIPX) ER 0.06% in that the ZERO fund does not include International small caps.

However, both of the ZERO funds follow a Fidelity created index which has no history to compare how the funds may track against. And both ZERO funds are apparently only available in Fidelity retail accounts.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by patrick » Wed Aug 08, 2018 7:56 am

passiveTiger wrote:
Wed Aug 08, 2018 1:37 am
triceratop wrote:
Wed Aug 08, 2018 1:01 am
How do you know the Investor shares shareholders are subsidizing the Admiral shares investors, if you don’t know how many of each there are and the typical costs associated with each type of account?
  • The overall ER of the Vanguard Total Stock Market Index Fund for all classes is 0.053%.
  • Investors in the VTSMX Investor Shares class have an ER of 0.14%.
  • Every other share class ER is under 0.053%.
My guess is that Vanguard considers it a transient class that eventually leaves entirely, moves into Admiral Shares, or (best for Vanguard) sits dormant or is locked by some rule that does not permit Admiral Shares.
Some costs are incurred on a per account basis. It costs more to handle 100 investors with $3,000 each than one investor with $300,000. If they were all charged the same expense ratio, then the one investor with $300,000 would be subsidizing the $3,000 investors. The tiered approach alleviates this somewhat, though accounts at the high end within each tier still subsidize the accounts at the low end of the tier.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by UpperNwGuy » Wed Aug 08, 2018 9:39 am

patrick wrote:
Wed Aug 08, 2018 7:56 am
passiveTiger wrote:
Wed Aug 08, 2018 1:37 am
triceratop wrote:
Wed Aug 08, 2018 1:01 am
How do you know the Investor shares shareholders are subsidizing the Admiral shares investors, if you don’t know how many of each there are and the typical costs associated with each type of account?
  • The overall ER of the Vanguard Total Stock Market Index Fund for all classes is 0.053%.
  • Investors in the VTSMX Investor Shares class have an ER of 0.14%.
  • Every other share class ER is under 0.053%.
My guess is that Vanguard considers it a transient class that eventually leaves entirely, moves into Admiral Shares, or (best for Vanguard) sits dormant or is locked by some rule that does not permit Admiral Shares.
Some costs are incurred on a per account basis. It costs more to handle 100 investors with $3,000 each than one investor with $300,000. If they were all charged the same expense ratio, then the one investor with $300,000 would be subsidizing the $3,000 investors. The tiered approach alleviates this somewhat, though accounts at the high end within each tier still subsidize the accounts at the low end of the tier.
My takeaway from this discussion is that, while we can say that each Vanguard fund operates "at cost" in the aggregate, some individual investors are paying less than cost while others are paying more than cost.

TIAX
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by TIAX » Wed Aug 08, 2018 10:11 am

triceratop wrote:
Wed Aug 08, 2018 1:01 am
How do you know the Investor shares shareholders are subsidizing the Admiral shares investors, if you don’t know how many of each there are and the typical costs associated with each type of account?
Right. People who don't have enough assets to reach admiral are the same people who need a lot of hand holding (phone calls, help filling out forms, etc.). The share class "elitism" comments in this thread are pretty strange. I don't see why you'd volunteer to subsidize high cost accounts.

passiveTiger
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by passiveTiger » Wed Aug 08, 2018 10:27 am

patrick wrote:
Wed Aug 08, 2018 7:56 am
passiveTiger wrote:
Wed Aug 08, 2018 1:37 am
triceratop wrote:
Wed Aug 08, 2018 1:01 am
How do you know the Investor shares shareholders are subsidizing the Admiral shares investors, if you don’t know how many of each there are and the typical costs associated with each type of account?
  • The overall ER of the Vanguard Total Stock Market Index Fund for all classes is 0.053%.
  • Investors in the VTSMX Investor Shares class have an ER of 0.14%.
  • Every other share class ER is under 0.053%.
My guess is that Vanguard considers it a transient class that eventually leaves entirely, moves into Admiral Shares, or (best for Vanguard) sits dormant or is locked by some rule that does not permit Admiral Shares.
Some costs are incurred on a per account basis. It costs more to handle 100 investors with $3,000 each than one investor with $300,000. If they were all charged the same expense ratio, then the one investor with $300,000 would be subsidizing the $3,000 investors. The tiered approach alleviates this somewhat, though accounts at the high end within each tier still subsidize the accounts at the low end of the tier.
Yes, I am admittedly not considering individual account fixed costs or the number of accounts in each class, but I do not think the "at cost" amount is 1/3 less to maintain my account information than it is to do so for someone in Investor Shares.

I still think there is no reason that anyone would want to be in VTSMX. Schwab and Fidelity are definitely better options for a potential VTSMX investor with low or no minimums and lower ERs than Admiral (or even Institutional Plus) Shares. Why should it take two years of maximum IRA contributions in one fund to exit Investor Shares in that fund and advance to Admiral Shares?

mervinj7
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by mervinj7 » Wed Aug 08, 2018 10:30 am

GoldStar wrote:
Wed Aug 08, 2018 6:35 am
12 pages of responses here....
Can someone summarize for the simple minded how these funds really differ from the prior Fidelity total market funds?
Here are the takeaways in order of importance to me. YMMV

1. For Fidelity's Index Funds, all of their share classes are effectively being merged. For example, Fidelity® Total Market Index Premium ( FSTVX ) now has an jaw-dropping low ER of 0.015%. The bulk of our investments are in Vanguard funds but for everything else in Fidelity funds, this is fantastic news.

https://www.fidelity.com/mutual-funds/i ... lsrc=aw.ds

2. There no minimums for the above index funds. That means, an investor with $1k or even $100 can buy in to FSTVX with its ultra low ER. The minimum for the similar Vanguard Total Stock Market Index Fund Investor Shares (VTSMX) is $3k and has a much higher ER of 0.14% (9x FSTVX). To get costs lower, eventually people can move to Admiral Share class with an ER of 0.04% (2.7x FSTVX) but that has a minimum of $10k. To get costs even lower, with a $5M min, the institutional class has an ER of 0.035% (2.3x FSTVX). $100M gets you an ER of 0.02% (1.3x FSTVX).

https://institutional.vanguard.com/VGAp ... undId=0855

3. The tax efficiency of Fidelity index funds will likely remain worse than their equivalent Vanguard for the foreseeable future. Vanguard has patents to structure their ETFs as a share class of their index funds. That allows them to push out each fund's lowest-cost shares through in-kind ETF redemption and thus minimize capital gains distributions to the fund's shareholders.
For us, that means we will continue to use ETFs or Vanguard mutual funds in taxable accounts.

