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

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

Post by JustinR » Thu Aug 09, 2018 5:48 am

So after total costs (expense ratios and tax efficiency both considered), which comes out ahead: the Fidelity ZERO funds or their Vanguard equivalents?

In other words, which costs less in a taxable account?

Spirit Rider
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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 » Thu Aug 09, 2018 8:42 am

JustinR wrote:
Thu Aug 09, 2018 5:48 am
So after total costs (expense ratios and tax efficiency both considered), which comes out ahead: the Fidelity ZERO funds or their Vanguard equivalents?

In other words, which costs less in a taxable account?
Factoring net returns:
1. In tax advantaged accounts it is too close to call. Only time will tell.
2. In taxable accounts, Vanguard will continue to have the advantage by the other fund's increased tax drag of captital gains distributions until their patent exires.

Broken Man 1999
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by Broken Man 1999 » Thu Aug 09, 2018 1:43 pm

JustinR wrote:
Thu Aug 09, 2018 5:48 am
So after total costs (expense ratios and tax efficiency both considered), which comes out ahead: the Fidelity ZERO funds or their Vanguard equivalents?

In other words, which costs less in a taxable account?
Even with those two components known, there is still the matter of how the funds track their index. Fidelity is using their own index. There are a couple of things that can't be determined at this time.

1. How well will Fidelity track their index?
2. How well does Fidelity's index stand up to the indexes used by other fund providers?

The real goal is to make money. Suppose Fidelity tracks their index perfectly. Great, right? A good thing, we like to see funds tracking their index. But suppose at the end of day the indexes used by other fund families have a better return? Very possible. Also possible the Fidelity funds using their index will have a better return. At this time we just don't know.

Only after some period of time will investors be able to identify which funds have the greatest returns.

ERs are important. That is how we invest.
Tax Efficiency is important. That is how we invest.
Returns are important. That is WHY we invest. :moneybag

We only have investments at Vanguard. I really really really like the idea of factor investing. I am glad to see Vanguard rolling out some factor ETFs. But, as much as I am satisfied with Vanguard, I will not invest in their factor ETFs because they have no history. With all the financial investment opportunities available, I will not invest in anything that has no history. Right now there are factor ETFs available that have history. Vanguard's factor ETFs do not, yet.

So, yeah, investors should definitely consider ERs. And, investors should definitely consider tax efficiency.

But, investors should not ignore the elephant in the room : Returns!

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

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

Post by duplin county » Thu Aug 09, 2018 5:37 pm

I think the big issue is that Fidelity is now requiring no minimum amount to invest while Vanguard
requires $3000 to invest and $10000 for admiral shares. Fidelity's shares will all be equal to Vanguard's admiral
shares in expense ratio.

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 » Thu Aug 09, 2018 8:48 pm

duplin county wrote:
Thu Aug 09, 2018 5:37 pm
I think the big issue is that Fidelity is now requiring no minimum amount to invest while Vanguard
requires $3000 to invest and $10000 for admiral shares. Fidelity's shares will all be equal to Vanguard's admiral
shares in expense ratio.
Removing minimums is one of the more significant changes that Fidelity recently made and it is a change that is fantastic for the smallest investors, but the Fidelity index funds (except for the two zero ER funds) will not be equal to the Admiral Shares class in expense ratio.

The Fidelity index funds (that are not 0.00% ER) will have a lower ER than Admiral Shares, not an equal one. In fact, the ERs will be lower than Vanguard's Institutional Plus share class for which the Vanguard minimum balance is $100,000,000.

spidercharm
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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 » Thu Aug 09, 2018 9:49 pm

passiveTiger wrote:
Thu Aug 09, 2018 8:48 pm
duplin county wrote:
Thu Aug 09, 2018 5:37 pm
I think the big issue is that Fidelity is now requiring no minimum amount to invest while Vanguard
requires $3000 to invest and $10000 for admiral shares. Fidelity's shares will all be equal to Vanguard's admiral
shares in expense ratio.
Removing minimums is one of the more significant changes that Fidelity recently made and it is a change that is fantastic for the smallest investors, but the Fidelity index funds (except for the two zero ER funds) will not be equal to the Admiral Shares class in expense ratio.

The Fidelity index funds (that are not 0.00% ER) will have a lower ER than Admiral Shares, not an equal one. In fact, the ERs will be lower than Vanguard's Institutional Plus share class for which the Vanguard minimum balance is $100,000,000.
When people talk about vanguard ownership model and the fact that they operate at cost (as an excuse to justify higher ER), it's not just about trading fees (which have come down significantly in the industry overall, so they should be insignificant portion of ER). How do we know if they are operating efficiently in terms of other costs including employee/headcount, infrastructure, technology and other operating expenses? How do these other costs get divided (I am assuming as overhead)? Does the ownership model and relative success over the years provide lack of incentive to optimize other costs?

I am not trying to say any of it is a problem. I love vanguard and have most of my assets with them. Also, I sincerely appreciate what vanguard has done leading the industry and we all have benefited from it. I want them to improve, that's all. And, they should continue to lead the way (or at least not fall behind so much in setting trends). Again, I am not comparing with new Fido zero cost funds, but rather more mature and existing institutional fund counterparts from fidelity and schwab.

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

Post by bost » Thu Aug 09, 2018 11:34 pm

Interesting point in the prospectus for the ZERO funds:
The fund may impose a purchase maximum on shareholders that would limit the ability of shareholders to purchase fund shares if their total purchases or account balance exceeds a dollar threshold.

