Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

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heybro
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Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by heybro » Sat Nov 17, 2018 1:53 am

IF you already own Fidelity Total Market Index Fund, which has an expense ratio of .015, should you switch to the Fidelity Zero Total Market fund?

The consensus seems to be to stay away from the zero funds because they use some kind of 'trick' to make up for the zero expense. The trick seems to be "lending securities to earn income for the fund." This line is mentioned in the Zero Fund Summary under 'Risks' and it is also talked about in the Prospectus:
"Securities Lending Risk. Securities lending involves the risk that the borrower may fail to return the securities loaned in a timely manner or at all. If the borrower defaults on its obligation to return the securities loaned because of insolvency or other reasons, a fund could experience delays and costs in recovering the securities loaned or in gaining access to the collateral."
The regular Fidelity Total Market Index Fund does not include anything about lending risk in the Summary under 'Risk' and it does not have the above paragraph in the Prospectus under 'Risks.' However, it does have one small line in the Prospectus under 'Investment Strategy" that reads:
"Lending securities to earn income for the fund."
So, is it worth switching to the Zero Fund since they both seem to engage in lending securities or is the regular fund less tricky and worth the minor expense?

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by pokebowl » Sat Nov 17, 2018 2:46 am

In my personal opinion, I feel a lot of the risks on the fund are overblown to a mild degree, at least on these forums. The zero funds do perform security lending in addition to using Fidelity's own index benchmark to track. Both these methods contribute to their ability to allow these funds to be loss leaders for the firm to attract investors.

I'd argue the main risk currently are the funds are very new and we do not know at this time just how well the funds will track their own index and measure up against the current industry standards of similar funds. Where as the fund you are paying that 0.015 ER is currently tracking against an established index. That being said I see the zero funds as a fine option for both new and old investors looking to switch up their tax advantaged space. In your taxable brokerage account however, there may be better options available.

/My two cents

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by Plz » Sat Nov 17, 2018 3:52 am

Could a risk be that they have zero fees now but may end up raising the fee later?

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by fennewaldaj » Sat Nov 17, 2018 4:18 am

I don't think there is much reason to not use them. On the other hand saving 0.015 is not exactly much incentive to switch either.

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by Nate79 » Sat Nov 17, 2018 7:15 am

heybro wrote:
Sat Nov 17, 2018 1:53 am
IF you already own Fidelity Total Market Index Fund, which has an expense ratio of .015, should you switch to the Fidelity Zero Total Market fund?

The consensus seems to be to stay away from the zero funds because they use some kind of 'trick' to make up for the zero expense. The trick seems to be "lending securities to earn income for the fund." This line is mentioned in the Zero Fund Summary under 'Risks' and it is also talked about in the Prospectus:
"Securities Lending Risk. Securities lending involves the risk that the borrower may fail to return the securities loaned in a timely manner or at all. If the borrower defaults on its obligation to return the securities loaned because of insolvency or other reasons, a fund could experience delays and costs in recovering the securities loaned or in gaining access to the collateral."
The regular Fidelity Total Market Index Fund does not include anything about lending risk in the Summary under 'Risk' and it does not have the above paragraph in the Prospectus under 'Risks.' However, it does have one small line in the Prospectus under 'Investment Strategy" that reads:
"Lending securities to earn income for the fund."
So, is it worth switching to the Zero Fund since they both seem to engage in lending securities or is the regular fund less tricky and worth the minor expense?
Pretty much all funds get income from lending securities, including Fidelity, Schwab, Vanguard, etc. This is not a trick and has been discussed on here extensively.

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by jhfenton » Sat Nov 17, 2018 7:31 am

heybro wrote:
Sat Nov 17, 2018 1:53 am
IF you already own Fidelity Total Market Index Fund, which has an expense ratio of .015, should you switch to the Fidelity Zero Total Market fund?

The consensus seems to be to stay away from the zero funds because they use some kind of 'trick' to make up for the zero expense. The trick seems to be "lending securities to earn income for the fund." This line is mentioned in the Zero Fund Summary under 'Risks' and it is also talked about in the Prospectus:
"Securities Lending Risk. Securities lending involves the risk that the borrower may fail to return the securities loaned in a timely manner or at all. If the borrower defaults on its obligation to return the securities loaned because of insolvency or other reasons, a fund could experience delays and costs in recovering the securities loaned or in gaining access to the collateral."
The regular Fidelity Total Market Index Fund does not include anything about lending risk in the Summary under 'Risk' and it does not have the above paragraph in the Prospectus under 'Risks.' However, it does have one small line in the Prospectus under 'Investment Strategy" that reads:
"Lending securities to earn income for the fund."
So, is it worth switching to the Zero Fund since they both seem to engage in lending securities or is the regular fund less tricky and worth the minor expense?
There was certainly not a consensus to avoid the ZERO funds. There were in-depth, nuanced discussions that some people interpreted as criticism.

I would not use any Fidelity equity mutual funds in a taxable account. ETFs (or Vanguard funds with an ETF share class) are more tax efficient.

I would not have bought into the ZERO funds in their first few weeks. Friction from all the new money pouring in would probably outweigh the small ER advantage in the first days.

At this point, I would happily buy the ZERO funds in a tax-advantaged account if I wanted the exposure they provided. I want my funds pursuing securities lending, as basically every firm and fund on the market does.

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by Jack FFR1846 » Sat Nov 17, 2018 7:33 am

There is no such consensus to stay away from the zero fund. At the start of August, shortly after the zero funds were announced, I split my equity position in my Fidelity IRA into equal parts. FSKAX and FZROX at a bit over $300k each. As of Friday's close, the zero fund has outperformed by about $350. I have also not found any boogie men hiding behind the zero fund. This is still very short term but my intent was to make an easy comparison as time goes by. I have noticed that the 2 funds do not follow each other exactly.
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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by StopIroningShirts » Sat Nov 17, 2018 7:40 am

I own both FSKAX and FZROX along with some legacy holdings of ITOT and VTI.