4. Fidelity has expanded their commission-free ETF lists to 265 ETFs. This change is to directly compete with Vanguard offering commission-free ETF trading on over 1800 ETFs.

5. Finally, there are two new Fidelity total market index funds with 0.00% ER and again no minimums. The last 12 pages of discussion is mostly Fidelity users being excited about this change and Vanguard diehards saying it "actually doesn't make much difference".
For us, we will not be investing in any fund without at least a couple of years of history, so we will continue to invest in FSTVX until we reaccess the situation in 2020. Until then, I will gladly pay $15/year to manage every $100k of investments.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by Nate79 » Wed Aug 08, 2018 10:39 am

A Fidelity representative was interviewed on the latest Stacking Benjamin podcast. Pretty good interview. Not a lot shared but clear the main strategy is Fidelity reducing costs along with offering a couple of zero cost index funds as loss leaders to bring in more people to the Fidelity family. They make no money on these 2 funds with the hopes of being able to offer more services to people thru their entire investing life. Eliminating nuisance fees along with offering industry leading list of low cost index funds is their big focus to reduce cost for investors.

The Stacking Benjamin team also poked a few jokes at the people on the web/forums who are up in arms to support Vanguard when Fidelity is the cost leader now. :sharebeer

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by Spirit Rider » Wed Aug 08, 2018 10:46 am

mervinj7 wrote:
Wed Aug 08, 2018 10:30 am
3. The tax efficiency of Fidelity index funds will likely remain worse than their equivalent Vanguard for the foreseeable future. Vanguard has patents to structure their ETFs as a share class of their index funds. That allows them to push out each fund's lowest-cost shares through in-kind ETF redemption and thus minimize capital gains distributions to the fund's shareholders.
Define "foreseeable future". Vanguard's patent expires on March 21, 2021.

mervinj7
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by mervinj7 » Wed Aug 08, 2018 10:50 am

Spirit Rider wrote:
Wed Aug 08, 2018 10:46 am
mervinj7 wrote:
Wed Aug 08, 2018 10:30 am
3. The tax efficiency of Fidelity index funds will likely remain worse than their equivalent Vanguard for the foreseeable future. Vanguard has patents to structure their ETFs as a share class of their index funds. That allows them to push out each fund's lowest-cost shares through in-kind ETF redemption and thus minimize capital gains distributions to the fund's shareholders.
Define "foreseeable future". Vanguard's patent expires on March 21, 2021.
Yikes, didn't realize it was so soon. I guess its another reason for to reassess our investments in 2021.

TIAX
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by TIAX » Wed Aug 08, 2018 11:40 am

Spirit Rider wrote:
Wed Aug 08, 2018 10:46 am
mervinj7 wrote:
Wed Aug 08, 2018 10:30 am
3. The tax efficiency of Fidelity index funds will likely remain worse than their equivalent Vanguard for the foreseeable future. Vanguard has patents to structure their ETFs as a share class of their index funds. That allows them to push out each fund's lowest-cost shares through in-kind ETF redemption and thus minimize capital gains distributions to the fund's shareholders.
Define "foreseeable future". Vanguard's patent expires on March 21, 2021.
Don't be so sure everyone will offer ETF shares of their index funds all of a sudden in 2021. It may not be worth the cost (to the provider). And Fidelity would have to reverse its new single share class philosophy.

retiringwhen
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by retiringwhen » Wed Aug 08, 2018 12:00 pm

TIAX wrote:
Wed Aug 08, 2018 11:40 am
Don't be so sure everyone will offer ETF shares of their index funds all of a sudden in 2021. It may not be worth the cost (to the provider). And Fidelity would have to reverse its new single share class philosophy.
I agree to your first part, but the second does not follow. Why not have and ETF class that is same as the Mutual fund. there is no philosophical reason not to, they can have the same ER (e.g., Vanguard ETF ER = Admiral). They already have similar ETFs and Mutual funds in the index categories. This would be a fund merger that can surely lower costs besides the tax efficiency improvement.

I think the real question is with the evolving nature of brokerages and ETFs, I wonder how long Mutual funds will stick around. I use them because I have "always" used them and am more comfortable, but from a Fund Company management perspective, a Fund Provider can seriously reduce costs by not managing Mutual Fund accounts and put all that cost on the brokerage... Note, this flies in the face of Vanguard's move to commission Free ETF trades, but I think that points out there are more than one road to Mecca. Ironically, I think Vanguard would come out ahead if the world moved to 100% ETFs while Fidelity would do better with mutual funds to lock folks into their platform. I make that case based on the common wisdom that Vanguard is very good at fund execution, while Fidelity is better at the customer end.... This assumes that at the end of the price war, Vanguard would give up the desire to be a one-stop consumer brokerage.... BTW, my guess is that the other brokerage house are all shaking in their boots as all they see is a reduction in revenue from either path.

The alternate is of course that both Fund Companies and Brokerages still have a lot of fat to shed and we'll continue to see more pressure. That is the reason I am excited about Fidelity's announcement even though I have no intention in switching to their brokerage services. It puts pressure (competitively) back on Vanguard to keep its cost reduction business model front and center. Vanguard is pressuring brokerage costs and Fidelity is pressuring Fund operating costs. Customers Win!