Spirit Rider
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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 » Fri Aug 10, 2018 7:55 am

bost wrote:
Thu Aug 09, 2018 11:34 pm
Interesting point in the prospectus for the ZERO funds:
The fund may impose a purchase maximum on shareholders that would limit the ability of shareholders to purchase fund shares if their total purchases or account balance exceeds a dollar threshold.
It is common for mutual funds to reserve the right to limit purchases and especially sales. There is typically an initial ureported limit.

For example, you submit a $1M sale order. The mutual fund company may come back and say your order is limited to $500K pending market conditions. Then after all orders are received. They may limit some or all of the remainder depending on the quantity of total outflows, their cash position, etc... r. If your order is contrary to the flow, your full order is likely to be filled.

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

Post by jhfenton » Fri Aug 10, 2018 8:12 am

Spirit Rider wrote:
Fri Aug 10, 2018 7:55 am
bost wrote:
Thu Aug 09, 2018 11:34 pm
Interesting point in the prospectus for the ZERO funds:
The fund may impose a purchase maximum on shareholders that would limit the ability of shareholders to purchase fund shares if their total purchases or account balance exceeds a dollar threshold.
It is common for mutual funds to reserve the right to limit purchases and especially sales. There is typically an initial ureported limit.

For example, you submit a $1M sale order. The mutual fund company may come back and say your order is limited to $500K pending market conditions. Then after all orders are received. They may limit some or all of the remainder depending on the quantity of total outflows, their cash position, etc... r. If your order is contrary to the flow, your full order is likely to be filled.
+1 Vanguard has a Large Transaction Policy that allows them to limit buy or sell orders above a stated threshold. The thresholds appear to range from $25,000 for Target Retirement 2065 Institutional to $75,000,000 for the ST Inv-Grade funds. The big stock funds (500 Index, Total Stock) appear to be $10,000,000.

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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 » Fri Aug 10, 2018 8:17 am

Spirit Rider wrote:
Thu Aug 09, 2018 8:42 am
JustinR wrote:
Thu Aug 09, 2018 5:48 am
So after total costs (expense ratios and tax efficiency both considered), which comes out ahead: the Fidelity ZERO funds or their Vanguard equivalents?

In other words, which costs less in a taxable account?
Factoring net returns:
1. In tax advantaged accounts it is too close to call. Only time will tell.
2. In taxable accounts, Vanguard will continue to have the advantage by the other fund's increased tax drag of captital gains distributions until their patent exires.
Can you provide more information or a reference on this patent for tax-drag-reduction-magic (or whatever it is) that gives Vanguard an edge in taxable accounts? To Lay People a 0% ER sure sounds better than anything else.


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

Post by jhfenton » Fri Aug 10, 2018 8:28 am

GoldStar wrote:
Fri Aug 10, 2018 8:17 am
Can you provide more information or a reference on this patent for tax-drag-reduction-magic (or whatever it is) that gives Vanguard an edge in taxable accounts? To Lay People a 0% ER sure sounds better than anything else.
It's been written about extensively in this thread and a few others recently. To summarize, all ETFs have a mechanism to offload low-basis shares in-kind to avoid selling them inside the fund and realizing capital gains that have to be distributed to shareholders. Mutual funds, by themselves, do not have that mechanism. Index funds can usually manage to minimize distributions, but they cannot always avoid them entirely if index changes and cash flows force them to sell shares at a gain that they aren't able to offset by selling other shares at a loss.

So in most cases, ETFs are better choices in taxable accounts than mutual funds. No one disputes that. It's just the reality of the legal and tax regime in the U.S.

Vanguard, however, has a patent (apparently expiring March 2021) that allows Vanguard to create an ETF as a share class of a mutual fund and pool investments with that mutual fund (e.g. VOO and VFIAX). The pooled investments allow both the index mutual fund and the ETF to offload the low-basis shares through the ETF and avoid capital gains distributions. (They also allow you to convert tax-free from the mutual fund to the ETF.)

So to summarize, in a taxable account you are probably better off with ITOT (iShares Total Market) or SCHB (Schwab Total Market) at 3 bp or VTI/VTSAX (Vanguard Total Stock ETF or Admiral Shares) at 4 bp than Fidelity ZERO Total Market at 0 bp. In the long run, the tax advantages of the former would outweigh the tiny expense advantage of the latter. It has nothing to do with Vanguard homerism.

Generator515
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by Generator515 » Fri Aug 10, 2018 10:04 am

passiveTiger wrote:
Thu Aug 09, 2018 8:48 pm
duplin county wrote:
Thu Aug 09, 2018 5:37 pm
I think the big issue is that Fidelity is now requiring no minimum amount to invest while Vanguard
requires $3000 to invest and $10000 for admiral shares. Fidelity's shares will all be equal to Vanguard's admiral
shares in expense ratio.
Removing minimums is one of the more significant changes that Fidelity recently made and it is a change that is fantastic for the smallest investors, but the Fidelity index funds (except for the two zero ER funds) will not be equal to the Admiral Shares class in expense ratio.

