Page 54 - Money - November 2018

-RZIWX
INDEX FUNDS

-RHI\ *YRH *IIW ,MX miss opportunity? Not necessarily,
So are the new funds a can’t-

E 2I[ 0S[ >IVS say investing experts like Ben
Johnson, who oversees index
investing at fund researcher
Morningstar.
Mutual fund giant Fidelity is now offering zero-fee “If anything,” he notes, “there’s
a risk that people could be a penny
index funds. So what’s the catch? BY ROB CURRAN
wise and a few pounds foolish if
they were compelled to switch.”

THE BACKSTORY
While index, or passive, investing
has always had its fans, the
strategy’s popularity has ex-
ploded in the decade since the
financial crisis. As a result, nearly
half of all U.S. stock investments
are now in low-cost passive
investments, according to a study
in the BIS [Bank for International
Settlements] Quarterly Review.
Big mutual fund companies
have responded by launching a
price war that some investing
pros have dubbed the “race to
zero.” While Fidelity’s new
zero-fee funds mean the company
has won the race, in some ways
the race was already won years
ago—by investors.
When the first passively
managed index fund arrived on
RETIREMENT GIANT FIDELITY among Fidelity and other big the scene a generation ago, the
wants to let you invest U.S. fund managers including average mutual fund expense
for free. Should you? BlackRock, Vanguard, and ratio was close to 1%, according to
Earlier this year, the Boston- Charles Schwab. Vanguard’s website. Today, even
based mutual fund company For many shoppers, the term before Fidelity’s move, fund
launched Fidelity Zero Total “free” has an almost magical expenses are counted in one-
Market Index Fund and the quality. That’s doubly true for hundredths of a percentage point.
Fidelity Zero International Index retirement investors who know Schwab Total Stock Market Index
Fund, two new offerings Fidelity that costs, above all else, are the Fund has a 0.03% expense ratio;
says will charge investors nothing. key to evaluating an investment. Vanguard Total Stock Market
The new funds—designed to Fidelity says the funds are Index Fund has a 0.04% expense
give investors broad-based a loss leader designed to attract ratio; and the same firms’
exposure to U.S. and international customers to other products like international index funds are a
stocks, respectively—are the retirement income annuities, few basis points higher.
result of a years-long price war which it will continue to charge for. “When you go from paying a

ILLUSTRATION BY MATT HARRISON CLOUGH NO VEMBER 2 018 MONE Y. C O M