How 0.00% is Setting the Bar

A milestone has been achieved in the financial industry as Fidelity has introduced new zero net expense ratio index funds.  FZROX and FZILX will be setting a new standard in the mutual fund and ETF world as the race to 0.00% has concluded.  iShares, Vanguard, Schwab and more have been cutting fees in an attempt to remain competitive within the current market environment, with the lowest fees often seeing significant investor inflows.  Fidelity, though a little late to the game, is now the first to offer 0.00% expense ratio index mutual funds. 
However, what does this mean for you?  Well, if you have taken part in the same funds for the last 10 (or even 5) years, it may be time to re-evaluate and make sure you’re getting what you’re paying for in this industry.  Studies have suggested that paying more for mutual funds has not resulted in a greater chance of beating an index, and if you’re still paying over 1% for your mutual fund managers, you’ll obviously want to know why.  If, however, you’re tempted by the infinitely lower expense ratio Fidelity now offers, and you have been updating your investment selection, or use an advisor who does this for you, consider a few things before making the move.  If you are in a taxable brokerage account, selling your investment and moving into a Fidelity fund will likely result in a taxable gain.  Paying this gain now will more than likely offset your savings by reducing your investment.  You might also want to consider transaction fees.  If you’re moving $1,000 to take advantage of the fee, but pay a fee to get there, it may not make sense.  Finally, if you’re already paying only 0.03% using a Schwab ETF or otherwise, do you really want the hassle of moving money around when it only costs $3 per year for every $10,000 invested? 
While a 0.00% net expense ratio is shocking to see, it no longer represents a material change in fees.  It represents a temptation but making a move will not make sense for everyone.  It does give rise to a new question: Will we ever be paid to use a mutual fund like we are for bank accounts?

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