The expense ratios are so incredibly low on all of these we're talking about loose change. ($1.50 on $10,000). I'm not going to make any moves in the taxable account that trigger taxes or trading commissions to make the swap at low dollar amounts.

I did change out one of the ETFs for FZROX in a retirement account

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by vineviz » Sat Nov 17, 2018 7:45 am

heybro wrote:
Sat Nov 17, 2018 1:53 am
The consensus seems to be to stay away from the zero funds because they use some kind of 'trick' to make up for the zero expense.
If there is a consensus opinion , I’d say that it is to avoid using the Zero funds in taxable accounts because of the lack of portability. Changing brokerages would require a sale of those funds, likely triggering a capital gain tax.
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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by retiringwhen » Sat Nov 17, 2018 8:50 am

TLDR Summary: The Zero funds can you surely save some pennies now with little risk if you don't allow them to trap you in unmovable situations though (taxable mutual fund accounts being the primary risk.)

Here is the longer summary of the consensus as I understand it.

If you are already a Fidelity customer and if you are in deferred retirement accounts such as an IRA, there is little downside risk to move or add new money to the Zero funds based upon your current asset allocation. The only risk is Fidelity's chance of not executing against the new index well (low chance of realization.)

If you you are already a Fidelity customer and are putting new money in a taxable account, it may be a good idea, but it will lock you into those funds (and Fidelity as a brokerage) pretty tightly once the market starts to move up again and you have unrealized capital gains. If you are a die hard Fidelity customer, this is a low risk, if not, it is a high risk (nearly 100% chance of being a problem since the funds are unportable out of Fidelity, see subsidy discussion below.)

Under no circumstances would it make sense to execute any taxable sales that realize taxable gains to achieve such a small ER advantage. The cost savings would never be made up against the tax cost.

There are few places where the difference is enough to make moving funds to Fidelity worthwhile for just the zero ER unless you already have a reasonable justification to move to Fidelity for some other reason (consolidation, advisor, moving from a full-service brokerage, etc.)

The discussion above on Securities Lending is a red-herring. All of the funds at Fidelity and other Index funds use Securities Lending and there is no reason to believe they are unreasonably aggressive or irresponsible when compared to other Index funds at Fidelity or other providers (Vanguard, Black Rock, etc.) There is some belief that these funds may be created to take advantage of this revenue source (small lightly traded stock are not sampled as in some other funds, thus making room for more lending), but no reason to believe there is a unique risk.

There is a real risk that because Fidelity is clearly underwriting the true costs of these funds, the free ride may not last.

Most people don't realize this but EVERY index fund expense ratio is subsidized at some level by the mother company via revenues from other source at Fidelity via such avenues as high ER Money Markets, Active Mutual Funds, Advisory Fees, etc.

Thus, the subsidization model may not be sustainable. If so, the advantages may not be permanent or may be severely limited in the future (max balances, min total account balances, account type, or simply adding a fee are all possibilities). In other words, don't put yourself in a situation where you commit to these funds for 40 years and expect them to never have any cost to you, it won't happen, you'll pay somewhere.

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by lostdog » Sat Nov 17, 2018 9:07 am

Will there ever be a "lower free" response from Vanguard?
Global Market Cap Equity/1 Year Cash/Short Bonds || 25x Expenses

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by tj » Sat Nov 17, 2018 11:44 am

lostdog wrote:
Sat Nov 17, 2018 9:07 am
Will there ever be a "lower free" response from Vanguard?
Doubt it.

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by retiringwhen » Sat Nov 17, 2018 1:06 pm

tj wrote:
Sat Nov 17, 2018 11:44 am
lostdog wrote:
Sat Nov 17, 2018 9:07 am
Will there ever be a "lower free" response from Vanguard?
Doubt it.
I do not have numbers to prove it but I am 95% confident that the average and median customer at vanguard pays a lower expense than than the same customer at Fidelity or ANY other brokerage or mutual fund company. Focusing on one fund in portfolio clouds the reality of even the most cost conscious investors. I bet the 90th percentile is even better at Vanguard.

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by tj » Sat Nov 17, 2018 2:45 pm

retiringwhen wrote:
Sat Nov 17, 2018 1:06 pm
tj wrote:
Sat Nov 17, 2018 11:44 am
lostdog wrote:
Sat Nov 17, 2018 9:07 am
Will there ever be a "lower free" response from Vanguard?
Doubt it.
I do not have numbers to prove it but I am 95% confident that the average and median customer at vanguard pays a lower expense than than the same customer at Fidelity or ANY other brokerage or mutual fund company. Focusing on one fund in portfolio clouds the reality of even the most cost conscious investors. I bet the 90th percentile is even better at Vanguard.

Absolutely. I don't think anyone would disagree with that.

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by Weizilla » Wed Dec 19, 2018 8:17 am

I noticed that FSKAX paid a higher dividend than FZROX, even taking into account the lower share price of FZROX.

FSKAX:
12/14/18 $1.199/share $73.28/reinvest price
4/11/18 $0.25668 $75.76
12/15/17 $1.07071 $76.25
4/12/17 $0.19518 $67.41

FZROX:
12/14/18 $0.053/share $9.12/reinvest price

Will FZROX eventually match FSKAX in dividends? If not, wouldn't FSKAX be better because of the dividend?

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by tj » Wed Dec 19, 2018 9:49 am

Weizilla wrote:
Wed Dec 19, 2018 8:17 am
I noticed that FSKAX paid a higher dividend than FZROX, even taking into account the lower share price of FZROX.

FSKAX:
12/14/18 $1.199/share $73.28/reinvest price
4/11/18 $0.25668 $75.76
12/15/17 $1.07071 $76.25
4/12/17 $0.19518 $67.41

FZROX:
12/14/18 $0.053/share $9.12/reinvest price

Will FZROX eventually match FSKAX in dividends? If not, wouldn't FSKAX be better because of the dividend?

Someone was tracking Total Return between the two. The Zero fund was slightly higher. It's in the massive zero fee thread.

The dividend shouldn't make a difference, FSKAX has been around longer so it has more embedded capital gains. Is the $1.199/share the dividend or the combination of dividend and LTCG distributinos?

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by MisterMister » Sun Jan 13, 2019 3:39 pm

vineviz wrote:
Sat Nov 17, 2018 7:45 am
heybro wrote:
Sat Nov 17, 2018 1:53 am
The consensus seems to be to stay away from the zero funds because they use some kind of 'trick' to make up for the zero expense.
If there is a consensus opinion , I’d say that it is to avoid using the Zero funds in taxable accounts because of the lack of portability. Changing brokerages would require a sale of those funds, likely triggering a capital gain tax.
But you could first exchange all FZROX shares for FSKAX without cost and then you are portable. You've lost the "totally free" aspect but at least you don't have to liquidate and you don't lose time in the market. Not sure about analogs for the other zero funds.

EDIT: I can see now this really doesn't solve the problem in a taxable account, because the FZROX funds still have to be "sold" (even for the exchange). Should be OK in an IRA.
Last edited by MisterMister on Sun Jan 13, 2019 3:58 pm, edited 3 times in total.

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by lyrictulip » Sun Jan 13, 2019 3:53 pm

I would be more cautious in a taxable account. In taxable, you can end up "locked in" by capital gains to a fund choice you may have made many years ago, and may come to regret. My strategy in a taxable account therefore is
- to only go with ETFs (because you can easily port them between brokerages)
- to only use broad market index funds (no slicing and dicing in taxable)
- to only use large funds from large providers (that are not likely to go anywhere), with a proven record of tracking their index while keeping costs low over time.

My suggestion, therefore, is to stay away from the ZERO funds in your taxable accounts.

I tend to be biased against things that are new, things that seem gimmicky, and things that seem too good to be true. I'd rather pay the 1.5 basis points for the "standard" fund. But that's purely my bias. In a tax advantaged account, if you're interested, absolutely, go for it. In all likelihood they will turn out to be just fine, and if they end up burning you in some way, you can just switch funds.
Last edited by lyrictulip on Sun Jan 13, 2019 4:20 pm, edited 1 time in total.

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by NYCguy » Sun Jan 13, 2019 4:06 pm

My 2 cents is the zero funds are a gimmick to stay away from. Ask yourself why FIDO does not offer to exchange existing FIDO customers from the same higher ER FIDO funds to the new zeros? Blackrock has had similar BS gimmicks too.

When VG lowers ER it does so for all customers. I trust VG to put my interests first whether in security lending, tax efficiency.

The long term problem for you younger folks is that if you get seduced by the zeros, you will have tax friction down the road to change out once we have performance numbers or god forbid they jack up the ER.

I am not FIDO bashing. I have lots of money tied up in FIOD company plans. When I retire and consolidate, it will likely be with VG.

Building a portfolio is like building a house. Mistakes you make early on will create problems down the road.

Luckily I got my mistakes out early: chasing active funds, buying a variable annuity (from VG, but still sub optimal)
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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by MisterMister » Sun Jan 13, 2019 4:16 pm

NYCguy wrote:
Sun Jan 13, 2019 4:06 pm
My 2 cents is the zero funds are a gimmick to stay away from. Ask yourself why FIDO does not offer to exchange existing FIDO customers from the same higher ER FIDO funds to the new zeros? Blackrock has had similar BS gimmicks too.

When VG lowers ER it does so for all customers. I trust VG to put my interests first whether in security lending, tax efficiency.

The long term problem for you younger folks is that if you get seduced by the zeros, you will have tax friction down the road to change out once we have performance numbers or god forbid they jack up the ER.

I am not FIDO bashing. I have lots of money tied up in FIOD company plans. When I retire and consolidate, it will likely be with VG.

Building a portfolio is like building a house. Mistakes you make early on will create problems down the road.

Luckily I got my mistakes out early: chasing active funds, buying a variable annuity (from VG, but still sub optimal)
Yes, there are some risks. In fairness to Fidelity they have made major reductions in their ERs for the bulk of their popular funds over the last few years. I don't see them bumping them back up, I just see that as something they can't get away with unless everyone is doing it.

I hold only tax-advantaged accounts in Fidelity. I use Vanguard for the taxable accounts. I've had Fidelity for over 30 years and can't say I have any complaints. I've thought about moving to VG for everything but I can't find a compelling reason, except one: at some point I may have to move to PAS model for the wife's benefit and VG is the only reasonably cost-effective choice. Aside from that I can't see a good reason to move.

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by jhfenton » Sun Jan 13, 2019 4:29 pm

Weizilla wrote:
Wed Dec 19, 2018 8:17 am
I noticed that FSKAX paid a higher dividend than FZROX, even taking into account the lower share price of FZROX.