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by triceratop » Wed Aug 08, 2018 12:15 pm

passiveTiger wrote:
Wed Aug 08, 2018 1:37 am
triceratop wrote:
Wed Aug 08, 2018 1:01 am
How do you know the Investor shares shareholders are subsidizing the Admiral shares investors, if you don’t know how many of each there are and the typical costs associated with each type of account?
  • The overall ER of the Vanguard Total Stock Market Index Fund for all classes is 0.053%.
  • Investors in the VTSMX Investor Shares class have an ER of 0.14%.
  • Every other share class ER is under 0.053%.
My guess is that Vanguard considers it a transient class that eventually leaves entirely, moves into Admiral Shares, or (best for Vanguard) sits dormant or is locked by some rule that does not permit Admiral Shares.
This doesn't answer the question posed.
Yes, I am admittedly not considering individual account fixed costs or the number of accounts in each class, but I do not think the "at cost" amount is 1/3 less to maintain my account information than it is to do so for someone in Investor Shares.
Why do you expect simply stating "I do not think X" to be a compelling reason for others to disbelieve X?
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

WanderingDoc
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by WanderingDoc » Wed Aug 08, 2018 12:25 pm

wolf359 wrote:
Wed Aug 08, 2018 6:32 am
WanderingDoc wrote:
Sun Aug 05, 2018 1:23 pm
Thanks. I will be waiting a month, maybe 3. I transferred my USAA taxable account to Vanguard last year, that resulted in a ~$1400 capital gains tax payment. Since then, it has been in VTSAX, with about $7600 in gains, so that would result in a ~$2000 capital gains tax payment if I sell this to move to Fidelity. Starting to rethink things here :P
The Fidelity ZERO will save you $24 a year over Vanguard. With a $2,000 capital gains cost to moving, it will only take 83 years and 3 months to break even. It's actually a little more because during that whole time period Fidelity will kick out more capital gains distributions and the Vanguard structure doesn't do that.

In addition, you have not yet held your money at Vanguard long enough to recoup your tax cost from moving from USAA (if you consider expense ratios only.) Making major moves in your financial accounts is like handling a bar of soap. Too much handling will shrink it dramatically.

I'm not even moving money out of my existing FIDELITY Total Stock Market fund into this new product! The savings are insignificant compared to the tax cost of moving.

Recognize that this is a brilliant MARKETING MOVE. But costs are already so low in our Vanguard accounts that eliminating them doesn't actually make much difference.

However, the new ZERO funds are perfect for new money. The fact that there's no minimum means I don't see why I wouldn't divert my new money to this fund. My only concern now is if the new funds will perform as well as the Vanguard funds. The differences in revenue sharing on securities lending will have an impact, but only time will tell if it is material.
Well here's another dilemma that I have. I have approximately $16,000 in a Roth IRA at Vanguard, invested solely in the International index. Is it recommended that I close this Roth IRA at Vanguard and move it to a Roth IRA at Fidelity and invest in the zero fee fund? I would think there is no downside to doing this, with potential upside of saving on fees. And tax implications are not a factor given that this is a tax-sheltered account. I know that the zero fee Fidelity index does not invest in international small-caps, well then again neither does my International Fund in the TSP. Thoughts?
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by mervinj7 » Wed Aug 08, 2018 12:30 pm

WanderingDoc wrote:
Wed Aug 08, 2018 12:25 pm
Well here's another dilemma that I have. I have approximately $16,000 in a Roth IRA at Vanguard, invested solely in the International index. Is it recommended that I close this Roth IRA at Vanguard and move it to a Roth IRA at Fidelity and invest in the zero fee fund? I would think there is no downside to doing this, with potential upside of saving on fees. And tax implications are not a factor given that this is a tax-sheltered account. I know that the zero fee Fidelity index does not invest in international small-caps, well then again neither does my International Fund in the TSP. Thoughts?
In a similar boat with our RothIRA at Fidelity. The international part is kept in Fidelity Total International (FTIPX). It has an (newly lowered) ER of 0.06% and it includes small caps. That's $9.60/year for $16k investment. Hold for two years and revisit when the new zero fee fund has more data (e.g. index tracking).

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by MnD » Wed Aug 08, 2018 12:33 pm

I like these no minimum offerings by Fidelity and Schwab in things like account openings, and low-cost funds, ETF's and banking services. My kids were captured by Schwab well before they even got out of college mainly by the checking account with the ATM fee refunded debit card and partly by the brokerage accounts with no minimums on opening and ETF trades. They've been with Schwab for all banking and brokerage services now for 3 and 5 years with one barely established in his career and the other still in grad school. The likelihood of them migrating to Vanguard and to traditional or stand-alone on-line banking services is remote. I know fidelity has cash management services that resemble checking but they should buy a bank so they can offer something like what Schwab has with checking services. Or maybe people will get comfortable enough with brokerage cash management services such that checking accounts become a thing of the past unless you are older like land lines and getting the newspaper.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by passiveTiger » Wed Aug 08, 2018 12:38 pm

TIAX wrote:
Wed Aug 08, 2018 10:11 am
triceratop wrote:
Wed Aug 08, 2018 1:01 am
How do you know the Investor shares shareholders are subsidizing the Admiral shares investors, if you don’t know how many of each there are and the typical costs associated with each type of account?
Right. People who don't have enough assets to reach admiral are the same people who need a lot of hand holding (phone calls, help filling out forms, etc.). The share class "elitism" comments in this thread are pretty strange. I don't see why you'd volunteer to subsidize high cost accounts.
If anyone has made a phone call to Vanguard in the last 15 or 20 years, I have subsidized those calls, because I have not made any.

I do encourage everyone to please stop calling them. If you have a problem with your account, just suck it up. ;)

Since Admiral Shares investors apparently require no hand-holding, why even make any assistance available to us - the masters of personal finance? Isn't that kind of insulting that Vanguard would even presume to do that?

I do not volunteer to subsidize high cost accounts; however, by being a mutual fund holder, I have chosen to share costs (and so have you) - even if I believe that I contribute to them less than many others.