The Fidelity index funds (that are not 0.00% ER) will have a lower ER than Admiral Shares, not an equal one. In fact, the ERs will be lower than Vanguard's Institutional Plus share class for which the Vanguard minimum balance is $100,000,000.
You are right. The Fidelity funds will be lower. Total market for example at Fidelity will be 0.015% while vanguard admiral is 0.04%

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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 » Fri Aug 10, 2018 11:03 am

jhfenton wrote:
Fri Aug 10, 2018 8:28 am
GoldStar wrote:
Fri Aug 10, 2018 8:17 am
Can you provide more information or a reference on this patent for tax-drag-reduction-magic (or whatever it is) that gives Vanguard an edge in taxable accounts? To Lay People a 0% ER sure sounds better than anything else.
It's been written about extensively in this thread and a few others recently. To summarize, all ETFs have a mechanism to offload low-basis shares in-kind to avoid selling them inside the fund and realizing capital gains that have to be distributed to shareholders. Mutual funds, by themselves, do not have that mechanism. Index funds can usually manage to minimize distributions, but they cannot always avoid them entirely if index changes and cash flows force them to sell shares at a gain that they aren't able to offset by selling other shares at a loss.

So in most cases, ETFs are better choices in taxable accounts than mutual funds. No one disputes that. It's just the reality of the legal and tax regime in the U.S.

Vanguard, however, has a patent (apparently expiring March 2021) that allows Vanguard to create an ETF as a share class of a mutual fund and pool investments with that mutual fund (e.g. VOO and VFIAX). The pooled investments allow both the index mutual fund and the ETF to offload the low-basis shares through the ETF and avoid capital gains distributions. (They also allow you to convert tax-free from the mutual fund to the ETF.)

So to summarize, in a taxable account you are probably better off with ITOT (iShares Total Market) or SCHB (Schwab Total Market) at 3 bp or VTI/VTSAX (Vanguard Total Stock ETF or Admiral Shares) at 4 bp than Fidelity ZERO Total Market at 0 bp. In the long run, the tax advantages of the former would outweigh the tiny expense advantage of the latter. It has nothing to do with Vanguard homerism.
I see - thanks for this succinct explanation.
Has anyone done a study or written a paper on this with current funds that can be referenced? For example a comparison of tax-drag difference between Fidelity Total Market (FSTVX) and Vanguard Total Market (VTSAX) which illustrates an example of the statement "In the long run, the tax advantages of the former would outweigh the tiny expense advantage of the latter"

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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 » Fri Aug 10, 2018 11:29 am

GoldStar wrote:
Fri Aug 10, 2018 11:03 am
I see - thanks for this succinct explanation.
Has anyone done a study or written a paper on this with current funds that can be referenced? For example a comparison of tax-drag difference between Fidelity Total Market (FSTVX) and Vanguard Total Market (VTSAX) which illustrates an example of the statement "In the long run, the tax advantages of the former would outweigh the tiny expense advantage of the latter"
Someone mentioned that there was a spreadsheet to calculate the tax-drag. Anybody know about this?

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

Post by Austintatious » Sat Aug 11, 2018 8:38 am

Jonathan Clements' Saturday morning perspective on Fidelity's zero funds:

http://www.humbledollar.com/2018/08/low-fidelity/

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

Post by DaftInvestor » Sat Aug 11, 2018 9:04 am

Reading through this thread there are a lot of statements/conclusions about the tax-drag of these funds being higher than the loss of the ER (with some pointing to a patent as evidence that it must be so) - and yet no evidence or concrete data appears (at least that I can see) that these funds will not be more cost effective post-tax to Vanguard equivalents. I haven't even been able to find comparisons of current fidelity index funds (with lower ERs) having a higher tax drag than Vanguard equivalents. Perhaps it is just wishful thinking of those that want to remain Vanguard diehards. The one thing we do know is that the ERs are lower - the talk of tax-drag effects negating this seems nothing more than speculation.

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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 » Sat Aug 11, 2018 9:24 am

DaftInvestor wrote:
Sat Aug 11, 2018 9:04 am
Reading through this thread there are a lot of statements/conclusions about the tax-drag of these funds being higher than the loss of the ER (with some pointing to a patent as evidence that it must be so) - and yet no evidence or concrete data appears (at least that I can see) that these funds will not be more cost effective post-tax to Vanguard equivalents. I haven't even been able to find comparisons of current fidelity index funds (with lower ERs) having a higher tax drag than Vanguard equivalents. Perhaps it is just wishful thinking of those that want to remain Vanguard diehards. The one thing we do know is that the ERs are lower - the talk of tax-drag effects negating this seems nothing more than speculation.
Please see triceratop's spreadsheet for "2017 relative tax efficiency" for a comparison with current Fidelity funds. viewtopic.php?t=242137
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DaftInvestor
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by DaftInvestor » Sat Aug 11, 2018 9:40 am

ruralavalon wrote:
Sat Aug 11, 2018 9:24 am
DaftInvestor wrote:
Sat Aug 11, 2018 9:04 am
Reading through this thread there are a lot of statements/conclusions about the tax-drag of these funds being higher than the loss of the ER (with some pointing to a patent as evidence that it must be so) - and yet no evidence or concrete data appears (at least that I can see) that these funds will not be more cost effective post-tax to Vanguard equivalents. I haven't even been able to find comparisons of current fidelity index funds (with lower ERs) having a higher tax drag than Vanguard equivalents. Perhaps it is just wishful thinking of those that want to remain Vanguard diehards. The one thing we do know is that the ERs are lower - the talk of tax-drag effects negating this seems nothing more than speculation.
Please see triceratop's spreadsheet for "2017 relative tax efficiency" for a comparison with current Fidelity funds. viewtopic.php?t=242137
That's only a single year and FSTVX distributed more cap gains in 2017 (and the year prior) that it has historically. In fact, this year is already proving to be lower (the April distribution was only .016 compared to .104 in April 2017). Comparing the numbers of a single year (or even 2 or 3 years) to make a decision is flawed.

