Free Investing

Fidelity has done it. Commission-free index funds with no annual fees and no account maintenance fees…

The enemy of the investor is fees. They are the #1 drag against long term returns, yet until now fees have been unavoidable. I have preached against high management fees and high investment fees in the past, and shown how they buy you no real advantage when it comes to seeing your investments outperform the market in terms of total returns. Simply put, a low cost index fund is going to beat most every advisor on the planet over the long term, net of their fees.


One thing I have never understood is the investor who will pay an advisor 1.5% / year (a common rate) only to see the advisor turn around and drop their money into mutual funds that charge 1.5% / year in annual fees (a common rate). That puts you behind the 8-ball every year, with the need to outperform the market by 3% just to break even, year after year. There painfully few money managers in the history of planet earth who can generate alpha +3% over the S&P500 across a time span that exceeds 2 decades. Don’t take the bait – stick with low-cost index funds and save yourself some money while you make yourself (more) money.

Fidelity has now come to the table with FREE investing. Free. With no minimums, no commissions, no annual fees, and no account maintenance fees. Free. They offer two funds. Did I mention they are both free?

The Offerings:

FZROX is a total market index fund, meaning it tracks the CRSP US Total Market Index which is 4,000 stocks across mega, large, small and micro capitalizations. This mix is weighted by market cap and essentially represents 100% of the U.S. investable equity market, from the top down. Your top-10 holdings in this fund will be Apple, Microsoft, Amazon, Facebook, JPMorgan, Exxon, Google, Johnson & Johnson, Bank of America, and Wells Fargo.

The other fund offered is FZILX which is an International equity index fund tracking the FTSE Global All Cap ex-US Index. This index represents the performance of approximately 5,350 large, mid and small cap companies in 46 developed countries, excluding the USA. Your top-10 holdings in this fund will be Tencent, Nestle, Alibaba, Samsung, Taiwan Semiconductor, HSBC, Novartis, Roche, and Toyota.

In total, between these two funds, you’ll own stock in 9,350 companies across most every developed nation on the planet. I don’t know if it gets any more diversified than that when it comes to stock holdings – unless Mark Watney is selling stock in his potato farm on Mars.

Buy Both?

I played around with a portfolio modeler I like and found that a ratio 55% FZROX to 45% FZILX would provide for maximum diversification. These 2 funds in this 55/45 ratio would essentially track the global stock market. Over the past 18 years, using their tracking indexes, I show this mix performing within .1% of the S&P500. In a best/worst year comparison, this mix would beat/lag the S&P500 by +/- 3% in the same 18 year time frame. Not bad.

A Free Ride:

We’ve come a long way from the first mutual fund that hit the market back in the early ’70s with an 8% front-end load, and we’ve finally evolved from simple funds that charge you 1.5% to lag the market by 1.5% while their fund managers sip champagne and snort caviar in the Hamptons summer home purchased with your money. For the first time ever you can now take a free ride on the stock market super-highway.

Up until now the cheapest index fund I knew of was Schwab’s SWPPX @ 0.03%. That’s well within the tracking error of an index fund, so it’s not worth me moving out of it, but hey – a 0.0% annual fee is pretty, pretty good… Get on this!

Get on the Move:

If you’re looking for free, “set it and forget” investing, set these funds up at Fidelity, auto-draft into them on a bi-weekly basis, and and enjoy your future gains at no charge…

Cheers – and thanks for reading!

Disclaimer – I work for Apple and own Apple stock. I mention the company here merely as a component of the index and not as a recommendation to buy, sell, or otherwise invest in the company. 


Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: