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EdLaFave

Fidelity's 0% expense ratio total market funds.

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My mistake.  Total Int'l is indeed 0.06%.  I mistakenly looked at the "Fidelity International Index" (FSIVX) which is 0.045%.  The latter fund is focused on developed markets, omitting (I think) "emerging" market securities.  

This is another reminder to anyone considering Fidelity--they have many funds (most of which are far more expensive than these low-cost index funds), they often have similar names, so one needs to be very careful when selecting funds.

Here's a link to the recently discounted funds: https://www.fidelity.com/mutual-funds/investing-ideas/index-funds

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We shall hear more about this from others in days to come. Here is Vanguard's early response below. BTW ,I have a Master's Degree in Marketing . That doesn't make me an expert but I've been reading about this move all day and  I think this is a huge marketing gimmick which may backfire because nothing is truly free and Fidelity is  putting themselves in a position of never being able to charge fees on these funds without investor backlash. Also, this  move could actually draw money away from the funds they sell that make money although I think their intent is to draw more money over to Fidelity.(In marketing strategy, cannibalization refers to a reduction in sales volume, sales revenue, or market share of one product as a result of the introduction of a new product by the same producer..And Fidelity charging an extra fee for someone to access Vanguard and only Vanguard in a 401k lineup leaves me  with a bad taste in my mouth . Regardless this isn't going to hurt Vanguard one bit but may backfire on Fidelity. Also this reminds me of an attempted price war. Investopedia says this "An article in the Harvard Business Review argues that the best response to a price war is to try to sidestep this type of direct conflict by employing a variety of different strategies. For instance, one possible tactic is to differentiate the firm's product offering from that of the lower cost firm. If a firm can offer a product that is in some way unique or superior, then it will be in a much better position to preserve its pricing power". 
Healthy competition is good, but overly aggressive price wars can have negative long-term effects for both consumers and firms. There will always be a place for a low-cost leader, but other firms can respond to price challenges more intelligently by differentiating their products and delivering a superior offering to consumers"

It seems  to me Vanguard has already taken this approach We will see how it plays out but I would advise everyone to hold your euphoria. 

This also reminds me of Loss Leader Pricing or even Bait and Switch.  Like when  grocery stores sell certain products at cost and advertises them heavily but quietly raises prices elsewhere.  

Sorry for the marketing lesson. Here is the article on Vanguard's response From Investment news. It requires registration so I saved you the trouble. 

Vanguard's rival stoked the investing industry price war Wednesday by offering two no-fee index funds to retail customers and cutting costs on others. Because Vanguard has already aggressively lowered fees on indexed products, Mr. Davis said he sees no reason to be fazed by Fidelity's offering.

"Investors always have to ask themselves when they see an offering like this, 'What's the catch?"' he said Friday in an interview at Bloomberg headquarters in New York. "The question becomes what else are investors going to be charged in other products?"

Vanguard, the fund giant with about $5.1 trillion under management, and competitors such as BlackRock Inc. and Charles Schwab Corp. have been reducing fees on index mutual funds and exchange-traded funds as investors increasingly shift away from costlier actively run products. Vanguard's average expense ratio is 11 basis points, or 11 cents a year per $100 invested, compared with the industry's mean of 62 basis points, according to company data.

(More: Fidelity's zero-fee funds unleash the power of free) 

Not 'Reactive'

 

Fidelity's announcement is unlikely to spur any immediate reaction from Vanguard, Mr. Davis said.

"Do we pay attention to the competitive environment? Absolutely. Are we reactive to what one competitor does? Absolutely not," he said.

Vanguard has grown dramatically in recent years as investors, frustrated by the inability of many active managers to consistently beat their benchmarks, have voted with their feet for low-cost funds that mimic benchmark indexes.

Fidelity, which manages $2.5 trillion, is best known for its actively managed funds, but in the past few years it has aggressively gone after rivals in the index arena. Fidelity is also cutting fees by an average of 35% on its existing index mutual funds, and allowing investors to open accounts with no minimum balance required.

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I’m going to wait some amount of time to see how things play out, but long term, I will switch to whoever is the cheapest.

So if Vanguard doesn’t respond in the next year or so, then I won’t be buying their funds any more. I do have an emotional/sentimental attachment to Vanguard, but in the end logic and money will win out. 

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1 hour ago, EdLaFave said:

I’m going to wait some amount of time to see how things play out, but long term, I will switch to whoever is the cheapest.

 

That sounds prudent. I would suggest just wait before you make any major moves. I really am happy with what I am paying. $0 .08  average or something close to that. Really the difference between a Vanguard expense ratio and a zero Fidelity expense ratio  on those two funds really isn't ever going to be that significant and undoubtedly Vanguard's fees will probably go lower than were they are now as they have been trending lower anyway. I don't want to be like my neighbor always chasing the lowest  sale price on everything but spends a ton of time and gas money doing so to no real effect.  I do think this is good for the industry and hopefully may lead to insurance companies  re-evaluating how they rip off their customers. Maybe they will consider ripping them off a little less LOL! After all , seems to me people are getting wiser about fees-finally. 

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1 hour ago, tony said:

Really the difference between a Vanguard expense ratio and a zero Fidelity expense ratio  on those two funds really isn't ever going to be that significant and undoubtedly Vanguard's fees will probably go lower than were they are now as they have been trending lower anyway. I don't want to be like my neighbor always chasing the lowest  sale price on everything

Agreed.

To be exact, Vanguard’s fees will cost you about 2.5% of your inflation adjusted returns over 30 years. So this isn’t anything to lose your mind over, but I’d surely take an extra 2.5%. 

I really don’t want to open yet another account only to see Vanguard match the deal (or come really close) or to find out that Fidelity has shortcomings (less tax efficient, their homemade index is inferior, they have trouble tracking the index, or some other “catch”).

...here’s to hoping Vanguard responds. I’ll give it a year or two to see what happens.

...anybody betting on an index fund that actually pays you to invest as if it were a savings account? I thought a 0% ER was ludicrous and now this possibility suddenly seems possible somehow. 

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On 8/3/2018 at 12:17 PM, whyme said:

My mistake.  Total Int'l is indeed 0.06%.  I mistakenly looked at the "Fidelity International Index" (FSIVX) which is 0.045%.  The latter fund is focused on developed markets, omitting (I think) "emerging" market securities.  

I was just looking at Fidelity's Investment Options, which was linked to from their 403b page. Maybe I'm losing my mind, but I don't see Fidelity Total International Index Premium (FTIPX) on the list. That is an option in your 403b right?

...it looks like Fidelity Global ex US Index Premium (FSGDX) is available, but it has fewer mid caps, no small caps, and a higher turnover than Fidelity Total International Index Premium. So I'm not sure if that is the best international option in the Fidelity 403b. Maybe I'll give them a call this week.

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Fidelity Total International Index Premium does not appear in my 403b.  The available options include the Global ex US, Fidelity Total International Equity Fund (with a 1.15% ER!), and Fidelity International Index Premium 0.045% ER), which is the developed markets fund that I had earlier mistaken for a total international index.  Slightly less simple, but one could look at a combo of the International Index PR and the Emerging Index PR as an alternative international option in the 403b--I haven't done the analysis to see whether that would create any meaningful advantage, beyond the ability to control the weight of Emerging Markets in the portfolio. (BTW, the Zero funds have yet to appear, and I'm still not clear on whether Fidelity plans to make those an option within 403b accounts.)

 

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Fidelity International Index Premium (FSGDX) has emerging markets in a proportion similar to other total market international funds. However, I don't see a reasonably priced international small/mid cap index fund in the Fidelity 403b list.

Fidelity International Index Premium (FSGDX) a small percentage of small/mid cap stocks than market capitalization would demand. It only has about 2,000 total holdings whereas Vanguard Total International (VTIAX) has about 6,000 holdings. So for those reasons, Fidelity International Index Premium is an inferior fund relative to other Total Market International Index funds, but it is still a really good option and appears to be the best option in the Fidelity 403b.

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I think there's some more confusion here, and I think the confusion reflected in this thread is by design: Fidelity deliberately makes it hard to understand which fund is which (this may offer some insight into their "loss leader" strategy with the zero funds).  FSGDX is the Global ex-US fund, not the International Index Premium fund (FSIVX).   The latter has only about .5% Emerging Markets and a very tiny fraction of small or micro cap, according to Morningstar.  FSGDX is also very light on the small caps, though I am not sophisticated enough to know whether that reflects an accurate market-cap weighting, but it appears to hold around 18% Emerging Markets.  

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I see. Thanks for walking me through that. Their list of funds page is confusing because it abbreviates the names and makes you click a link to see the full name, symbol, expense ratio, etc.

...just more proof people should be extra careful when dealing with Fidelity.

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14 hours ago, EdLaFave said:

...just more proof people should be extra careful when dealing with Fidelity.

Exactly, Ed.  I think it's fair to say that both of us exhibit an above-average level of attention to the specific characteristics of funds, yet we both managed to get derailed by Fidelity's confusing lists!  Caveat emptor.  If one is not willing to triple-check their decisions, even with the reduced Fidelity fees I'd still recommend Vanguard for most folks.  If you're with Fidelity, check, check and check again to be sure you've picked the right funds.

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