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Fidelity Slashing ERs and new 0% ER funds

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  • Fidelity Slashing ERs and new 0% ER funds

    Just noticed my FSTVX went from like 0.035--> 0.015% and they also introduced 0% ER funds! I guess they are putting the heat on Vanguard.

  • #2
    Not really.

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    • #3
      Apparently this marketing scheme is working given the amount of WCIers who are impressed with a 3 basis point shift. I'm surprised you guys hadn't already bailed on Vanguard for the one basis point you could have already saved over Vanguard TSM by going with Schwab or Fidelity TSM.
      Helping those who wear the white coat get a fair shake on Wall Street since 2011

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      • #4
        Group 401k is with Fido. So didn't really have a choice to swap that, but a little back of the envelope calculation: I was just gifted ~$500/yr.

        Inertia/cap gains will likely keep my taxable strategy with Vanguard...plus I'm gunning for Voyager Select.

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        • #5
          I wouldn’t put my taxable money in one of these funds because the fees have one way to go now and if things go sour you have to sell to get out. Their ownership structure is private, and profits are their motive. Nothing wrong with that. But given that it just seems like a short to medium term strategy in order to trap people in those funds. Eventually, I’d expect fund fees to slowly increase, not to an unpalatable level but to something close to Vanguard. Vanguard’s ownership structure is its competitive advantage. Anyone can lower fees for a short period of time and let the active funds subsidize them. But given passive fund trends this hardly seems sustainable if you’re a shareholder of Fidelity. Vanguard it built to sustain low fees and drive them further down.

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          • #6
            ENT Doc:

            While there may be legitimate reasons to not to make a change to Fidelity based on this (not the least of which is WCI's point about a few basis points) your post sounds more like unsubstantiated FUD than anything else.

            • People have been making the same claims about Fidelity index funds for > 20 years.

            • It is the marketplace that is driving this and it would be the marketplace punishing them for any retrenchment. You have absolutely no basis for claiming that this is a short to medium term strategy. You are just making stuff up to rationalize your claims.

            • It is market competition that is driving this and that will not go away. In order to survive and compete, all index fund companies must innovate and cut costs. They are squeezing maximum efficiency out of their operations. Also, these new funds are using a Fidelity designed index. No real need to license and pay for a third party index.

            • There is no need for fees to increase. They are still making 4-5 bps on security lending and there are probably other ways to monetize this.

            • Fidelity stopped subsidizing index funds years ago. This is most definitely sustainable as evidenced by the last 20 years.

            • History has demonstrated time and time again that commercial companies can and do out compete with mutual organizations while generating profits for its owners.

            • Vanguard's vaunted organizational structure may eventually be an impediment to its success.

            • I find it rather ironic that, while investing is the very foundation of capitalism, people seem to think that a fundamental socialist ownership structure will prevail.

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            • #7
              Blog post coming on Monday on this topic. Needless to say, I won't be switching to the new Fidelity fund for the same reasons I didn't switch to their lower ER index funds before.
              Helping those who wear the white coat get a fair shake on Wall Street since 2011

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              • #8




                Group 401k is with Fido. So didn’t really have a choice to swap that, but a little back of the envelope calculation: I was just gifted ~$500/yr.

                Inertia/cap gains will likely keep my taxable strategy with Vanguard…plus I’m gunning for Voyager Select.
                Click to expand...


                Probably not. You're assuming all else is equal. It isn't. In fact, I wouldn't be surprised to see the old Fidelity TSM outperform the new one.
                Helping those who wear the white coat get a fair shake on Wall Street since 2011

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                • #9
                  Ho.......hum.
                  Financial planning, investment management and CPA services for medical and high-income professionals | 270-247-6087

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                  • #10




                    ENT Doc:

                    While there may be legitimate reasons to not to make a change to Fidelity based on this (not the least of which is WCI’s point about a few basis points) your post sounds more like unsubstantiated FUD than anything else.

                    • People have been making the same claims about Fidelity index funds for > 20 years.

                    • It is the marketplace that is driving this and it would be the marketplace punishing them for any retrenchment. You have absolutely no basis for claiming that this is a short to medium term strategy. You are just making stuff up to rationalize your claims.

                    • It is market competition that is driving this and that will not go away. In order to survive and compete, all index fund companies must innovate and cut costs. They are squeezing maximum efficiency out of their operations. Also, these new funds are using a Fidelity designed index. No real need to license and pay for a third party index.

                    • There is no need for fees to increase. They are still making 4-5 bps on security lending and there are probably other ways to monetize this.

                    • Fidelity stopped subsidizing index funds years ago. This is most definitely sustainable as evidenced by the last 20 years.

                    • History has demonstrated time and time again that commercial companies can and do out compete with mutual organizations while generating profits for its owners.

                    • Vanguard’s vaunted organizational structure may eventually be an impediment to its success.

                    • I find it rather ironic that, while investing is the very foundation of capitalism, people seem to think that a fundamental socialist ownership structure will prevail.


                    Click to expand...


                    Perhaps I overstated things by saying their intent was to "trap" people in those funds, but I *believe* this will be the effect anyway, regardless of their intent.  The market trends are clear - people are seeking low costs and index funds.  If taken to perpetuity you'll have the vast majority of investors in index funds and a market-setting minority in active funds.  I don't see how taking on a 0% ER strategy in this environment is ideal for Fidelity shareholders.  Time will tell who is right - whether they keep them at 0% or increase them.

                    I don't understand your last point.  Vanguard is owned by those who own their funds.  While this adds another layer to the owner-manager problem, it incentivizes low costs.  The very foundation of capitalism is competition based on value.  Value, as it pertains to the common investor, is defined by low costs since the quality is effectively the same anywhere.  And since the market demands low costs I'd ask which ownership structure - Vanguard or Fidelity - puts that value at odds with their owners?

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                    • #11
                      My 401k is through Fidelity. I have FSTVX (total market - ER now .015%) and FTIPX (total international - ER now .06%). I plan to keep on keepin' on.

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                      • #12
                        I think that the underrated, underreported aspect of the ZERO marketing campaign is the reduction in index fund ERs at Fidelity, across the boards to the lowest in the industry, the no minimum investment requirement, and that the investor who invests $10 gets the same ER as the investor who invests $10M. They are democratizing investing, and that's a good thing.

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                        • #13
                          Jim, I'm not changing a thing...just accounting for the new ERs.

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                          • #14
                            I think the better tax efficiency of VTSAX most likely makes up for the 0.04% extra cost, unless the new fund is more tax-efficient than the existing Fidelity total market fund (which it could be).


                             

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                            • #15
                              Returns will probably be different, but impossible to know in advance if the new index will yield better or worse than FSTVX or VTSAX.

                               


                              I think the better tax efficiency of VTSAX most likely makes up for the 0.04% extra cost,
                              Click to expand...


                              Do you know why VTSAX is more tax efficient?

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