FSKAX:
12/14/18 $1.199/share $73.28/reinvest price
4/11/18 $0.25668 $75.76
12/15/17 $1.07071 $76.25
4/12/17 $0.19518 $67.41

FZROX:
12/14/18 $0.053/share $9.12/reinvest price

Will FZROX eventually match FSKAX in dividends? If not, wouldn't FSKAX be better because of the dividend?
1. Dividends come out of the NAV of the fund. They are not a free lunch. To the extent they make any difference, dividends increase your taxes.
2. The dividends will even out over time. FZROX was a brand new fund.

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by UpperNwGuy » Sun Jan 13, 2019 4:39 pm

Weizilla wrote:
Wed Dec 19, 2018 8:17 am
I noticed that FSKAX paid a higher dividend than FZROX, even taking into account the lower share price of FZROX.

FSKAX:
12/14/18 $1.199/share $73.28/reinvest price
4/11/18 $0.25668 $75.76
12/15/17 $1.07071 $76.25
4/12/17 $0.19518 $67.41

FZROX:
12/14/18 $0.053/share $9.12/reinvest price

Will FZROX eventually match FSKAX in dividends? If not, wouldn't FSKAX be better because of the dividend?
Exactly the opposite! Dividends don’t increase your total return, but they add taxable income.

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by nisiprius » Sun Jan 13, 2019 6:12 pm

heybro wrote:
Sat Nov 17, 2018 1:53 am
...
IF you already own Fidelity Total Market Index Fund, which has an expense ratio of .015, should you switch to the Fidelity Zero Total Market fund?...
It is my honest opinion, and my prediction, is that five years from now, if you use Morningstar to chart and compare the growth of

a) the Fidelity Total Market Index Fund, FSKAX, ER 0.015%,
b) the Fidelity ZERO Total Market Index Fund, ER 0.00%, and
c) The Vanguard Total Stock Market Index Fund, Admiral shares, VTSAX, ER 0.04%

that
  • there will be no visible white space between the lines;
  • the difference in final value, after five years, starting at $10,000, will be less than fifty bucks.
  • and, going out on a limb here, the order of the final values will not be FZROX < FSKAX < VTSAX. I do not mean that Fidelity sucks or that Vanguard is better, not at all. I just mean that the differences in ER are so tiny that tiny variations in the indexes or sampling could be larger, and there is no guarantee that the lower ER funds will outperform by the amount implied by their ERs. I'm not predicting what the order will be, I'm just saying that I think it's close to random and there are five other orders they could be in.
In virtually identical index funds with tiny expense ratios, the order of expense ratios doesn't necessarily predict which fund makes the most money. My reason for saying this is simple: for the last five years FSKAX has had an expense ration less than or equal to VTSAX's, yet a $10,000 investment in VTSAX earned $3.21 more. I am not, not, not saying Vanguard will always beat Fidelity. I'm just saying FZROX is not guaranteed to beat VTSAX.

Image
Image

In this case, FSKAX tracks the Dow Jones U.S. Total Stock Market Index;

FZROX tracks the "Fidelity U.S. Total Investable Market Index, which is a float-adjusted market capitalization-weighted index designed to reflect the performance of the U.S. equity market, including large-, mid- and small-capitalization stocks. Using statistical sampling techniques..."

VTSAX tracks the "CRSP US Total Market Index, which represents approximately 100% of the investable U.S. stock market and includes large-, mid-, small-, and micro-cap stocks regularly traded on the New York Stock Exchange and Nasdaq. The fund invests by sampling the index..."

The total US market is pretty well defined, and the style maps are reassuringly identical, so no issues about with/without small caps:

Image

If I were in the same situation, and I already owned FSKAX, my instincts would be that the difference is negligible, and there is never any reason to be the first kid on the block in a new fund, so I'd "stay the course" in FSKAX.
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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by MisterMister » Sun Jan 13, 2019 9:48 pm

nisiprius wrote:
Sun Jan 13, 2019 6:12 pm
If I were in the same situation, and I already owned FSKAX, my instincts would be that the difference is negligible, and there is never any reason to be the first kid on the block in a new fund, so I'd "stay the course" in FSKAX.
Hard to argue with this logic, though I for one have already bought a fair bit of FZROX. I don't any ANY FSKAX, but do own FXAIX. Given a simple three-fund lazy portfolio, I thought I'd consider these three, plus the big total index ETFs (VTI, ITOT), to be sort of interchangeable--that the primary index fund could be comprised of any of these, or any combination of these. Of course that's also suggested by the 3-fund portfolio wiki.

I am considering now whether to exchange FZROX for FSKAX. My hunch is that both funds will be around for a very long time. I certainly can't imagine Fidelity forcing, or even suggesting clients go from FSKAX to FZROX. And as you said, the difference will probably be negligible over the long haul. But the lack of portability and newness of FZROX might make the tiny FSKAX ER justifiable.

Somehow I really feel less comfortable with the ETFs than FZROX. That's just because they are ETFs, but I can't present any actual evidence that would justify my feeling that way. It's probably just that traditional mutual funds have just been around for so much longer.

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by Northern Flicker » Sun Jan 13, 2019 9:53 pm

lostdog wrote:
Sat Nov 17, 2018 9:07 am
Will there ever be a "lower free" response from Vanguard?
How do you know vtsax is not cheaper today? I’m not say it is or isn’t, but how would you know?
Risk is not a guarantor of return.

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by ninjab » Mon Jan 14, 2019 1:35 am

MisterMister wrote:
Sun Jan 13, 2019 9:48 pm


I am considering now whether to exchange FZROX for FSKAX. My hunch is that both funds will be around for a very long time. I certainly can't imagine Fidelity forcing, or even suggesting clients go from FSKAX to FZROX. And as you said, the difference will probably be negligible over the long haul. But the lack of portability and newness of FZROX might make the tiny FSKAX ER justifiable.
Is FZROX less portable than FSKAX? Can both of these mutual funds be held at most other brokerages if you end up transfering in kind if you leave Fidelity down the road?

