One of my older relatives used Fidelity to manage their investments, and it was a hodgepodge of over 10 different mutual funds with a total expense ratio nearing 1%. The last time I measured its long-term performance, it lagged the benchmark indexes by… roughly 1%. Since then, I’ve always viewed that as a big part of Fidelity’s business model. They will sell you a portfolio that looks complex and smart, with fancy-sounding names and lots of moving parts. In the end, your performance will be okay because it will capture most of the stock market return, and most folks won’t even notice the chunk that was missing from fees. From a certain perspective, you paid a fee and got what you wanted: a stamp of approval from a respectable name.
If you’re wondering how Fidelity can offer their excellent customer service and products at such a competitive prices, this is why. There are many people paying additional fees for their various advisory services. I’m okay with that – as a DIY investor I am comfortable turning down their upsell pitches for additional assistance.
So when I saw the ETF.com article , I admit that I had my preconceived notions. Would they surprise me? You can view . Here is a screenshot with just their moderate risk 60% stock/40% bond portfolio.
The hodgepodge of fancy names is still going strong. It’s like a checklist of industry buzz words: Dynamic Growth, Enhanced, High Dividend, Momentum, Inflation, Multifactor. I find it amusing that Dividend tends to equate to “Value”, which is the opposite of “Growth”. If you own this many different things, how different is it really from just owning the entire stock market?
There still appears to be added complexity just for the sake of looking complex. Is it really helpful to have 2% in the iShares Core Dividend ETF? Or 2% in Cash Sweep? SIX to EIGHT different US bond ETFs???
With a weighted expense ratio of 0.25%, the overall cost is much lower than their active mutual fund portfolios from 10+ years ago. Competition from Vanguard and Blackrock have forced the expense ratios lower across the industry. So while the Fidelity model seems to pretty much the same, it does now come potentially at a lower price. So that’s a good thing.
Some of these Fidelity ETFs are barely a year old, so we can’t do a backtest. I will have to remember to run another comparison 10 years from now between this 60/40 Fidelity ETF portfolio and a simple 3-ETF low-cost index portfolio from Vanguard (42% VTI/18% VXUS/40% BND) or iShares (42% ITOT/18% IXUS/40% IUSB). The low-cost index portfolio have a weighted expense ratio of about 0.04%. Can the Fidelity outperform and justify their higher fees?
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