Share class is false elitism when you are in the same pool of water everyone else is, but you claim that your spot is somehow more or less deserving (as applicable) than another.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by triceratop » Wed Aug 08, 2018 12:55 pm

It's interesting that passiveTiger is opposed to bulk discounts as a matter of principle! Why do so many merchants offer them, but for market demand?
Nate79 wrote:
Wed Aug 08, 2018 10:39 am
The Stacking Benjamin team also poked a few jokes at the people on the web/forums who are up in arms to support Vanguard when Fidelity is the cost leader now. :sharebeer
I listened to the podcast. There was no in-depth discussion of tax cost, tracking error, securities lending, the kind of discussion a diligent reader would find in this thread; just in case anyone was wondering if people are "up in arms to support Vanguard" here or simply trying to evaluate the funds. Who are the ones taking cheap shots again? Maybe the podcast hosts, if they're going to ignore any real detail.

I did hear a lot of discussion about life insurance products among other advertisements though.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by passiveTiger » Wed Aug 08, 2018 12:59 pm

triceratop wrote:
Wed Aug 08, 2018 12:15 pm
passiveTiger wrote:
Wed Aug 08, 2018 1:37 am
triceratop wrote:
Wed Aug 08, 2018 1:01 am
How do you know the Investor shares shareholders are subsidizing the Admiral shares investors, if you don’t know how many of each there are and the typical costs associated with each type of account?
  • The overall ER of the Vanguard Total Stock Market Index Fund for all classes is 0.053%.
  • Investors in the VTSMX Investor Shares class have an ER of 0.14%.
  • Every other share class ER is under 0.053%.
My guess is that Vanguard considers it a transient class that eventually leaves entirely, moves into Admiral Shares, or (best for Vanguard) sits dormant or is locked by some rule that does not permit Admiral Shares.
This doesn't answer the question posed.
Yes, I am admittedly not considering individual account fixed costs or the number of accounts in each class, but I do not think the "at cost" amount is 1/3 less to maintain my account information than it is to do so for someone in Investor Shares.
Why do you expect simply stating "I do not think X" to be a compelling reason for others to disbelieve X?
Maybe paying three times the cost of the next share class and 19% of a fund's total assets covering 50% of a fund's total costs is correct.

Whether it is correct or not, what is clear to me is that no one should be in VTSMX for a total U.S. stock market fund. Why be out of the market to save $3,000 to pay the highest fees in class when $1 or $100 (or whatever the minimums less than $3,000 at competitors are) can be invested on day one for less ER?

I am okay, if you do not find this information compelling. Your beliefs do not have to be my beliefs.

Times are admittedly good when a 0.14% ER can arguably be called price-gouging on a relative basis. Some people here will say this is an awesome ER for the $3,000 investor and talk about ERs from the early 1980's as though that is the only other option to VTSMX.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by triceratop » Wed Aug 08, 2018 1:06 pm

I'm not saying there aren't better options than VTSMX! You won't find me stating that. There of course are, for tax-advantaged investors. I would choose Schwab/Fidelity/iShares products over VTSMX.

This all started because you claimed:
But I do believe that Vanguard can lower its share class ERs and drop the minimums.
For a company that prices (or claims to price) its products at realized cost, this is a claim that the per-asset cost of those smaller accounts is less than current. You didn't justify that view in any of what followed. So, you received pushback. But I'm glad that in the end we finally agreed on the following:
Maybe paying three times the cost of the next share class and 19% of a fund's total assets covering 50% of a fund's total costs is correct.
Obviously, investors can do better than VTSMX.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by passiveTiger » Wed Aug 08, 2018 1:07 pm

triceratop wrote:
Wed Aug 08, 2018 12:55 pm
It's interesting that passiveTiger is opposed to bulk discounts as a matter of principle! Why do so many merchants offer them, but for market demand?
Totally incorrect. I am definitely in favor of the share class with the greatest amount of assets (i.e., VTSAX Admiral Shares with $199.0 billion in assets) getting the lowest ER (i.e., 0.01%).

Instead, the share class with the least amount of assets (i.e., VSTSX with $15.5 billion in assets) gets the lowest ER of 0.01%.

I am certain that Admiral Shares ER is not subsidizing VSTSX shares, right? ;)

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by LadyGeek » Wed Aug 08, 2018 1:11 pm

So, I was driving on I-95 North in Philadelphia (just north of the Betsy Ross bridge) and I see a digital billboard "Fidelity ZERO" ad flash by in-between the beer and restaurant ads. All I can think of is "Wow, this is some serious advertising campaign." :shock:

I have no clue what it said other than noting the Fidelity green background. Perhaps in rush hour, the traffic will slow down to the point that you can actually read more words. (That will occur 2 hours after the time of this post.)
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by TwstdSista » Wed Aug 08, 2018 1:17 pm

FYI -- the ZERO funds are "not available to new investors" in my Fidelity solo 401k.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by UpperNwGuy » Wed Aug 08, 2018 1:36 pm

TIAX wrote:
Wed Aug 08, 2018 10:11 am
People who don't have enough assets to reach admiral are the same people who need a lot of hand holding (phone calls, help filling out forms, etc.).
What's your factual basis for making such an insulting accusation?

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by triceratop » Wed Aug 08, 2018 1:47 pm

passiveTiger wrote:
Wed Aug 08, 2018 1:07 pm
triceratop wrote:
Wed Aug 08, 2018 12:55 pm
It's interesting that passiveTiger is opposed to bulk discounts as a matter of principle! Why do so many merchants offer them, but for market demand?
Totally incorrect. I am definitely in favor of the share class with the greatest amount of assets (i.e., VTSAX Admiral Shares with $199.0 billion in assets) getting the lowest ER (i.e., 0.01%).

Instead, the share class with the least amount of assets (i.e., VSTSX with $15.5 billion in assets) gets the lowest ER of 0.01%.

