馃攳
Big Problem With Fidelity Index Funds - Zero Fee Funds Explained - YouTube
Channel: Jarrad Morrow
[0]
fidelity offers zero fee index funds can
[2]
you believe it they're such a kind
[4]
privately held company that's willing to
[6]
give up a bunch of profit to help out
[9]
the little guy investor like you and me
[11]
so you're telling me there's a chance
[13]
yeah
[14]
and not so fast what as with most things
[17]
there's a bit of a catch and the
[19]
fidelity zero fee index funds are no
[21]
different so let's go through what you
[23]
need to know about these things then
[24]
we'll stack up each one to its fee-based
[27]
competitor before we get too deep into
[29]
it i need to say that i am by no means
[31]
implying that you should sell these
[32]
index funds if you currently hold them
[34]
you could be investing in much worse
[36]
financial products like anything that
[38]
kathy wood has her name attached to i'm
[40]
basically going to be giving you a peek
[41]
behind the curtain of these zero fee
[43]
index funds to show you what isn't so
[46]
obvious on the surface in 2018 fidelity
[48]
started offering four different index
[50]
funds where they charge you zero dollars
[52]
to own them the four funds consist of a
[54]
large cap total u.s market extended
[57]
market and international index fund at
[59]
first glance this seems like an odd
[61]
thing to do because they already offer
[63]
an s p 500 total u.s market extended
[67]
market and international index fund
[69]
where they charge you to own them yes
[71]
the fees for these funds are extremely
[73]
cheap as it is but by offering these
[75]
zero fee funds they're in direct
[77]
competition with themselves i can
[78]
promise you they're not doing this out
[80]
of the goodness of their hearts to help
[82]
uncover why they're doing this we just
[84]
have to follow the money but not the
[86]
money that they don't make from these
[88]
funds the potential money that they
[90]
could make in other areas of their
[92]
business by offering you these zero fee
[94]
funds these funds are what you would
[96]
consider to be a loss leader for
[98]
fidelity kind of like how costco sells
[100]
their rotisserie chickens for a loss to
[103]
the tune of being out 30 to 40 million
[106]
dollars per year the goal for costco and
[108]
fidelity in this case is to get you into
[110]
their ecosystem so that they can sell
[112]
you on more profitable products and
[114]
services if you're already through the
[115]
doors of costco to buy your unhealthy
[118]
corn-fed gmo rotisserie chicken then
[121]
you're more likely to buy additional
[122]
items if you're already investing in
[124]
fidelity zero fee funds then you're more
[126]
likely to use them first if you're
[128]
looking for a financial advisor annuity
[131]
life insurance or more expensive funds
[133]
this of course won't work for every
[135]
customer but the lost leader business
[137]
model doesn't need to have a 100 success
[139]
rate they just need a small portion of
[141]
people to buy these more expensive
[143]
products and services once fidelity has
[145]
you in the doors and investing into
[147]
their funds they lock you into their
[149]
umbrella even more by penalizing you if
[152]
you want to move to a different
[153]
investment platform these fidelity zero
[155]
fee funds are exclusive to their
[157]
investing platform and cannot be bought
[160]
on or transferred to any other platform
[162]
with their other fee based index funds
[164]
you can transfer those out of fidelity
[166]
and on to any other platform like
[168]
vanguard charles schwab or any of the
[170]
others they'll usually come with a
[172]
transfer fee but this is par for the
[174]
course no matter where you go and which
[176]
fund you decide to move with these zero
[178]
fee funds you have to sell them if you
[180]
want to move your investment somewhere
[182]
else which means that you might have to
[183]
pay capital gains taxes if they're held
[185]
within a taxable investment account it
[187]
might not be a big deal to you right now
[189]
but if for some reason at a point in the
[191]
future you become unhappy with fidelity
[193]
then you're screwed before i tell you my
[195]
biggest issue with these zero fee funds
[197]
please help support this channel and my
[199]
dog molly who actually just tore up her
[201]
leg and had to get stitches by hitting
[203]
that thumbs up button the word index
[205]
fund gets thrown around a lot by these
[207]
large investment institutions nowadays
[210]
because of how successful they've been
[211]
over the years at this point a lot of
[213]
people understand the power of investing
[215]
in index funds but not all index funds
[217]
are created equally and it's not so
[220]
obvious unless you know what to look for
[222]
technically you could create your own
[224]
custom stock market index and if i
[226]
wanted to create a fund that tracks your
[228]
index then i could call it an index fund
[230]
the problem is that you're most likely
[232]
an unknown person with an unknown track
[234]
record and an unproven process there's a
[237]
couple levels of trust that need to
[239]
exist within this whole process between
[241]
the financial index provider the index
[243]
fund and the investor my fund needs to
[246]
trust your indexing process and the
[248]
potential investors within my fund needs
[250]
to have some level of trust in how my
[252]
fund tracks your index there's a few
[254]
different well-known and trusted
[256]
financial index providers that index
[258]
fund creators like fidelity vanguard and
[261]
charles schwab pay a licensing fee to to
[264]