I'm currently using FZROX and FSKAX as TLH partners in my taxable account, considered switching back to ETFs for the portability factor but think I will stick with the Fidelity mutual funds especially if you could txf them somewhere else if needed. For ETFs at Fidelity there is ITOT for free but not sure what TLH partner would be ideal, VTI could be used but is not free

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by TropikThunder » Mon Jan 14, 2019 2:37 am

Plz wrote:
Sat Nov 17, 2018 3:52 am
Could a risk be that they have zero fees now but may end up raising the fee later?
I don’t think anyone on here can envision Vanguard raising the ER on a broad market index fund. I also don’t think anyone on here would be surprised if Fidelity did so.

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by SlowMovingInvestor » Mon Jan 14, 2019 7:56 am

TropikThunder wrote:
Mon Jan 14, 2019 2:37 am
Plz wrote:
Sat Nov 17, 2018 3:52 am
Could a risk be that they have zero fees now but may end up raising the fee later?
I don’t think anyone on here can envision Vanguard raising the ER on a broad market index fund. I also don’t think anyone on here would be surprised if Fidelity did so.
Can Fidelity really raise the fee without a shareholder vote ? Under normal circumstances, a shareholder vote is not required for a fee increase, but these funds are labelled Zero Funds, so it could be argued that adding an expense ratio to the fund is a fundamental change to the character of the Fund -- and that requires a shareholder vote ..

I'm not sure if the argument I just mentioned is valid, but it doesn't seem implausible to me. We know the SEC wants names to reflect the nature of the fund.

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by dogagility » Mon Jan 14, 2019 8:26 am

NYCguy wrote:
Sun Jan 13, 2019 4:06 pm
My 2 cents is the zero funds are a gimmick to stay away from. Ask yourself why FIDO does not offer to exchange existing FIDO customers from the same higher ER FIDO funds to the new zeros? Blackrock has had similar BS gimmicks too.
NYCguy wrote:
Sun Jan 13, 2019 4:06 pm
I am not FIDO bashing.
Sure you are.

To each their own, I like Vanguard and FIDO. I also think I'm sufficiently aware of the Boglehead method to not care about the for-profit strawman so often used to bash FIDO.
"The stock market is a device for transferring money from the impatient to the patient" -- Warren Buffett

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by MisterMister » Mon Jan 14, 2019 8:32 am

ninjab wrote:
Mon Jan 14, 2019 1:35 am
MisterMister wrote:
Sun Jan 13, 2019 9:48 pm


I am considering now whether to exchange FZROX for FSKAX. My hunch is that both funds will be around for a very long time. I certainly can't imagine Fidelity forcing, or even suggesting clients go from FSKAX to FZROX. And as you said, the difference will probably be negligible over the long haul. But the lack of portability and newness of FZROX might make the tiny FSKAX ER justifiable.
Is FZROX less portable than FSKAX? Can both of these mutual funds be held at most other brokerages if you end up transfering in kind if you leave Fidelity down the road?

I'm currently using FZROX and FSKAX as TLH partners in my taxable account, considered switching back to ETFs for the portability factor but think I will stick with the Fidelity mutual funds especially if you could txf them somewhere else if needed. For ETFs at Fidelity there is ITOT for free but not sure what TLH partner would be ideal, VTI could be used but is not free
FZROX is not portable at all. It can only be held at Fidelity, the same as all the zero funds. For FZROX, an exchange to FSKAX can be done before the move (FSKAX is portable), but that would presumably result in liquidating the funds with the related tax charges in a taxable account.

EDIT: Fidelity is of course not alone in non-portability of some funds. Right now Vanguard Admiral funds cannot be held at Fidelity, for example.

EDIT, 1/20/2019: At least some, if not all, of the Vanguard Admiral funds are available at Fidelity now, and some other brokerage firms as well.
Some firms are offering them without transaction fees (Fidelity does charge a fee, though). See viewtopic.php?t=264566.
Last edited by MisterMister on Sun Jan 20, 2019 12:47 pm, edited 2 times in total.

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by stan1 » Mon Jan 14, 2019 8:37 am

MisterMister wrote:
Mon Jan 14, 2019 8:32 am
ninjab wrote:
Mon Jan 14, 2019 1:35 am
MisterMister wrote:
Sun Jan 13, 2019 9:48 pm


I am considering now whether to exchange FZROX for FSKAX. My hunch is that both funds will be around for a very long time. I certainly can't imagine Fidelity forcing, or even suggesting clients go from FSKAX to FZROX. And as you said, the difference will probably be negligible over the long haul. But the lack of portability and newness of FZROX might make the tiny FSKAX ER justifiable.
Is FZROX less portable than FSKAX? Can both of these mutual funds be held at most other brokerages if you end up transfering in kind if you leave Fidelity down the road?

I'm currently using FZROX and FSKAX as TLH partners in my taxable account, considered switching back to ETFs for the portability factor but think I will stick with the Fidelity mutual funds especially if you could txf them somewhere else if needed. For ETFs at Fidelity there is ITOT for free but not sure what TLH partner would be ideal, VTI could be used but is not free
FZROX is not portable at all. It can only be held at Fidelity, the same as all the zero funds. For FZROX, a trade to FSKAX can be done before the move (FSKAX is portable), but that would presumably result in liquidating the funds with the related tax charges in a taxable account.
At this point I would use ETFs like VTI, SCHB, and ITOT in a taxable account. Those are portable if terms at any brokerage change and you want to move somewhere else. You only pay commissions if you buy more and when you eventually sell (if ever). It's possible if you actively tax loss harvest and switch brokerages to take advantage of bonuses or because terms like free trading become unfavorable you'll end up holding all three with various lots.