I am certain that Admiral Shares ER is not subsidizing VSTSX shares, right? ;)
I think there must be a misunderstanding between what I actually said and how you are understanding it. To repeat, I said:
How do you know the Investor shares shareholders are subsidizing the Admiral shares investors, if you don’t know how many of each there are and the typical costs associated with each type of account?
That doesn't preclude institutional investors being very cheap to service, so it is not as if you have presented a counterfactual at all. By the way there are at most 3 investors in VSTSX, since the minimum investment is $5B. So, $500K/investor to run a market beta fund? I don't see a problem. :)

However it's good that we both agree on some common ground, as laid out in the content of this post.
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"Fidelity's Free Funds and the Changing Brokerage Business"

Post by Taylor Larimore » Wed Aug 08, 2018 2:30 pm

Bogleheads:

Morningstar has published another article about Fidelity's Zero Expense Ratio funds:

Fidelity's Free Funds and the Changing Brokerage Business

Best wishes.
Taylor
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by passiveTiger » Wed Aug 08, 2018 2:37 pm

triceratop wrote:
Wed Aug 08, 2018 1:47 pm
That doesn't preclude institutional investors being very cheap to service, so it is not as if you have presented a counterfactual at all. By the way there are at most 3 investors in VSTSX, since the minimum investment is $5B. So, $500K/investor to run a market beta fund? I don't see a problem. :)

However it's good that we both agree on some common ground, as laid out in the content of this post.
The incremental cost of providing service to as many as three accounts totaling $15.5 billion added to a $680+ billion fund may or may not be 0.01%.

But the actual cost is not 0.01%. I doubt that an isolated $15.5 billion total U.S. stock market index fund can be operated at 0.01% ER. It's totally fine to think one can, but I just disagree.

The $15.5 billion is not what enables 0.01% ER for that fund class. It is the $680+ billion in the other classes.

I wonder whether TIAX thinks that the Institutional Plus class that has 900% more assets than the Institutional Select class and an ER that is twice as much as Institutional Select is because the $100,000,000 neophyte accounts in Institutional Plus call too much and require assistance completing Vanguard forms.

I wrote:

"Maybe paying three times the cost of the next share class and 19% of a fund's total assets covering 50% of a fund's total costs is correct."

but I do not believe it to be. We agree on the "Maybe," because I can't dispute that. As many others point out, we don't have the data to be certain.

We do agree that VTSMX is not a good fund for investors that can only afford that class, and I agree that you never claimed otherwise.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by CantPassAgain » Wed Aug 08, 2018 2:42 pm

WanderingDoc wrote:
Wed Aug 08, 2018 12:25 pm
wolf359 wrote:
Wed Aug 08, 2018 6:32 am
WanderingDoc wrote:
Sun Aug 05, 2018 1:23 pm
Thanks. I will be waiting a month, maybe 3. I transferred my USAA taxable account to Vanguard last year, that resulted in a ~$1400 capital gains tax payment. Since then, it has been in VTSAX, with about $7600 in gains, so that would result in a ~$2000 capital gains tax payment if I sell this to move to Fidelity. Starting to rethink things here :P
The Fidelity ZERO will save you $24 a year over Vanguard. With a $2,000 capital gains cost to moving, it will only take 83 years and 3 months to break even. It's actually a little more because during that whole time period Fidelity will kick out more capital gains distributions and the Vanguard structure doesn't do that.

In addition, you have not yet held your money at Vanguard long enough to recoup your tax cost from moving from USAA (if you consider expense ratios only.) Making major moves in your financial accounts is like handling a bar of soap. Too much handling will shrink it dramatically.

I'm not even moving money out of my existing FIDELITY Total Stock Market fund into this new product! The savings are insignificant compared to the tax cost of moving.

Recognize that this is a brilliant MARKETING MOVE. But costs are already so low in our Vanguard accounts that eliminating them doesn't actually make much difference.

However, the new ZERO funds are perfect for new money. The fact that there's no minimum means I don't see why I wouldn't divert my new money to this fund. My only concern now is if the new funds will perform as well as the Vanguard funds. The differences in revenue sharing on securities lending will have an impact, but only time will tell if it is material.
Well here's another dilemma that I have. I have approximately $16,000 in a Roth IRA at Vanguard, invested solely in the International index. Is it recommended that I close this Roth IRA at Vanguard and move it to a Roth IRA at Fidelity and invest in the zero fee fund? I would think there is no downside to doing this, with potential upside of saving on fees. And tax implications are not a factor given that this is a tax-sheltered account. I know that the zero fee Fidelity index does not invest in international small-caps, well then again neither does my International Fund in the TSP. Thoughts?
Have you done the math on the fee difference in actual dollars? Do you think that dollar amount saved would leave you better off in the long run taking into account other differences in the funds (difference in indexes, tracking error which are admittedly not yet known) and possibly being out of the market for a few days, and the effort it takes to actually open a new account and execute a transfer? If funded Roth IRAs exist at both locations with the same dollar amounts then it could be a simple as selling in one and buying in the other according to total asset allocation plan but I suspect not.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by ruralavalon » Wed Aug 08, 2018 2:48 pm

MnD wrote:
Wed Aug 08, 2018 12:33 pm
I like these no minimum offerings by Fidelity and Schwab in things like account openings, and low-cost funds, ETF's and banking services. My kids were captured by Schwab well before they even got out of college mainly by the checking account with the ATM fee refunded debit card and partly by the brokerage accounts with no minimums on opening and ETF trades. They've been with Schwab for all banking and brokerage services now for 3 and 5 years with one barely established in his career and the other still in grad school. The likelihood of them migrating to Vanguard and to traditional or stand-alone on-line banking services is remote. I know fidelity has cash management services that resemble checking but they should buy a bank so they can offer something like what Schwab has with checking services. Or maybe people will get comfortable enough with brokerage cash management services such that checking accounts become a thing of the past unless you are older like land lines and getting the newspaper.
I tend to believe young and new investors will be attracted by no initial minimums for investments and no fee to open an account, and that over time that this will be a big competitive advantage for Fidelity and Schwab. Once attracted the investor will likely develop brand loyalty and stay with Fidelity or Schwab.

