The First Zero-Fee Index Fund from Fidelity is Here!

Adam Herod
Aug 5, 2018
2 min read

Updated: Aug 15, 2018

Learn more about the new zero-fee investment vehicles from Fidelity. #thewealthmap #money #personalfinance

The investment world has been in an arms race in the realm of low cost (~0.04%) index funds. Offered by various firms such as Vanguard and Fidelity, these funds look to expose an investor's portfolio to broad swaths of the market, while providing such standard and diversified options and returns that little to no fees are required.

But a new standard has been set, and Fidelity is the first to crack the ice on something that could truly benefit its investors.

Welcome to the era of the zero-fee index fund!

The investment firm will be offering two equity funds with no management fees. Each will cover U.S. and international markets.

This is important for people to consider, since equity fund managers have returned an average 4.79% over the past 20 years, whereas the S&P 500 has returned 7.68% without management.

Why make the move?

The fund may be an effort to attract millennial investors, who have been reluctant to enter mainstream investing.

Since Fidelity already oversees $7 trillion, this move couldn't hurt the broker since it could bring in further business.

Why should I care?

One or both of these funds could be an integral part of your portfolio.

Although it is never advisable to invest all of your money into a single fund, as some might consider in order to have zero total fees, it would be wise to grab a good swath of the market. Such as is offered by the total market index fund.

How can they charge zero fees?

It all starts with the type of investment they are offering. An index fund tracks a particular portion of the stock market, such as the S&P 500. No particular fund manager needs to select the stocks the fund tracks, which provides a cost savings.

These offerings represent passive investing options, which is fancy talk for little to no management. This saves you money over the long run.

Even 1% in management fees can cut thousands out of your total retirement over the lifetime of your investments.

This is important for people to consider, since equity fund managers have returned an average 4.79% over the past 20 years, whereas the S&P 500 has returned 7.68% without management.

How should I use these investment vehicles?

It is likely that Fidelity intends for these funds to represent a core of your investment strategy, which will allow you to invest in other funds that do charge fees - keeping your overall portfolio at a minimum fee basis.

Once again, don't put all of your eggs in one basket.

The good news is that Fidelity will continue to drop fees on other mutual funds, as well, going as low as 0.015%!