Clark Howard

Investor Alert: Fidelity rolls out first ever no-fee index funds

By Theo Thimou
By Theo Thimou

Beginning Friday, August 3, Fidelity Investments will offer no-fee index funds that allow every single penny you invest to go toward building long-term wealth — instead of getting eaten up by pesky fees!

RELATED: Warning: This oft-forgotten expense could wreck your retirement plan

Fidelity’s unprecedented move in the retail investing world

According to a prospectus filed today, Fidelity's two newest investments — the Fidelity Zero Total Market Index Fund (FZROX) and the Fidelity Zero International Index Fund (FZILX) — will have absolutely zero in the way of fees.

fidelity fee table

This is an unprecedented move 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.

Discount

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!

Diversification

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.

Dull

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!

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