When Fidelity Investments launched its groundbreaking no-fee index funds in early August 2018, the retirement giant couldn’t have anticipated that more than $1 billion would pour into its new offerings in the first month alone!
But that’s exactly what happened. And because one good turn deserves another in the world of discount investing, Fidelity is now expanding its options with the addition of two more zero-fee funds.
That will allow every single penny you invest to go toward building long-term wealth — instead of getting eaten up by pesky fees!
Fidelity’s unprecedented move in the retail investing world
Launched on August 1, the Fidelity Zero Total Market Index Fund (FZROX) and the Fidelity Zero International Index Fund (FZILX) have absolutely zero in the way of fees, according to the prospectus.
Now, two more zero-fee funds are being added to the Fidelity lineup.
The new entrants include the Fidelity ZERO Large Cap Index Fund (FNILX) and the Fidelity ZERO Extended Market Index Fund (FZIPX), both of which are domestic-focused funds.
The former is similar to an S&P 500 index fund, giving you exposure to 500 of the biggest companies in U.S. capitalism. Meanwhile, the latter fund focuses on small and mid-sized companies.
This brings Fidelity’s full roster of no-fee index funds to four in number:
- Fidelity Zero Total Market Index Fund (FZROX)
- Fidelity Zero International Index Fund (FZILX)
- Fidelity ZERO Large Cap Index Fund (FNILX) – available Sept. 18
- Fidelity ZERO Extended Market Index Fund (FZIPX) – available Sept. 18
With all these funds, there’s absolutely zero minimums for account opening, zero investment minimums, zero account fees and zero domestic money movement fees.
A closer look at Fidelity’s surprise move
What Fidelity is doing has never been done before in the investment world. We’ve gotten very close to zero fees in the past from other investing houses, but we’ve never reached it before.
So why the sudden breakthrough?
Well, Fidelity has been locked in a prolonged battle with Vanguard over the booming passive investing trend — where assets are pegged to an index rather being actively managed by a Wall Street brainiac. And this is just the latest shot that’s being fired in the war.
In times past, Vanguard often bested Fidelity and emerged the victor in the contest with its relentless focus on keeping costs low. For example, Vanguard’s Total Stock Market Index has an expense ratio of 0.14%. That means only 14 cents of every $100 you invest in this fund goes to overhead.
Charles Schwab, meanwhile, has a Total Stock Market Index with an expense ratio of just 0.03%. So only three cents out of every $100 goes to fees!
But making costs zero could tip the scales in Fidelity’s favor in this fight with Vanguard, Schwab and others like Blackrock and T. Rowe Price.
That’s because every single penny you put into either of these two new no-fee index funds from Fidelity goes to work for you and helps to build a secure financial future for you and your family!
Clark Howard’s 4 Ds of investing
Money expert Clark Howard routinely talks about four Ds when it comes to investing: Discount, dollar cost averaging, diversification and dull.
You can’t get any lower than zero, so Fidelity’s no-fee index funds definitely keep costs low. Therefore they meet the discount criteria!
Dollar cost averaging
Dollar cost averaging, meanwhile, refers to contributing the same amounts of money on a set schedule to an investment — as you would through an employer’s 401(k) plan with a weekly or biweekly payroll deduction.
By doing this, you never overbuy at the peak of market values and you never buy too little when stocks are “on sale” during times of financial panic like we saw during the recession of last decade.
Dollar cost averaging is the Goldilocks formula for building wealth!
Third up is diversification. Like the name suggests, this is the idea of not putting all your eggs in one basket.
Buying an index fund meets this criteria by definition because you’re buying a basket of securities spread out across hundreds or thousands of companies.
Finally, dull is an investing mantra for the ages.
An index fund doesn’t chase the hot companies of the moment or the investing equivalent of the flavor of the month. It just owns tiny slices and dices of hundreds or thousands of publicly traded companies.
And it doesn’t get anymore plain vanilla than that!