Fidelity ZERO Funds Review - What’s the Catch? (FZROX, FNILX, etc.)

Fidelity ZERO funds are index mutual funds from Fidelity with zero fees. But there’s a little more to the story. I review them here.

// TIMESTAMPS:

00:00 - What Are Fidelity ZERO Funds?
00:49 - FNILX
01:03 - FZIPX
01:14 - FZROX
01:40 - FZILX
01:55 - What's the Catch?

// SUMMARY:

Fidelity ZERO funds are a specific line of mutual funds from Fidelity that launched in 2018 with, as the name suggests, zero fees. The expense ratio for these funds is 0.00%. So for Fidelity investors looking for the lowest cost access to the stock market, these mutual funds satisfy that goal.

Fees are one of the few aspects of investing that investors can control. All else equal, one of the core tenets of the Boglehead philosophy is to minimize fees wherever possible. These Fidelity ZERO funds definitely allow for that and have attracted billions of dollars of assets in just a few years. The point is the Fidelity index investor now has broad, diversified access to the global stock market with zero fees and no minimums.

Fidelity currently has 4 ZERO funds, all for stocks:
FNILX – Fidelity ZERO Large Cap Index Fund
FZIPX – Fidelity ZERO Extended Market Index Fund
FZROX – Fidelity ZERO Total Market Index Fund
FZILX – Fidelity ZERO International Index Fund

What’s the catch? Obviously investment products with zero fees sound too good to be true and there’s got be a catch, right? There are arguably a couple downsides with these funds, but they’re probably not what you suspect.

Arguably the most important catch with these funds that is perhaps often overlooked is the fact that you must buy them at Fidelity, and if you do buy them, you’re stuck at Fidelity. Let me explain. If you’re interested in VOO, for example, the Vanguard ETF for the S&P 500, you can buy and own it at Fidelity, Schwab, Vanguard, or others and easily transfer that ownership between them.

In owning a Fidelity ZERO fund, you own a product that tracks a proprietary index that is only available at Fidelity. If for some reason you later wanted to transfer to a different broker like Schwab or Vanguard, you wouldn’t be able to take it with you and you’d thus have to sell your position and realize gains while transferring out.

If you’re currently with another broker like Vanguard, is it worth switching to or opening a separate account at Fidelity just to get access to these ZERO funds? That’s for you to decide. For $100,000 invested, 3 bps for a fund like VOO would be $30 per year. Sheer simplicity may be more valuable than those fee savings. On Fidelity’s side, they have deemed it worth that $30 expense to be able to use the powerful marketing buzzwords “free” and “zero.”

Read the blog post here: https://www.optimizedportfolio.com/fi...

#indexinvesting #fidelity #fidelityinvestments

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