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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 » Sat Aug 11, 2018 10:20 am

DaftInvestor wrote:
Sat Aug 11, 2018 9:40 am
ruralavalon wrote:
Sat Aug 11, 2018 9:24 am
DaftInvestor wrote:
Sat Aug 11, 2018 9:04 am
Reading through this thread there are a lot of statements/conclusions about the tax-drag of these funds being higher than the loss of the ER (with some pointing to a patent as evidence that it must be so) - and yet no evidence or concrete data appears (at least that I can see) that these funds will not be more cost effective post-tax to Vanguard equivalents. I haven't even been able to find comparisons of current fidelity index funds (with lower ERs) having a higher tax drag than Vanguard equivalents. Perhaps it is just wishful thinking of those that want to remain Vanguard diehards. The one thing we do know is that the ERs are lower - the talk of tax-drag effects negating this seems nothing more than speculation.
Please see triceratop's spreadsheet for "2017 relative tax efficiency" for a comparison with current Fidelity funds. viewtopic.php?t=242137
That's only a single year and FSTVX distributed more cap gains in 2017 (and the year prior) that it has historically. In fact, this year is already proving to be lower (the April distribution was only .016 compared to .104 in April 2017). Comparing the numbers of a single year (or even 2 or 3 years) to make a decision is flawed.
I concur, I looked at his spreadsheet for the purpose of defining fund placement in a nearly three-fund portfolio model and the results are so near each other that the data did not present a clear answer. You have to guess on future price appreciation returns vs. dividends, etc. And as we say around here, "nobody knows nuthin'".

Now to the point, looking at each fund's unrealized gains (and realized gains) as reported on their websites / reports can give you an idea of what would happen in the near term. But, also the actual number of times a fund pays capital gains is a longer-term evidence of how the fund is operated from a tax-efficiency standpoint. If you plan to hold for a long-time you can assume that the tax-efficiency of non-Vanguard funds is going to improve after the much discussed patent expires, but that is a hypothetical that has to be discounted to some degree because you are not assured that all funds and fund families will implement the system and if they do will be able to execute as effectively for any number of reasons.

rupalb9
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by rupalb9 » Thu Aug 16, 2018 2:30 pm

I am starting to buy both of these funds for my two sons every week. Contributing $35/week to each account. Building their savings slowly.
I have also started to regularly buy these funds for small amounts of money that is in a sense lying around. Sort of like putting spare change to work.

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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 » Thu Aug 16, 2018 2:36 pm

retiringwhen wrote:
Sat Aug 11, 2018 10:20 am
DaftInvestor wrote:
Sat Aug 11, 2018 9:40 am
ruralavalon wrote:
Sat Aug 11, 2018 9:24 am
DaftInvestor wrote:
Sat Aug 11, 2018 9:04 am
Reading through this thread there are a lot of statements/conclusions about the tax-drag of these funds being higher than the loss of the ER (with some pointing to a patent as evidence that it must be so) - and yet no evidence or concrete data appears (at least that I can see) that these funds will not be more cost effective post-tax to Vanguard equivalents. I haven't even been able to find comparisons of current fidelity index funds (with lower ERs) having a higher tax drag than Vanguard equivalents. Perhaps it is just wishful thinking of those that want to remain Vanguard diehards. The one thing we do know is that the ERs are lower - the talk of tax-drag effects negating this seems nothing more than speculation.
Please see triceratop's spreadsheet for "2017 relative tax efficiency" for a comparison with current Fidelity funds. viewtopic.php?t=242137
That's only a single year and FSTVX distributed more cap gains in 2017 (and the year prior) that it has historically. In fact, this year is already proving to be lower (the April distribution was only .016 compared to .104 in April 2017). Comparing the numbers of a single year (or even 2 or 3 years) to make a decision is flawed.
I concur, I looked at his spreadsheet for the purpose of defining fund placement in a nearly three-fund portfolio model and the results are so near each other that the data did not present a clear answer. You have to guess on future price appreciation returns vs. dividends, etc. And as we say around here, "nobody knows nuthin'".

Now to the point, looking at each fund's unrealized gains (and realized gains) as reported on their websites / reports can give you an idea of what would happen in the near term. But, also the actual number of times a fund pays capital gains is a longer-term evidence of how the fund is operated from a tax-efficiency standpoint. If you plan to hold for a long-time you can assume that the tax-efficiency of non-Vanguard funds is going to improve after the much discussed patent expires, but that is a hypothetical that has to be discounted to some degree because you are not assured that all funds and fund families will implement the system and if they do will be able to execute as effectively for any number of reasons.
You could also look at the 2016 sheet which has information on competing S&P 500 funds, with similar differences in tax efficiency due to capital gains distributions.
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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 » Thu Aug 16, 2018 5:14 pm

triceratop wrote:
Thu Aug 16, 2018 2:36 pm

You could also look at the 2016 sheet which has information on competing S&P 500 funds, with similar differences in tax efficiency due to capital gains distributions.
Thanks again for putting up that tax calculator. I look forward to your birthday in 2019 when you will post the 2018 one. In last ten years, 2016 and 2017 were the worst years for this fund in terms of capital gains. With Fidelity's new lower fees for their premium class funds, no minimums, and potentially lower LTCG dists in 2018, it's going to be another interesting (12+ page) thread when you 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 triceratop » Thu Aug 16, 2018 6:43 pm

mervinj7 wrote:
Thu Aug 16, 2018 5:14 pm
triceratop wrote:
Thu Aug 16, 2018 2:36 pm