create their fee based index funds the
[267]
fidelity zero fee index funds are a lot
[269]
different in that they don't want to
[270]
have to pay the licensing fee to these
[272]
trusted index providers because they
[275]
need to cut corners to reduce the cost
[277]
to run their funds because if they're
[278]
still doing a bunch of work and you're
[280]
not paying them to do that work they're
[282]
going to cut corners wherever they can
[284]
but they still need to track some sort
[285]
of index to be able to call themselves
[288]
an index fund to do that fidelity has
[290]
created their own internal index which
[293]
is what their zero fee funds track this
[295]
might not seem like a big deal but their
[297]
indexing methods haven't been around for
[299]
very long which means that they are
[301]
unproven i'm also not sure how i feel
[303]
about fidelity creating the index that
[305]
there are zero fee funds track having an
[308]
unassociated third party index provider
[310]
at least gives a little bit of
[312]
separation of power within the whole
[313]
process to show you why i'd prefer 75
[316]
percent of the fee based fidelity index
[318]
funds over these zero fee index funds
[321]
let's compare them against each other so
[323]
i can show you the biggest differences
[325]
for the total market index we have the
[328]
zero fee index fund f z rox and the
[331]
comparable fee based index fund fskax
[335]
the stock style for both are pretty
[337]
close so there's really no issue there
[339]
next we can look at the total holdings
[341]
for each one the zero fee fund holds
[344]
2655 stocks while the fee based fund
[347]
holds
[349]
3998 for me i want my index funds
[351]
especially my total market index funds
[354]
to hold as many stocks as possible the
[356]
xero fee fund fails to do this lastly
[359]
the portfolio turnover for each is
[361]
different this is important to know
[363]
because the higher portfolio turnover
[365]
means more stocks are being bought and
[367]
sold which is going to cost you money
[369]
the xero fee fund is at four percent
[371]
while the fee based fund is at three
[373]
percent not a huge difference but for me
[376]
i prefer to keep this as low as possible
[378]
i also like the option of investing in
[380]
the fund that charges point zero one
[382]
five percent to track a larger number of
[384]
stocks instead of only sampling two
[387]
thousand six hundred stocks like the
[389]
zero fee fund does for the large cap
[391]
index we have the zero fee index fund fn
[394]
ilx and the comparable fee based index
[397]
fund fx aix the stock style for both of
[400]
these are pretty darn close as well so
[402]
there's nothing too concerning here
[404]
since both of these are large cap only
[406]
we see that the total holdings are about
[408]
the same which it should be for the
[409]
portfolio turnover we see that the
[411]
fidelity s p 500 index fund is at two
[414]
percent while the zero fee large cap
[417]
fund is at five percent i personally
[419]
choose to pay the extra 0.015 percent to
[422]
hold the true s p 500 index fund we see
[425]
the biggest divergence with the extended
[428]
market index funds for this comparison
[430]
we have the zero fee index fund f z ipx
[434]
and the fee based index fund fsmax as
[437]
you can see the stock styles are way
[439]
different the stock style for fs max is
[442]
more in the mid and small cap range with
[445]
a tilt towards growth
[447]
fzipx is more in the small cap stocks
[450]
with a tilt towards value the sector
[452]
breakdown for the fee based fund has
[454]
more money going into technology while
[456]
the xero fee fund has more money going
[459]
into everything else except tech once
[461]
again the fee-based fund holds more
[463]
stocks which i like at 3 703 of them
[467]
while the xero fee fund only holds
[470]
2143 stocks the turnover ratios make me
[473]
sick just looking at them 18 for the fee
[477]
based fund and 25
[479]
for the xero fund i am not a huge fan of
[482]
any extended market funds so i prefer to
[484]
stay away from both of these the last
[486]
zero fee fund that we have is the
[488]
international index fund f z ilx we'd
[492]
want to compare it to the fee based
[494]
international index fund fspsx stock
[498]
style for both are basically identical
[500]
the sector exposure between them both
[502]
are all over the place so i'll throw up
[504]
a screenshot so you can pause the video
[507]
to see it for yourself the holdings are
[508]
a lot different than you'd think the
[510]
xero fee fund holds 2
[513]
377 stocks while the fee based fund only
[516]
holds 832 of them one of the big reasons
[519]
the xero fee fund holds more stocks is
[522]
because it encompasses both developed
[524]
and emerging markets while the fee based
[527]
fund excludes emerging market stocks and
[529]
only focuses on developed market believe
[531]
it or not i kind of like the xero fee
[533]
international index fund a little bit
[535]
more because i prefer developed and
[537]
emerging market stocks to get more
[539]
diverse exposure the only things i don't
[541]
like about it is the eight percent
[543]
turnover ratio as well as the fact that
[545]
you're kind of stuck in the fidelity
[547]
ecosystem if you hold the zero fee fund
[550]
make sure to hit that thumbs up button
[552]
to support the channel before you go if
[553]
you want to see my preferred fidelity
[555]
index funds or vanguard etfs that you
[558]
can purchase on the fidelity platform
[560]
then watch these videos to your left
[562]
next i'll see in the next one friends
[565]
done
Most Recent Videos:
You can go back to the homepage right here: Homepage