We are older, have a landline, have a checking account at a local branch bank, and get two newspapers.
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by davidkw » Wed Aug 08, 2018 3:25 pm

ruralavalon wrote:
Wed Aug 08, 2018 2:48 pm
MnD wrote:
Wed Aug 08, 2018 12:33 pm
I like these no minimum offerings by Fidelity and Schwab in things like account openings, and low-cost funds, ETF's and banking services. My kids were captured by Schwab well before they even got out of college mainly by the checking account with the ATM fee refunded debit card and partly by the brokerage accounts with no minimums on opening and ETF trades. They've been with Schwab for all banking and brokerage services now for 3 and 5 years with one barely established in his career and the other still in grad school. The likelihood of them migrating to Vanguard and to traditional or stand-alone on-line banking services is remote. I know fidelity has cash management services that resemble checking but they should buy a bank so they can offer something like what Schwab has with checking services. Or maybe people will get comfortable enough with brokerage cash management services such that checking accounts become a thing of the past unless you are older like land lines and getting the newspaper.
I tend to believe young and new investors will be attracted by no initial minimums for investments and no fee to open an account, and that over time that this will be a big competitive advantage for Fidelity and Schwab. Once attracted the investor will likely develop brand loyalty and stay with Fidelity or Schwab.

We are older, have a landline, have a checking account at a local branch bank, and get two newspapers.
I agree. If I was starting out just out of college, I would go with Schwab or Fidelity. Probably Schwab since they have had the low minimums for years. I believe Vanguard will need to drop the minimums. With so much automated these days, that should not be a problem.

In the Evangelical world, there is a motto, "What you win them with, is what you win them to". So when churches get people in with volleyball and pizza, that is what they expect.

I would expect Fidelity to be disappointed when investors buy the indexes, but not the more expensive products.
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by TIAX » Wed Aug 08, 2018 3:48 pm

UpperNwGuy wrote:
Wed Aug 08, 2018 1:36 pm
TIAX wrote:
Wed Aug 08, 2018 10:11 am
People who don't have enough assets to reach admiral are the same people who need a lot of hand holding (phone calls, help filling out forms, etc.).
What's your factual basis for making such an insulting accusation?
On average, do you think someone who is new to investing has more or less questions than someone who has been investing for decades?

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by LadyGeek » Wed Aug 08, 2018 4:10 pm

The discussion is getting derailed. Please stay on-topic, which is the Fidelity filings.
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by passiveTiger » Wed Aug 08, 2018 4:29 pm

In regards to LadyGeek's post directly above this, I have edited this post to remove discussion that did not reference the Fidelity filings.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by ennui » Wed Aug 08, 2018 6:45 pm

passiveTiger wrote:
Wed Aug 08, 2018 4:29 pm
In regards to LadyGeek's post directly above this, I have edited this post to remove discussion that did not reference the Fidelity filings.
I'm not sure you should remove anything. I've enjoyed your posts your very much, find myself agreeing with 99% of them, and your rejoinder to that WCI link was simply spectacular. The hair-splitting and levels of defensiveness on this particular thread were definitely not started by you. I think you are adding counterpoint and value to what has devolved into a dogpile. From where I stand, I think you've been pretty classy on this ... you're simply questioning the psychology here.

Nothing on this thread anything to do with Jack Bogle or his philosophy. Absolutely nothing. This has devolved into a Vanguard corporate blog as far as I can see. Years of "expenses matter, indexing matters" and then someone other than the Home Team delivers 2 indexes that are less expensive, and we go into full Vanguard ETF patent mode for people who have $2M in taxable accounts and far too much time on their hands ... like, really? I know how Jack Bogle feels about ETF's ... I'd be curious how he feels about the fact that his successors have to engage in ETF chicanery to stay afloat.

This whole thing is a massive coup for Fido (which is not a one-trick pony as an organization) and a Good Thing for younger people, older people making up for lost time or life getting the way, or simply folks who are just getting started saving or building wealth. Oh, and every sentient person on the planet who holds a TSM type indices in tax-advantaged accounts, no matter what the balance.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by spidercharm » Wed Aug 08, 2018 7:55 pm

I have been regular reader here and learnt quite a bit from everyone. I don't post very often, but wanted to ask a question on this thread. Now, I forgot my bogleheads account information. So, had to create new account for posting on this thread (new accounts go through approval of first post after activation). What I tried to post (read below) never made it and my new account was deactivated (from what I see). I did some dig in and found my prior account information, so posting this question again. But, I am not sure if my comments favoring Fido has anything to do with new account deactivation. Am I paranoid or is this site really turning into vanguard corporate machine like others have said?

Now back to my original question:

All my taxable assets are with Vanguard currently. Biggest takeaway for this fidelity announcement for me is not about zero costs, but the fact that they are eliminating differences in share classes, no minimums and drop in ER to 1.5 bp for TSM (vs 4 bp - Vanguard) and 6 bp for Total International (vs 11 bp - Vanguard) for existing funds. I am bit skeptical on proprietary index part for zero cost fund, so will have to wait and watch. But, I am planning to start splitting new investments between Vanguard and Fidelity.

My question was - I am leaning towards Fidelity Inst Premium fund and i understand they are going to combine different fund types at some point. However, I am unclear from Fido prospectus on how fees are going to be handled in the future. For example, prospectus for FTIHX says the following:


Institutional Class Institutional Premium Class
Management fee 0.06% 0.06%
Distribution and/or Service (12b-1) fees None None
Other expenses 0.02%(a) 0.00%
Total annual operating expenses 0.08%(a) 0.06%

When share types are combined, are they going to drop other expenses?

Thanks in advance.