You could also look at the 2016 sheet which has information on competing S&P 500 funds, with similar differences in tax efficiency due to capital gains distributions.
Thanks again for putting up that tax calculator. I look forward to your birthday in 2019 when you will post the 2018 one. In last ten years, 2016 and 2017 were the worst years for this fund in terms of capital gains. With Fidelity's new lower fees for their premium class funds, no minimums, and potentially lower LTCG dists in 2018, it's going to be another interesting (12+ page) thread when you do.
February is the forum's birthday, I didn't say it was mine.

I won't post tax numbers for the new ZERO funds for two reasons -- 1) they were only around for half a year 2) they are new so any distributions (dividends and capital gains) paid out on a per-share basis will be diluted because they're rapidly scooping up new funds (i.e. I think it would be misleading to post numbers also since their dividend yield will be so low, even if no capital gains distributions are made)
"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 WhiteMaxima » Thu Aug 16, 2018 6:48 pm

I bought one share for each fund at $101 now all below $100 a share. Just test the water. If is doing well, I will DCA into these two zero 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 mervinj7 » Thu Aug 16, 2018 7:44 pm

triceratop wrote:
Thu Aug 16, 2018 6:43 pm

I won't post tax numbers for the new ZERO funds for two reasons -- 1) they were only around for half a year 2) they are new so any distributions (dividends and capital gains) paid out on a per-share basis will be diluted because they're rapidly scooping up new funds (i.e. I think it would be misleading to post numbers also since their dividend yield will be so low, even if no capital gains distributions are made)
I agree. I meant updating the existing Premium index funds like FSTVX. I wouldn't touch the new Zero funds for at least a couple of years.

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

Post by FIREchief » Fri Aug 17, 2018 12:35 pm

I just skimmed the prospectus for these new ZERO funds. It looks like they will only be distributing dividends and capital gains once a year (December). That's a step beyond FSTVX (Fidelity US total market) that only distributes twice a year (April and December). Not sure if this is a cost cutting move or if there are advantages to the fund's performance. Thoughts?
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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

Post by Doom&Gloom » Fri Aug 17, 2018 1:08 pm

I ran into an interesting obstacle today while trying to transfer into one of these new funds from another Fidelity fund. I apologize if this has been mentioned but I have only read bits and pieces of this thread.

Fidelity customer service informed me that my Rollover IRA is in the "old" mutual fund format and that I could only exchange into these two funds if I opened a brokerage account and moved my mutual funds into it. I have known of a similar issue at Vanguard but this is the first I have heard of it at Fidelity. I seem to be able to exchange into other funds freely.

I decided to postpone entry into one of these funds until I learn more about them. If they turn out to be worthwhile, perhaps I will convert my account at a later date.

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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 » Fri Aug 17, 2018 1:18 pm

FIREchief wrote:
Fri Aug 17, 2018 12:35 pm
I just skimmed the prospectus for these new ZERO funds. It looks like they will only be distributing dividends and capital gains once a year (December). That's a step beyond FSTVX (Fidelity US total market) that only distributes twice a year (April and December). Not sure if this is a cost cutting move or if there are advantages to the fund's performance. Thoughts?
Probably doesn’t matter either way very much. Marginally bad for accumulators from a tax efficiency perspective and marginally beneficial for those in decumulation.
"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 FIREchief » Fri Aug 17, 2018 1:18 pm

Doom&Gloom wrote:
Fri Aug 17, 2018 1:08 pm
I ran into an interesting obstacle today while trying to transfer into one of these new funds from another Fidelity fund. I apologize if this has been mentioned but I have only read bits and pieces of this thread.

Fidelity customer service informed me that my Rollover IRA is in the "old" mutual fund format and that I could only exchange into these two funds if I opened a brokerage account and moved my mutual funds into it. I have known of a similar issue at Vanguard but this is the first I have heard of it at Fidelity. I seem to be able to exchange into other funds freely.

I decided to postpone entry into one of these funds until I learn more about them. If they turn out to be worthwhile, perhaps I will convert my account at a later date.
That might be true of trying to exchange your old mutual fund account into any different investments, not just one of the new ZERO funds. Did you ask them about that?
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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

Post by FIREchief » Fri Aug 17, 2018 1:21 pm

triceratop wrote:
Fri Aug 17, 2018 1:18 pm
FIREchief wrote:
Fri Aug 17, 2018 12:35 pm
I just skimmed the prospectus for these new ZERO funds. It looks like they will only be distributing dividends and capital gains once a year (December). That's a step beyond FSTVX (Fidelity US total market) that only distributes twice a year (April and December). Not sure if this is a cost cutting move or if there are advantages to the fund's performance. Thoughts?
Probably doesn’t matter either way very much. Marginally bad for accumulators from a tax efficiency perspective and marginally beneficial for those in decumulation.
Are you suggesting that this would impact estimated tax payments? If not, please explain. Thanks.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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

Post by lukestuckenhymer » Fri Aug 17, 2018 1:36 pm

Forgive me for stupid question...
Can you convert shares of FSTVX to FZROX without recognizing a gain/loss, similar to converting to Premium shares?

