Big Problem With Fidelity Index Funds - Zero Fee Funds Explained

In this video, I'll uncover a few of the biggest problems I found with investing in the Fidelity Zero Fee Index Funds that aren't so obvious on the surface.

In 2018 Fidelity started offering 4 different index funds where they charge you zero dollars to own them. The 4 funds consist of a Large Cap, Total U.S. Market, Extended Market, and International Index. This seems like a great deal because they're going to allow you to invest for free, which sounds amazing! But something doesn't add up. Fidelity already offers comparable funds where they charge anywhere between .015% and .035% so why would they create competing products for now reason? To figure that out we need to follow the money...but not the money that they don't make from those zero fee index funds. You're also very limited with what you can do with these index funds and if you're not careful it could end up costing you more money than you save in fees. I'll touch on all of that and more in this video.

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Disclaimer: This video is for entertainment purposes only. Everyone's situation is different so do your own research before making any decisions with your money. If you need help then contact a Certified Financial Fiduciary before trying anything that is mentioned in this video. I prefer a Fiduciary financial advisor that charges an hourly fee as opposed to an ongoing fee based on a % of your portfolio. Always remember that incentives determine the type of advice they give you so one that charges an hourly fee is less likely to be problematic.

#Fidelity #Investing #IndexFunds

[JarradMorrow]

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[TheMillennialMint]

Why do you have to attack my rotisserie chicken habit like that? Haha

[GeonQuuin]

FNILX and FXAIX has very similar performance, their main difference is the fee. Which will add up over time. Currently have a 4 fund portfolio that utilises 3 of the zero-fee fund: FZROX(45%), FNILX(25%), FXNAX(20%), FZILX(10%)

[pnkrckmom]

I'm glad you bring up portfolio turnover percentages. That's very important to keep in mind if these are held in taxable accounts. Many people don't mention turnover.

[smpoinde]

I always wondered what the catch was. When getting my company rollover into Fidelity, I did ask "what's the catch"? The advisor did admit the purpose was to get you to also purchase other items to make their profit. Thanks for providing "the rest of the story"!!!

[yeuryscastillo]

the fidelity international is FTIHX more than 5, 000 stocks

[FrankTheTank]

Excellent review. Owning them in an IRA solves some of these problems. Also, how about comparing performance? The Zero fee funds seem to be doing fine from what have observed. Maybe even slightly outperforming the fee funds?

[belangp]

Hi Jarrad. Good video and you raise great points. I don't think the zero funds are true loss leaders for Fidelity. Even though they are not charging the investors they are certainly profiting. One of the practices that is common in the mutual fund world is share lending. The mutual fund houses lend their shares to short sellers. The zero funds are no exception, as is disclosed in the prospectus documents. In Vanguard's case they pass along the proceeds of share lending to the mutual fund owner. I doubt that is the case for Fidelity. I'm guessing the proceeds from share lending are how they profit.

[Jorafa]

Great video Jarrad. My understanding is also that the zero fee funds gives you the dividend once a year vs quarterly. Quarterly might be better specially when shares are at a discount like now. My apologies if you mentioned this and I missed it.

[jarc]

I have 3 of these zero funds in an IRA so turnover is not an issue. I also hold FNILX in a taxable account. Mutual fund distributions are taxed at long term capital gains rates just as qualified dividends are taxed at lower rates. I have been DCA in my IRA for 1.5 years and I am not terribly disappointed in the funds. But I am not super happy with them as well. I DCA into 4 IRA's with different investments. This one is simply all mutual funds. One is ETF's, the other two are stock.

[exgamer]

Fidelity is trusted, so if it wanted to create its own index customers would probably not have that big of an issue with it.

[politicscommentator]

The fee-based equivalent to the zero-fee international fund is the Fidelity Total International Index Fund (FTIHX).

[jmr]

Great videos. Can you do a video on the funds you own?

[johna]

Does age of the fund have any impact on turnover? It seems like a newer fund would naturally have a higher turnover.

[lisac]

Thanks for the video! You compared turnover and # of holdings, but how about their performance?

[mrdisco]

I think the more appropriate comparison for the international fund would be FTIHX.

[alexmaloney]

What stops someone from selling these funds while they are in a Roth IRA and swapping the money over to a similar fund that is cross platform based?

[ianollmann]

Aww, be nice to Cathy Wood. ARK, which I do not own, has a good thesis. The problem with <magic happens here> tech is that it is very difficult to time, possibly taking 30 years, and even when it does, it really needs to undercut existing solutions or it is going nowhere. This can be challenging at first due to disparities in efficiencies of scale. I think it is premature to write off ARK, though certainly one does not need to buy.

[chillbro]

Terrific man you opened up a line of understanding about index funds that I had not yet heard, but I want to know.

[DuyLe-mipx]

why not just buy etf ? If not then I’ll go with fidelity funds, vanguard is basically the same funds with more expense ratio