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by MisterMister » Mon Jan 14, 2019 8:49 am

stan1 wrote:
Mon Jan 14, 2019 8:37 am
MisterMister wrote:
Mon Jan 14, 2019 8:32 am
ninjab wrote:
Mon Jan 14, 2019 1:35 am
MisterMister wrote:
Sun Jan 13, 2019 9:48 pm


I am considering now whether to exchange FZROX for FSKAX. My hunch is that both funds will be around for a very long time. I certainly can't imagine Fidelity forcing, or even suggesting clients go from FSKAX to FZROX. And as you said, the difference will probably be negligible over the long haul. But the lack of portability and newness of FZROX might make the tiny FSKAX ER justifiable.
Is FZROX less portable than FSKAX? Can both of these mutual funds be held at most other brokerages if you end up transfering in kind if you leave Fidelity down the road?

I'm currently using FZROX and FSKAX as TLH partners in my taxable account, considered switching back to ETFs for the portability factor but think I will stick with the Fidelity mutual funds especially if you could txf them somewhere else if needed. For ETFs at Fidelity there is ITOT for free but not sure what TLH partner would be ideal, VTI could be used but is not free
FZROX is not portable at all. It can only be held at Fidelity, the same as all the zero funds. For FZROX, a trade to FSKAX can be done before the move (FSKAX is portable), but that would presumably result in liquidating the funds with the related tax charges in a taxable account.
At this point I would use ETFs like VTI, SCHB, and ITOT in a taxable account. Those are portable if terms at any brokerage change and you want to move somewhere else. You only pay commissions if you buy more and when you eventually sell (if ever). It's possible if you actively tax loss harvest and switch brokerages to take advantage of bonuses or because terms like free trading become unfavorable you'll end up holding all three with various lots.
Right. For mutual funds being portable means no sales charge or tax impact if you move. But if you then want to buy more, then you will pay the fee. For Fidelity, there is no charge to buy ITOT. At Fidelity there is a $4.95 trade fee to buy VTI, and a $75 fee to buy non-Fidelity mutual funds. Vanguard has many, many trade-free ETFs while Fidelity has only iShares. And Vanguard charges only $20 for non-Vanguard mutual purchases.

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by utlax20 » Fri Jan 18, 2019 6:28 pm

My question is what would you use in a HSA account? I currently have opened a HSA account with Fidelity but don't know which funds to pick, i am weighing between FZROX and FSKAX. I do want to be able to move it to vanguard if they offer HSA accounts down the road.

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by whodidntante » Fri Jan 18, 2019 6:34 pm

utlax20 wrote:
Fri Jan 18, 2019 6:28 pm
My question is what would you use in a HSA account? I currently have opened a HSA account with Fidelity but don't know which funds to pick, i am weighing between FZROX and FSKAX. I do want to be able to move it to vanguard if they offer HSA accounts down the road.
Use whatever you like, but I think the ZERO funds are going to be just fine. FYI, the Freedom Index funds are available for 0.08% ER in an HSA, if you favor simplicity and call that simplicity.

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by Gloucester Road » Fri Jan 18, 2019 9:28 pm

FSKAX has been around in some form since 1997 and has a proven track record. The expense ratio difference is negligible. I could see using the two funds as tax loss harvesting partners but don't see a compelling reason to move otherwise.

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by Pigeye Brewster » Fri Jan 18, 2019 11:09 pm

MisterMister wrote:
Mon Jan 14, 2019 8:32 am
Right now Vanguard Admiral funds cannot be held at Fidelity, for example.
But many Vanguard Admiral funds can be converted into their ETF equivalents (with no tax consequences since they are simply a different share class of the same fund). And the ETFs are portable and can be held at Fidelity.

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by justsomeguy2018 » Fri Jan 18, 2019 11:22 pm

jhfenton wrote:
Sun Jan 13, 2019 4:29 pm
Weizilla wrote:
Wed Dec 19, 2018 8:17 am
I noticed that FSKAX paid a higher dividend than FZROX, even taking into account the lower share price of FZROX.

FSKAX:
12/14/18 $1.199/share $73.28/reinvest price
4/11/18 $0.25668 $75.76
12/15/17 $1.07071 $76.25
4/12/17 $0.19518 $67.41

FZROX:
12/14/18 $0.053/share $9.12/reinvest price

Will FZROX eventually match FSKAX in dividends? If not, wouldn't FSKAX be better because of the dividend?
1. Dividends come out of the NAV of the fund. They are not a free lunch. To the extent they make any difference, dividends increase your taxes.
2. The dividends will even out over time. FZROX was a brand new fund.
Can you help me understand point #1 above? Is that true for only mutual funds, or also ETFs?

If a Mutual Fund or ETF is showing a 2.14% Yield (Dividend), are you saying that isn't a real dividend return of your money? E.g. I buy 1 share of an ETF valued at $100 NAV....dividends of 2.14% go out, are you saying the NAV drops to $97.86, so as a result, you really didn't get a 2.14% return in dividends, because now the underlying value of the investment (NAV) also dropped 2.14%?

If that is the case, I wonder if ETFs/Mutual Funds are worth it over individual stock diversification where you get an actual dividend payout.

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by MisterMister » Fri Jan 18, 2019 11:46 pm

utlax20 wrote:
Fri Jan 18, 2019 6:28 pm
My question is what would you use in a HSA account? I currently have opened a HSA account with Fidelity but don't know which funds to pick, i am weighing between FZROX and FSKAX. I do want to be able to move it to vanguard if they offer HSA accounts down the road.
I personally wouldn't use either in an HSA because both can fluctuate significantly in value. If you are forced to withdraw a large chunk of money at the wrong time you can lock in substantial losses. In fact I personally wouldn't use an HSA for investing at all, meaning the funds to use in an HSA should be very safe, very stable funds. These are unfortunately also the funds which will not produce much growth.