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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 » Fri Aug 17, 2018 1:37 pm

FIREchief wrote:
Fri Aug 17, 2018 1:21 pm
triceratop wrote:
Fri Aug 17, 2018 1:18 pm
FIREchief wrote:
Fri Aug 17, 2018 12:35 pm
I just skimmed the prospectus for these new ZERO funds. It looks like they will only be distributing dividends and capital gains once a year (December). That's a step beyond FSTVX (Fidelity US total market) that only distributes twice a year (April and December). Not sure if this is a cost cutting move or if there are advantages to the fund's performance. Thoughts?
Probably doesn’t matter either way very much. Marginally bad for accumulators from a tax efficiency perspective and marginally beneficial for those in decumulation.
Are you suggesting that this would impact estimated tax payments? If not, please explain. Thanks.
I am not suggesting that, not really.

Accumulators hold more shares at the end of the year than their yearly-averaged share count. Decumulators the reverse.
"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 Jack FFR1846 » Fri Aug 17, 2018 1:45 pm

Looking ahead........

Would anyone else expect a competitor to come out with a negative ER fund? Certainly would make for great TV commercials.

"Here at Moneybags Investment, WE pay YOU to invest with us. Why would you pay your broker for the privilege of investing YOUR own money?"

Maybe the backdrop of the rabble in Monty Python and the Holy Grail, in the scene where they bring the witch to be burned.
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Re: Fidelity Files for two Fidelity ZERO℠ Funds (0.00% ER total stock and total international mutual funds)

Post by FIREchief » Fri Aug 17, 2018 1:58 pm

triceratop wrote:
Fri Aug 17, 2018 1:37 pm
FIREchief wrote:
Fri Aug 17, 2018 1:21 pm
triceratop wrote:
Fri Aug 17, 2018 1:18 pm
FIREchief wrote:
Fri Aug 17, 2018 12:35 pm
I just skimmed the prospectus for these new ZERO funds. It looks like they will only be distributing dividends and capital gains once a year (December). That's a step beyond FSTVX (Fidelity US total market) that only distributes twice a year (April and December). Not sure if this is a cost cutting move or if there are advantages to the fund's performance. Thoughts?
Probably doesn’t matter either way very much. Marginally bad for accumulators from a tax efficiency perspective and marginally beneficial for those in decumulation.
Are you suggesting that this would impact estimated tax payments? If not, please explain. Thanks.
I am not suggesting that, not really.

Accumulators hold more shares at the end of the year than their yearly-averaged share count. Decumulators the reverse.
Thanks. Now I understand your post. :beer
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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

Post by Doom&Gloom » Fri Aug 17, 2018 2:28 pm

FIREchief wrote:
Fri Aug 17, 2018 1:18 pm
Doom&Gloom wrote:
Fri Aug 17, 2018 1:08 pm
I ran into an interesting obstacle today while trying to transfer into one of these new funds from another Fidelity fund. I apologize if this has been mentioned but I have only read bits and pieces of this thread.

Fidelity customer service informed me that my Rollover IRA is in the "old" mutual fund format and that I could only exchange into these two funds if I opened a brokerage account and moved my mutual funds into it. I have known of a similar issue at Vanguard but this is the first I have heard of it at Fidelity. I seem to be able to exchange into other funds freely.

I decided to postpone entry into one of these funds until I learn more about them. If they turn out to be worthwhile, perhaps I will convert my account at a later date.
That might be true of trying to exchange your old mutual fund account into any different investments, not just one of the new ZERO funds. Did you ask them about that?
No. I was able to exchange into another fund with no issues at all.

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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 » Fri Aug 17, 2018 2:40 pm

Doom&Gloom wrote:
Fri Aug 17, 2018 2:28 pm
FIREchief wrote:
Fri Aug 17, 2018 1:18 pm
Doom&Gloom wrote:
Fri Aug 17, 2018 1:08 pm
I ran into an interesting obstacle today while trying to transfer into one of these new funds from another Fidelity fund. I apologize if this has been mentioned but I have only read bits and pieces of this thread.

Fidelity customer service informed me that my Rollover IRA is in the "old" mutual fund format and that I could only exchange into these two funds if I opened a brokerage account and moved my mutual funds into it. I have known of a similar issue at Vanguard but this is the first I have heard of it at Fidelity. I seem to be able to exchange into other funds freely.

I decided to postpone entry into one of these funds until I learn more about them. If they turn out to be worthwhile, perhaps I will convert my account at a later date.
That might be true of trying to exchange your old mutual fund account into any different investments, not just one of the new ZERO funds. Did you ask them about that?
No. I was able to exchange into another fund with no issues at all.
So, that is interesting, one of goals of the zero funds may be to retire their old platform by using them as a carrot. Vanguard could learn something there 😄. Of course that would create a whole different set of complaints. But frankly making a lower cost funds available for users of the brokerage at least would provide an incentive to move. The less friendly way would be to drop support for admiral shares on the old platform.

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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 » Fri Aug 17, 2018 4:28 pm

lukestuckenhymer wrote:
Fri Aug 17, 2018 1:36 pm
Forgive me for stupid question...
Can you convert shares of FSTVX to FZROX without recognizing a gain/loss, similar to converting to Premium shares?
No, changing share classes is not a taxable event. Exchanging shares is a sell/buy transaction that happens in a single day at both fund's closing price. Any sell transaction is a gain/loss event.

