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Fidelity Index Investing Advice

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  • Fidelity Index Investing Advice

    Hi all,

    New to the forum. Thanks WCI for all that you put out there.

    I'm a new attending as of last July and I have a question about 401k investing. I work for a SDG and the trustees of the group have set up our 401ks so that we may either use Fidelity or Charles Schwab. I already had an old 401a with Fidelity, so chose to go through them. The way that my 401k is set up, is that it's a "Non-Prototype" account and we essentially have free reign on investment choices. I can choose stocks, bonds, mutual funds, ETFs, REITs, etc.  It's pretty nice.

    I'm currently interested in doing somewhat of a hybrid between a 3 Fund Portfolio ( and a Gone Fishing Portfolio ( I've also added some random stocks for fun, but I'd like the majority of my retirement fund to be in those allocations listed.

    When I set up my investment choices, I started going with Vanguard ETFs for their low cost structure and overall recommendation from the Interweb. But here's where I'm having some questions...

    As of now, I'm maxing my 401k at $1500 per month to reach 18k for the year. Every month 1500 is put into the Fidelity account along with quarterly PSP and whatever I can scrape up into a taxed brokerage account. With that 1500, I am being charged $7.95 per transaction fee. If I were to continue doing a 3 Fund Portfolio with VTI, VGTSX, VBMFX, then I would essentially be paying around $25 monthly for the transaction fees if I were to divide it 3 ways every month.

    Do the investment gurus here recommend going with Fidelity index funds instead? They apparently do not charge for transaction fees on those funds. They include Fidelity Spartan Total Market Index Fund (FSTMX), Fidelity Spartan Global Index Fund (FSGUX), an Fidelity Spartan U.S. Bond Index Fund Investor Class (FBIDX).  When you guys get monthly allocations, do you typically divide it up into investment classes or do you tend to place the money into one fund/stock? I realize the answer to that question could vary quite a bit.

    Thanks in advance. I've already learned quite a bit from perusing the forum.


  • #2
    I am not an investment guru but see no point in paying a fee to invest in vanguard fees from a fidelity account.  That would add up over time!

    See here:

    Unless you can't get a particular fund at fidelity or there is some specific reason I would go with the Spartan index funds at Fidelity.   In terms of the specific monthly allocation it will depend on your overall portfolio..


    • #3
      Just to compare the Total Market Index funds, the Fidelity fund has an expense ratio of 0.1% and the Vanguard ETF has 0.05%.  If you are truly paying $25 a month in transaction costs on a investment of $1500 then I'd just consider it a 1.6% load...and you wouldn't be caught dead paying a load, would you?  It probably isn't so bad with some other matching funds going in but I don't see the break-even point ever occurring as long as you are actively investing.  I would just stick with Fidelity.  Each year you'll have more money compounding by not paying the fees.

      Yearly transaction fees about 12x25 so $300.

      You'd need to save enough money on the 0.05% difference between funds to save $300 a year to be ahead on a yearly basis?  So...x*0.0005=300  x=$600000

      So you'd need to have $600,000 in the etf vs the fidelity mutual fund to overcome the load fees on a yearly basis...

      I'm sure that I'm missing out on this calculation in some horrible fashion but I think it just goes to show that splitting hairs at the extreme end of low cost funds is probably futile.

      I think my calculation would say to keep the money in fidelity until you had over $600000 and then switch to vanguard at which point you are still only saving a very small amount until you continue to build up the account.  At a million dollars you'll be saving $200 a year with the etf.

      Anyone want to make sure I didn't screw this up?


      • #4
        Thanks for the replies. Very helpful to see the breakdown. Think I might change up the strategy a bit.


        • #5
          The Fidelity Advantage Class Total Market Index Fund , FSTVX, has a $10,000 minimum, and has an expense ratio of 0.05%, the same as the Vanguard Admiral Shares.  If you have less than $10,000 invested, you will be in the investor class funds which have the 0.1% ER.   If you have less than 10,000 in Vanguard you'll pay more also.  If your 401k is with Fidelity, you should be using Fidelity index funds.  They match the ERs for the equivalent Vanguard funds for the several funds I have price checked.


          • #6
            I have been investing with Fidelity for a long time (since high school), so I've paid attention to their offerings for a while. Possibly due to competition (likely primarily from Vanguard) but buoyed by their size and opportunity to cross-subsidize operations, they have been lowering expenses on many index funds.

            I'm guessing from your mention of the 3-fund portfolio that you're interested in something relatively simple. You can use four funds to get your allocation between domestic large cap, domestic mid and small cap, foreign equity, and bonds:

            FUSVX (Fidelity Spartan 500 Index Advantage, ER 0.05)
            FSEVX (Fidelity Spartan Extended Market Index Advantage, ER 0.07)
            FSGDX (Fidelity Spartan Global ex-US Advantage, ER 0.14) or FSIVX (Fidelity Spartan International Index Advantage, ER 0.12) [I'd probably recommend the former, which is a better index of everything outside the US]
            FSITX (Fidelity Spartan US Bond Index Advantage, ER 0.07)

            To go to 3 instead of 4 funds, you can substitute FSTVX (Fidelity Spartan Total Market Index Advantage, ER 0.05). The advantage of 4 funds is you can tweak your large vs small cap allocation without significantly increasing your expenses.

            As has been said, if you don't have the minimums ($10k) for Advantage shares, you'd be in the Investor class, with somewhat higher ERs (ER 0.10 for domestics and about 0.20 for internationals and bond). You should also confirm the same minimums apply within your 401k, as some retirement plans have lower minimums for those shares. If you still can't reach the minimum, one option could be to use the 401k solely for one of the investment classes, concentrating in one fund until you reach the minimum for Advantage class, using your old 401a and taxable accounts for the other parts of your allocation.