That's the simple answer but the complicating factors are how much money you intend to put there, how much you may need to draw out, and the nature of other investments you may have.

In general (at least in the Boglehead way), funds like FZROX and FSKAX are for long-term investing where you seldom, if ever draw funds out.

BTW, FZROX and the Zero funds are not portable outside of Fidelity, as I mentioned before in this thread. FSKAX is a very close match except it has expense charges, but they are very small.

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by MisterMister » Sat Jan 19, 2019 12:02 am

Pigeye Brewster wrote:
Fri Jan 18, 2019 11:09 pm
MisterMister wrote:
Mon Jan 14, 2019 8:32 am
Right now Vanguard Admiral funds cannot be held at Fidelity, for example.
But many Vanguard Admiral funds can be converted into their ETF equivalents (with no tax consequences since they are simply a different share class of the same fund). And the ETFs are portable and can be held at Fidelity.
Good to know.

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by Ostentatious » Sat Jan 19, 2019 8:53 am

MisterMister wrote:
Fri Jan 18, 2019 11:46 pm
utlax20 wrote:
Fri Jan 18, 2019 6:28 pm
My question is what would you use in a HSA account? I currently have opened a HSA account with Fidelity but don't know which funds to pick, i am weighing between FZROX and FSKAX. I do want to be able to move it to vanguard if they offer HSA accounts down the road.
I personally wouldn't use either in an HSA because both can fluctuate significantly in value. If you are forced to withdraw a large chunk of money at the wrong time you can lock in substantial losses. In fact I personally wouldn't use an HSA for investing at all, meaning the funds to use in an HSA should be very safe, very stable funds. These are unfortunately also the funds which will not produce much growth.

That's the simple answer but the complicating factors are how much money you intend to put there, how much you may need to draw out, and the nature of other investments you may have.

In general (at least in the Boglehead way), funds like FZROX and FSKAX are for long-term investing where you seldom, if ever draw funds out.

BTW, FZROX and the Zero funds are not portable outside of Fidelity, as I mentioned before in this thread. FSKAX is a very close match except it has expense charges, but they are very small.
The point of investing your HSA is for the long term. Many people pay all their medical expenses out of pocket so that the HSA can remain invested for the long term up to the age of retirement when I believe it can be used as an IRA, if I’m not mistaken. For most people, if there is an emergency medical expense, they will fall on their emergency fund rather than the HSA. Also, for most HSA’s, it is required for you to keep some amount of money in cash to cover immediate medical expenses. My point is that, it should be good to invest in any of those funds in such circumstances for most HSA holders.

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by nedsaid » Sat Jan 19, 2019 9:14 am

SlowMovingInvestor wrote:
Mon Jan 14, 2019 7:56 am
TropikThunder wrote:
Mon Jan 14, 2019 2:37 am
Plz wrote:
Sat Nov 17, 2018 3:52 am
Could a risk be that they have zero fees now but may end up raising the fee later?
I don’t think anyone on here can envision Vanguard raising the ER on a broad market index fund. I also don’t think anyone on here would be surprised if Fidelity did so.
Can Fidelity really raise the fee without a shareholder vote ? Under normal circumstances, a shareholder vote is not required for a fee increase, but these funds are labelled Zero Funds, so it could be argued that adding an expense ratio to the fund is a fundamental change to the character of the Fund -- and that requires a shareholder vote ..

I'm not sure if the argument I just mentioned is valid, but it doesn't seem implausible to me. We know the SEC wants names to reflect the nature of the fund.
I have owned mutual funds for a long time. Pretty much, I can only vote on the Fund Directors and changes to the fund strategy as described in the prospectus. Fees are raised or lowered without my input, I can only vote with my feet.
A fool and his money are good for business.

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by nedsaid » Sat Jan 19, 2019 9:18 am

Plz wrote:
Sat Nov 17, 2018 3:52 am
Could a risk be that they have zero fees now but may end up raising the fee later?
This is one reason I did not switch to the Fidelity Zero Funds. In the real world, really good deals just don't last. This seems to good to be true and thus I would shy away.
A fool and his money are good for business.

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by jhfenton » Sat Jan 19, 2019 9:29 am

justsomeguy2018 wrote:
Fri Jan 18, 2019 11:22 pm
Can you help me understand point #1 above? Is that true for only mutual funds, or also ETFs?

If a Mutual Fund or ETF is showing a 2.14% Yield (Dividend), are you saying that isn't a real dividend return of your money? E.g. I buy 1 share of an ETF valued at $100 NAV....dividends of 2.14% go out, are you saying the NAV drops to $97.86, so as a result, you really didn't get a 2.14% return in dividends, because now the underlying value of the investment (NAV) also dropped 2.14%?

If that is the case, I wonder if ETFs/Mutual Funds are worth it over individual stock diversification where you get an actual dividend payout.
It is true for mutual funds and ETFs, AND it is true for stocks. Dividends come out the price of the stock on the day the stock trades ex-dividend. How could they not? On Monday, you are willing to pay $100 for a share of Stock X with the expectation that you will receive a $2 dividend in two weeks. On Tuesday, the stock trades ex-dividend, meaning that you will not receive the dividend in two weeks. There has been no news on Company X and the market has been complete flat. What should you be willing to pay today for a share of Stock X? Logically it should be something close to $98. It's the same company and the same market, you simply aren't going to receive the $2 that you would have if you had bought the stock yesterday.