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

Post by lukestuckenhymer » Fri Aug 17, 2018 4:56 pm

Spirit Rider wrote:
Fri Aug 17, 2018 4:28 pm
lukestuckenhymer wrote:
Fri Aug 17, 2018 1:36 pm
Forgive me for stupid question...
Can you convert shares of FSTVX to FZROX without recognizing a gain/loss, similar to converting to Premium shares?
No, changing share classes is not a taxable event. Exchanging shares is a sell/buy transaction that happens in a single day at both fund's closing price. Any sell transaction is a gain/loss event.
Got it. But what is the purpose of having two different identical mutual funds with different ERs? I know they wanted the big splash of the ZERO fund, but what happens when all inflows into FSTVX cease?

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

Post by Whakamole » Fri Aug 17, 2018 6:53 pm

lukestuckenhymer wrote:
Fri Aug 17, 2018 4:56 pm
Spirit Rider wrote:
Fri Aug 17, 2018 4:28 pm
lukestuckenhymer wrote:
Fri Aug 17, 2018 1:36 pm
Forgive me for stupid question...
Can you convert shares of FSTVX to FZROX without recognizing a gain/loss, similar to converting to Premium shares?
No, changing share classes is not a taxable event. Exchanging shares is a sell/buy transaction that happens in a single day at both fund's closing price. Any sell transaction is a gain/loss event.
Got it. But what is the purpose of having two different identical mutual funds with different ERs? I know they wanted the big splash of the ZERO fund, but what happens when all inflows into FSTVX cease?
They're not identical, they follow different indices.

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

Post by tj » Fri Aug 17, 2018 9:20 pm

Whakamole wrote:
Fri Aug 17, 2018 6:53 pm
lukestuckenhymer wrote:
Fri Aug 17, 2018 4:56 pm
Spirit Rider wrote:
Fri Aug 17, 2018 4:28 pm
lukestuckenhymer wrote:
Fri Aug 17, 2018 1:36 pm
Forgive me for stupid question...
Can you convert shares of FSTVX to FZROX without recognizing a gain/loss, similar to converting to Premium shares?
No, changing share classes is not a taxable event. Exchanging shares is a sell/buy transaction that happens in a single day at both fund's closing price. Any sell transaction is a gain/loss event.
Got it. But what is the purpose of having two different identical mutual funds with different ERs? I know they wanted the big splash of the ZERO fund, but what happens when all inflows into FSTVX cease?
They're not identical, they follow different indices.

FSTVX won't lose inflows because it's presumably heavily marketed in Fido 401(k)'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 Whakamole » Sat Aug 18, 2018 12:50 am

tj wrote:
Fri Aug 17, 2018 9:20 pm
Whakamole wrote:
Fri Aug 17, 2018 6:53 pm
lukestuckenhymer wrote:
Fri Aug 17, 2018 4:56 pm
Spirit Rider wrote:
Fri Aug 17, 2018 4:28 pm
lukestuckenhymer wrote:
Fri Aug 17, 2018 1:36 pm
Forgive me for stupid question...
Can you convert shares of FSTVX to FZROX without recognizing a gain/loss, similar to converting to Premium shares?
No, changing share classes is not a taxable event. Exchanging shares is a sell/buy transaction that happens in a single day at both fund's closing price. Any sell transaction is a gain/loss event.
Got it. But what is the purpose of having two different identical mutual funds with different ERs? I know they wanted the big splash of the ZERO fund, but what happens when all inflows into FSTVX cease?
They're not identical, they follow different indices.

FSTVX won't lose inflows because it's presumably heavily marketed in Fido 401(k)'s.
And I'm not complaining at 1.5bp :beer

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

Post by gostars » Sun Aug 19, 2018 12:36 am

Spirit Rider wrote:
Fri Aug 17, 2018 4:28 pm
lukestuckenhymer wrote:
Fri Aug 17, 2018 1:36 pm
Forgive me for stupid question...
Can you convert shares of FSTVX to FZROX without recognizing a gain/loss, similar to converting to Premium shares?
No, changing share classes is not a taxable event. Exchanging shares is a sell/buy transaction that happens in a single day at both fund's closing price. Any sell transaction is a gain/loss event.
In November, when Fidelity eliminates FTSMX/FSVTX/FSKTX and converts all of them to FSKAX, that won't be a taxable event. FZROX, on the other hand, is a completely separate fund and moving to it would necessarily require selling the original fund and recognizing any gains or losses involved.

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

Post by tj » Sun Aug 19, 2018 12:40 am

gostars wrote:
Sun Aug 19, 2018 12:36 am
Spirit Rider wrote:
Fri Aug 17, 2018 4:28 pm
lukestuckenhymer wrote:
Fri Aug 17, 2018 1:36 pm
Forgive me for stupid question...
Can you convert shares of FSTVX to FZROX without recognizing a gain/loss, similar to converting to Premium shares?
No, changing share classes is not a taxable event. Exchanging shares is a sell/buy transaction that happens in a single day at both fund's closing price. Any sell transaction is a gain/loss event.
In November, when Fidelity eliminates FTSMX/FSVTX/FSKTX and converts all of them to FSKAX, that won't be a taxable event. FZROX, on the other hand, is a completely separate fund and moving to it would necessarily require selling the original fund and recognizing any gains or losses involved.