P.S. I really think Vanguard needs to drop their ER and minimums for some of the funds with significant assets.
Last edited by spidercharm on Wed Aug 08, 2018 8:16 pm, edited 3 times in total.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by LadyGeek » Wed Aug 08, 2018 8:09 pm

For those concerned about this forum being a corporate Vanguard blog, we follow the man - not the company. All opinions are welcome.

For example, the wiki shows how to implement a Three-fund portfolio from 9 different fund providers whose name does not start with "V".

Also note we have dedicated articles for 12 fund providers (who are not Vanguard) listed here. Look under "Investment management company".

(The wiki's content represents not only the Bogleheads community, but the interests of its editors. If anyone wants to be a wiki editor to add Fidelity, BlackRock iShares, etc. content to the wiki, please PM myself or Barry Barnitz with your request. We could use the help.)
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by petrisunset » Wed Aug 08, 2018 8:18 pm

Any idea whether (and if so when) Vanguard will follow?
Any suggestions how to influence they lower the ERs on the existing index funds vs. creating new funds?

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by Iridium » Wed Aug 08, 2018 10:20 pm

petrisunset wrote:
Wed Aug 08, 2018 8:18 pm
Any idea whether (and if so when) Vanguard will follow?
Nobody knows for sure, but see this article:
G-Force wrote:
Fri Aug 03, 2018 8:14 pm
Vanguard's CIO issued a statement about Fidelity's move:

https://www.bloomberg.com/news/articles ... free-funds
Vanguard watches the competition, but does not react to it. Not sure that Vanguard, as currently constituted, really can match this. As I understand it, Vanguard 'reports' its expense ratio rather than 'sets' it. The cost to run the fund is the cost to run the fund. 'Corporate Vanguard' doesn't make enough money to print the fund's prospectus statements/annual reports for free, so the fund is always going to have expenses.

Note that Vanguard has not been the cheapest core ETF or mutual fund for a while now. Yet, they have kept growing. I CAN easily see why they would not feel compelled to respond.

The company to watch for a match is Schwab. Take out money markets and all management fees they earn on mutual funds and ETFs combined are less than 10% of their profit. They have been active participants in the price war. They have a business model that can profit off cheapskate indexers. The Fed keeps making their business more profitable, without them having to do anything. The only things I can think of holding them back are that they are pretty big advocates of ETFs (zero fee fund strategy doesn't work as an ETF) and that it leads to too many questions (as evidenced by this thread, everyone knows 'there is no such thing as a free lunch').

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by Nate79 » Wed Aug 08, 2018 10:24 pm

Iridium wrote:
Wed Aug 08, 2018 10:20 pm
petrisunset wrote:
Wed Aug 08, 2018 8:18 pm
Any idea whether (and if so when) Vanguard will follow?
Nobody knows for sure, but see this article:
G-Force wrote:
Fri Aug 03, 2018 8:14 pm
Vanguard's CIO issued a statement about Fidelity's move:

https://www.bloomberg.com/news/articles ... free-funds
Vanguard watches the competition, but does not react to it. Not sure that Vanguard, as currently constituted, really can match this. As I understand it, Vanguard 'reports' its expense ratio rather than 'sets' it. The cost to run the fund is the cost to run the fund. 'Corporate Vanguard' doesn't make enough money to print the fund's prospectus statements/annual reports for free, so the fund is always going to have expenses.

Note that Vanguard has not been the cheapest core ETF or mutual fund for a while now. Yet, they have kept growing. I CAN easily see why they would not feel compelled to respond.

The company to watch for a match is Schwab. Take out money markets and all management fees they earn on mutual funds and ETFs combined are less than 10% of their profit. They have been active participants in the price war. They have a business model that can profit off cheapskate indexers. The Fed keeps making their business more profitable, without them having to do anything. The only things I can think of holding them back are that they are pretty big advocates of ETFs (zero fee fund strategy doesn't work as an ETF) and that it leads to too many questions (as evidenced by this thread, everyone knows 'there is no such thing as a free lunch').
Can you clarify why zero fee fund strategy doesn't work for ETF's?

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by triceratop » Wed Aug 08, 2018 10:29 pm

ennui wrote:
Wed Aug 08, 2018 6:45 pm
Nothing on this thread anything to do with Jack Bogle or his philosophy. Absolutely nothing. This has devolved into a Vanguard corporate blog as far as I can see. Years of "expenses matter, indexing matters" and then someone other than the Home Team delivers 2 indexes that are less expensive, and we go into full Vanguard ETF patent mode for people who have $2M in taxable accounts and far too much time on their hands ... like, really? I know how Jack Bogle feels about ETF's ... I'd be curious how he feels about the fact that his successors have to engage in ETF chicanery to stay afloat.
I slightly less than $100k in assets and I use and appreciate Vanguard funds (and other fund companies' ETFs) for their tax efficiency. I have less than $7,000 in tax-advantaged assets. Taxable accounts are not just for rich old fogies. Fact is, Fidelity and their new Zero funds are an inappropriate option for me, a young 20s-something investor. who directs the entirety of savings to taxable accounts. I'm simply sharing why.

People who invest solely in tax-advantaged accounts are free to ignore any the analysis posted regarding tax efficiency. I suspect they do.
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by corn18 » Wed Aug 08, 2018 10:34 pm

We sure argue a lot on the fringes around here.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by jalbert » Wed Aug 08, 2018 10:34 pm

It appears that the Fidelity total US index funds FSTVX have had a lower ER than the corresponding Vanguard index funds for 7 years. How does that translate into overall before-tax performance?

http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

Here is a chart from the launch of the premium share class:

http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D
Last edited by jalbert on Thu Aug 09, 2018 12:00 am, edited 4 times in total.
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by Iridium » Wed Aug 08, 2018 10:39 pm

Nate79 wrote:
Wed Aug 08, 2018 10:24 pm
Can you clarify why zero fee fund strategy doesn't work for ETF's?
As best anyone can tell, the zero fund strategy is a way to gather assets onto your platform. For Fidelity, they might be hoping to tempt folks into active funds or advisory. If Schwab did it, they would be hoping that folks keep some money in their sweep account (apparently >10% of brokerage assets at Schwab are in sweep; by assets, Schwab is the 15th biggest bank in the nation). With a mutual fund, you can set the rules. Fidelity's rule is only retail customers can purchase and only on their platform. If Schwab was to get into the space, they probably wouldn't care too much about 'retail' but would care about 'on their platform' (as they will only collect assets in sweep accounts if folks are using their platform).