The drop can easily get lost in the noise of daily market fluctuations for a company like Apple. If a company pays a 2% annual dividend quarterly, you're only looking at a 0.5% quarterly dividend, far less than the market movements on many days. You can see the drop quite readily on high-dividend stocks.

Equity mutual funds and ETFs are just collections of stocks, some of which pay dividends, some of which don't. There is no difference whatsoever between owning the 505 securities in the S&P 500 yourself and owning them through a mutual fund or ETF. (Except that you can't really invest $10,000 or $100,000 in 505 stocks at their market-cap weights yourself.)

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by jhfenton » Sat Jan 19, 2019 9:31 am

nedsaid wrote:
Sat Jan 19, 2019 9:18 am
Plz wrote:
Sat Nov 17, 2018 3:52 am
Could a risk be that they have zero fees now but may end up raising the fee later?
This is one reason I did not switch to the Fidelity Zero Funds. In the real world, really good deals just don't last. This seems to good to be true and thus I would shy away.
To me that's just another reason not to (1) buy them in taxable or (2) move heaven and earth and my investment accounts from Vanguard to Fidelity to buy the ZERO funds. If I were already at Fidelity and held a similar fund in an IRA, Roth, or HSA, I would switch at this point. (I would not have switched in the first month.)

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by SlowMovingInvestor » Sat Jan 19, 2019 12:29 pm

nedsaid wrote:
Sat Jan 19, 2019 9:14 am
SlowMovingInvestor wrote:
Mon Jan 14, 2019 7:56 am

Can Fidelity really raise the fee without a shareholder vote ? Under normal circumstances, a shareholder vote is not required for a fee increase, but these funds are labelled Zero Funds, so it could be argued that adding an expense ratio to the fund is a fundamental change to the character of the Fund -- and that requires a shareholder vote ..

I'm not sure if the argument I just mentioned is valid, but it doesn't seem implausible to me. We know the SEC wants names to reflect the nature of the fund.
I have owned mutual funds for a long time. Pretty much, I can only vote on the Fund Directors and changes to the fund strategy as described in the prospectus. Fees are raised or lowered without my input, I can only vote with my feet.
Under normal circumstances, yes. But these are called Zero Funds. I think the SEC won't let a fund that invests in corporate bonds call itself a Government Bond fund even if the prospectus mentions that it'll invest in corporate bonds . Maybe not SEC, but FTC for false advertising if a fund calls itself Zero, but becomes non zero expense ratio ?

I am not saying I buy this argument myself, but I don't think its frivolous either.

ADDED: Maybe someone with some legal expertise could comment on my argument ?
Last edited by SlowMovingInvestor on Sun Jan 20, 2019 9:33 am, edited 1 time in total.

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by tj » Sat Jan 19, 2019 8:52 pm

nedsaid wrote:
Sat Jan 19, 2019 9:18 am
Plz wrote:
Sat Nov 17, 2018 3:52 am
Could a risk be that they have zero fees now but may end up raising the fee later?
This is one reason I did not switch to the Fidelity Zero Funds. In the real world, really good deals just don't last. This seems to good to be true and thus I would shy away.
In a tax advantaged account, you just sell. Don't buy it in a taxable account.

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by Global100 » Sat Jan 19, 2019 10:16 pm

ninjab wrote:
Mon Jan 14, 2019 1:35 am
I'm currently using FZROX and FSKAX as TLH partners in my taxable account,
Gloucester Road wrote:
Fri Jan 18, 2019 9:28 pm
FSKAX has been around in some form since 1997 and has a proven track record. The expense ratio difference is negligible. I could see using the two funds as tax loss harvesting partners but don't see a compelling reason to move otherwise.
Tax loss harvesting between FSKAX and FZROX should be self-reported as a wash sale due to both being substantially identical funds of the same corporation (IRS Publication 550).

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by Nate79 » Sat Jan 19, 2019 10:34 pm

Global100 wrote:
Sat Jan 19, 2019 10:16 pm
ninjab wrote:
Mon Jan 14, 2019 1:35 am
I'm currently using FZROX and FSKAX as TLH partners in my taxable account,
Gloucester Road wrote:
Fri Jan 18, 2019 9:28 pm
FSKAX has been around in some form since 1997 and has a proven track record. The expense ratio difference is negligible. I could see using the two funds as tax loss harvesting partners but don't see a compelling reason to move otherwise.
Tax loss harvesting between FSKAX and FZROX should be self-reported as a wash sale due to both being substantially identical funds of the same corporation (IRS Publication 550).
I disagree. These funds do not track the same index and therefore I would not consider them substantially identical funds.

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by Global100 » Sat Jan 19, 2019 11:08 pm

VTSAX and FSKAX both follow different yet very similar indexes, yet are to be avoided as TLH partners. The same is true for FZROX and FSKAX.

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Re: Is Fidelity Zero Fund BETTER than Fidelity Expense Ratio Fund

Post by ninjab » Sun Jan 20, 2019 12:50 am

Global100 wrote:
Sat Jan 19, 2019 11:08 pm
VTSAX and FSKAX both follow different yet very similar indexes, yet are to be avoided as TLH partners. The same is true for FZROX and FSKAX.
We can agree to disagree on this, it seems the rule is not totally clear and has not really been tested, but many would consider funds following different indexes, even if extremely similar, to not count as a wash.

There is white, black, and gray in the tax code: 1) TLH with VTSAX/FSKAX, VTI/ITOT, FZROX/FSKAX are all in the gray zone, 2) TLH Total US for S&P 500 funds are White (clearly allowed), 3) TLH VTSAX for VTI is Black (clearly not allowed).

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