When Banks Compete, You Win!

Airport Bank Board

Sometimes you got to love capitalism.  Competition is not only healthy for economy, but also ultimately for you the consumer!  This is the case because when businesses compete against each other, it can lead to huge savings for consumers.  The financial services industry is also no exception as well.

Well on August 2, 2018, Fidelity was the first company to launch a series of no fee index funds.  At first they started with two funds, the Fidelity Zero Total Market Index Fund (FZROX), and Fidelity Zero International Index Fund (FZILX).

Since then they have added two more funds that have zero expense ratios!  These would be, Fidelity Zero Extended Market Index Fund (FZIPX) and Fidelity Zero Large Cap Index Fund (FNILX).

So what do these funds do?  Well below is a description of the funds and their objectives.  

Fidelity Zero Total Market Index Fund (FZROX)

Seeks to provide investment results that correspond to the total return of a broad range of publicly traded companies in the US.

In essence this fund seeks to track the entire US stock market.

Fidelity Zero International Index Fund (FZILX)

Seeks to provide investment results that correspond to the total return of foreign developed and emerging stocks.

Fidelity Zero Extended Market Index Fund (FZIPX)

Seeks to provide investment results that correspond to the total return of a broad range of mid- to small-capitalization U.S. companies.

This fund in my research is trying to essentially replicate the Russell 2000 index

Fidelity Zero Large Cap Index Fund (FNILX)

Seeks to provide investment results that correspond to the total return of a broad range of large-capitalization U.S. companies.

Here this fund looks like it is trying to track the S&P 500 index.

Who Doesn’t Like Free?

As noted in my article, Get Free Money from Your Employer, ideally we want to gravitate towards index funds that have low expense ratios.  With these no fee (zero expense ratio) funds, what isn’t there to like?

So with zero expense ratio, what does that mean for you?  It essentially means that Fidelity won’t take any money that you have invested in the fund.  Typically this fee is charged for marketing expenses and etc. (i.e. just one of the many notorious ways the banks gouge you, the customer, for doing business with them.)  

At the end of the day, all the money you make is yours to keep.  How great is that?!

Driving this point home let’s look at the money you would save compared to investing in an ETF like Vanguard’s Total Stock Market ETF, which already has a great expense ratio of 0.04%.  Assume you start with an initial balance of $1,000, then every year for the next 43 years (age 22-65) you invest an extra $1,000. Assuming a 7% investment return (typical stock market historical returns), you would save $3,072.28 in fees!  Or another way to look at it is that there is an extra $3,072.28 for you to enjoy in retirement!

Sure you may dismiss three grand as a small price to pay over 43 years.  But why don’t we do the same exercise and change the numbers to the total allowable limit you are able to put into your pre-tax accounts, which is $25,000 starting in 2019.  In this case you would save a total of $76,807.07! Goodness that’s a ton of money!

To make this deal even better, if you have a Fidelity account, there are no transaction fees should you buy or sell in and out of these funds.  

Finally there is no minimum to invest.  Unlike Vanguard or other companies that have investment minimums so that you can access these low fee ETFs through their admiral share.

Performance and Market Level Returns

So now the real test is to see if these funds actually do what they are suppose to do.  Do they really track the indexes they are set up to mimic? While it has only been a few months since the inception of these funds, the data so far looks promising.  

Below are the charts of each of the funds compared to the index they track respectively.

FZROX vs S&P 500
Fidelity Zero Total Market Index Fund (FZROX) vs S&P 500
Fidelity Zero International Index Fund (FZILX) vs. MSCI EAFE
Fidelity Zero Extended Market Index Fund (FZIPX) vs. Russell 2000
Fidelity Zero Large Cap Index Fund (FNILX) vs. S&P 500

As you can see, for the most part they do a good job even with a same sample size!  For those who are a bit weary, it doesn’t hurt to stay on the sidelines for a bit longer and keep a watchful eye on the performance.  While you are doing so you can still keep your money in another low fee ETF/Index fund. But if these funds do indeed perform as advertised, I would find it very hard to make an argument for not making the move.  


Moving forward, I feel like this is a shot across the bow to other investment firms out there.  As the index fund wars heat up, expect more companies to lower the cost of entry into investing into their funds and following Fidelity’s lead.

While cheap is good, free is better and you can bet that I am seriously thinking about moving over into these zero fee index funds.

Disclosure: At this time I do not hold any positions in the mentioned funds.  I also am not endorsed or paid by Fidelity. I just want to bring these funds to my fellow engineers and see how they can potentially benefit you!

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