ETFs, however, trade on the exchange. You cannot limit the purchasers to your platform. So if you were to offer a zero fee ETF, you might end up subsidizing someone else's customer.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by triceratop » Wed Aug 08, 2018 10:41 pm

corn18 wrote:
Wed Aug 08, 2018 10:34 pm
We sure argue a lot on the fringes around here.
I don't advocate argument; I advocate understanding. Anyway, Tax efficiency is one of the 10 Boglehead principles and can make a difference (when you're young even a 10 basis point advantage is significant when compounded over a lifetime) so I don't consider it fringe. You're free to of course, or to simply ignore such posts.
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by Nate79 » Wed Aug 08, 2018 10:53 pm

Iridium wrote:
Wed Aug 08, 2018 10:39 pm
Nate79 wrote:
Wed Aug 08, 2018 10:24 pm
Can you clarify why zero fee fund strategy doesn't work for ETF's?
As best anyone can tell, the zero fund strategy is a way to gather assets onto your platform. For Fidelity, they might be hoping to tempt folks into active funds or advisory. If Schwab did it, they would be hoping that folks keep some money in their sweep account (apparently >10% of brokerage assets at Schwab are in sweep; by assets, Schwab is the 15th biggest bank in the nation). With a mutual fund, you can set the rules. Fidelity's rule is only retail customers can purchase and only on their platform. If Schwab was to get into the space, they probably wouldn't care too much about 'retail' but would care about 'on their platform' (as they will only collect assets in sweep accounts if folks are using their platform).

ETFs, however, trade on the exchange. You cannot limit the purchasers to your platform. So if you were to offer a zero fee ETF, you might end up subsidizing someone else's customer.
Certainly from a strategy standpoint I understand why they would limit this to mutual funds. But from a structure standpoint there seems to be nothing stopping a company from doing this with ETFs. ETFs still gather assets under management.

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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by Iridium » Wed Aug 08, 2018 11:56 pm

Nate79 wrote:
Wed Aug 08, 2018 10:53 pm
Certainly from a strategy standpoint I understand why they would limit this to mutual funds. But from a structure standpoint there seems to be nothing stopping a company from doing this with ETFs. ETFs still gather assets under management.
Right. Not arguing that an ETF cannot be made zero expense. Just arguing that nobody would bother because you don't want to do all the work of a running a fund for free, if it won't buy you a competitive advantage.

Right now, if Schwab or some other company were to launch a free fund, they could target customers of every broker other than Fidelity with the 'come onto our platform for zero funds' message. However, if they were to launch a zero fee ETF, then customers of Vanguard (all non-levered ETFs will trade free there), Merrill Edge (passive investors with $50K can use their free trades), Robin Hood, M1 Finance (both free trading in general), and folks in a wrap fee arrangement will all be immune to the message because those customers can buy the new ETF just as cheaply and easily as customers of the company offering the ETF! So why would those customets bother to switch? In addition, if a broker found they were losing too many customers, they could always add the zero fee ETF to their free lineup to staunch the bleeding.

ETFs do gather AUM, but I do not see how AUM in a free fund on someone else's platform would do you any good.

jalbert
Posts: 3821
Joined: Fri Apr 10, 2015 12:29 am

Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by jalbert » Thu Aug 09, 2018 12:49 am

triceratop wrote:
Wed Aug 08, 2018 10:41 pm
corn18 wrote:
Wed Aug 08, 2018 10:34 pm
We sure argue a lot on the fringes around here.
I don't advocate argument; I advocate understanding. Anyway, Tax efficiency is one of the 10 Boglehead principles and can make a difference (when you're young even a 10 basis point advantage is significant when compounded over a lifetime) so I don't consider it fringe. You're free to of course, or to simply ignore such posts.
I don’t even invest in any total market US or total int’l stock index fund so the whole question is completely immaterial to me. I had the assumption that Fidelity investors might want to consider why the product may not actually be free.
Risk is not a guarantor of return.

TwstdSista
Posts: 987
Joined: Thu Nov 16, 2017 4:03 am

Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by TwstdSista » Thu Aug 09, 2018 4:15 am

spidercharm wrote:
Wed Aug 08, 2018 7:55 pm
....
My question was - I am leaning towards Fidelity Inst Premium fund and i understand they are going to combine different fund types at some point. However, I am unclear from Fido prospectus on how fees are going to be handled in the future. For example, prospectus for FTIHX says the following:

Institutional Class Institutional Premium Class
Management fee 0.06% 0.06%
Distribution and/or Service (12b-1) fees None None
Other expenses 0.02%(a) 0.00%
Total annual operating expenses 0.08%(a) 0.06%

When share types are combined, are they going to drop other expenses?
....
Prior to August, Fidelity's other two share classes of the Total International Index Fund were:
Fidelity Total International Market Index Fund Premium Class (FTIPX) ER 0.10%
Fidelity Total International Market Index Fund Investor Class (FTIGX) ER 0.17%

Now, all three funds have an ER of 0.06%. My understanding is that by November all three (FTIHX, FTIPX and FTIGX) will be merged into one fund with an ER of 0.06%. I do not know which ticker symbol will be the surviving fund. A quick glance indicates that they have dropped the ERs on all of their Premium and Investor Class Index funds, and I believe each will be merged into a single fund (per category).

It does not appear that they have dropped the ER on their actively managed funds (just looking at Fidelity Contrafund FCNTX and FCNKX).

As for the future, anything can happen. They can raise fees, they can lower them further, they might stay the same. That's true of any fund at any institution.

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