....So, it would only make sense to do that in a tax advantaged accoutn where there are no taxes due. Or your gains fall under the 0% LTCG limit

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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 » Sun Aug 19, 2018 2:41 am

Jack FFR1846 wrote:
Fri Aug 17, 2018 1:45 pm
Would anyone else expect a competitor to come out with a negative ER fund? Certainly would make for great TV commercials.
Well, Fidelity sometimes pays brokerage bonus for transferring money in, so we are sort of already there. Not to mention that Fidelity is aggressive in pursuing securities lending and returns most/all of the net earnings to the fund. So, the fund should beat its benchmark by a few basis points.

As far as a negative ER? I'm surprised enough that a zero ER fund exists. It is not surprising that a fund exists with ERs below cost. I am shocked that they are being so obvious about it, as it leads to investor suspicion. Look at this thread: 13 pages of folks trying to find the 'catch'. Meanwhile, nobody is really questioning the 1.5 bp expense fund, when it seems highly probable that fund is also a loss leader for Fidelity. I guess the chances of a negative ER would have to do with how much suspicion Fidelity's new funds receive. If embraced, then the cost to a fund manager to offer a -0.01 ER would be so small relative to a 0 ER, it would be largely lost in the noise (if the fund got $400 Billion under management, they would only pay out $40 Million; most of the major players had billions in profit last year).

My personal expectation though is that 0 will end up being the floor but that it will spread to related services. If Vanguard was to start losing assets, I would imagine that their next move could well be to release a free roboadvisor service, but one that only buys from Vanguard's funds. So, you pay 4 bp at Vanguard, but get free robo, whereas the funds are free at Fidelity, but their robo costs 35 bp. This can put Fidelity in an awkward place to respond, if free robos piss off the advisors they custody assets for.

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

Post by Tdubs » Sun Aug 19, 2018 7:35 am

I'm sure it's addressed somewhere in this long thread, but what are the chances of VG following suit? I don't understand how they can withstand conceding the ER high ground long term.

I just transferred my IRAs to VG a couple months ago and have no loyalty to it or taxable account complications in moving on to FIDO. In fact, for my daughter's small IRA, I should do that anyway given the lack of minimums.

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

Post by tj » Sun Aug 19, 2018 3:09 pm

Tdubs wrote:
Sun Aug 19, 2018 7:35 am
I'm sure it's addressed somewhere in this long thread, but what are the chances of VG following suit? I don't understand how they can withstand conceding the ER high ground long term.

I just transferred my IRAs to VG a couple months ago and have no loyalty to it or taxable account complications in moving on to FIDO. In fact, for my daughter's small IRA, I should do that anyway given the lack of minimums.
I don't see how VG can offer Zero ER funds. How would VG fund it's operations?

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

Post by Tdubs » Sun Aug 19, 2018 4:17 pm

tj wrote:
Sun Aug 19, 2018 3:09 pm
Tdubs wrote:
Sun Aug 19, 2018 7:35 am
I'm sure it's addressed somewhere in this long thread, but what are the chances of VG following suit? I don't understand how they can withstand conceding the ER high ground long term.

I just transferred my IRAs to VG a couple months ago and have no loyalty to it or taxable account complications in moving on to FIDO. In fact, for my daughter's small IRA, I should do that anyway given the lack of minimums.
I don't see how VG can offer Zero ER funds. How would VG fund it's operations?
I wonder the same about Fidelity. How does VG not keep up with the competition and accept some funds as loss leaders? They will have to restructure how they make money.

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

Post by tj » Sun Aug 19, 2018 4:33 pm

Tdubs wrote:
Sun Aug 19, 2018 4:17 pm
tj wrote:
Sun Aug 19, 2018 3:09 pm
Tdubs wrote:
Sun Aug 19, 2018 7:35 am
I'm sure it's addressed somewhere in this long thread, but what are the chances of VG following suit? I don't understand how they can withstand conceding the ER high ground long term.

I just transferred my IRAs to VG a couple months ago and have no loyalty to it or taxable account complications in moving on to FIDO. In fact, for my daughter's small IRA, I should do that anyway given the lack of minimums.
I don't see how VG can offer Zero ER funds. How would VG fund it's operations?
I wonder the same about Fidelity. How does VG not keep up with the competition and accept some funds as loss leaders? They will have to restructure how they make money.
Fidelity has plenty of high-profit funds. They can much better afford "loss leaders". Of course, if everyone abandoned the more expensive options, they wouldn't be able to do that.

Iridium
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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 » Sun Aug 19, 2018 8:27 pm

Tdubs wrote:
Sun Aug 19, 2018 7:35 am
I'm sure it's addressed somewhere in this long thread, but what are the chances of VG following suit? I don't understand how they can withstand conceding the ER high ground long term.
Vanguard has not had the lowest ERs in years. I believe Schwab, Fidelity, and Blackrock all had ERs of 0.03 for their US total market fund/ETF vs 0.04 for Vanguard. Through that time, Vanguard continued to be the top asset gatherer. They have recently slowed a bit in their net inflows, but that might actually be a good thing for them, as they have had growing pains.

If the ER difference is enough for you to move, there is no reason to wait, unless you want to see what Schwab does. Vanguard and Blackrock are almost entirely dependent on their fund management fees and therefore cannot match a zero ER.

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