Fidelity has been a household name in the investment world for decades. The company's reputation for offering low-cost index funds has made it a favorite among investors. However, Fidelity has taken the game to the next level with its new offering of ZERO funds. These funds have zero expense ratios, minimum investment requirements, and transaction fees. This has raised the question of whether index funds are the right addition to your investment portfolio.
Today's column addresses three questions. First, to what extent do the portfolios of index funds behave differently from benchmarks that are designed to track them? Second, how do index funds differ from actively managed funds? And third, what are the pros and cons of investing in index funds?
An index fund is a financial vehicle constructed to match a specific index, such as the S&P 500. These funds are designed to provide investors with exposure to a broad range of companies, sectors, and industries. The idea behind index funds is that they offer diversification, low fees, and long-term growth potential.
Investing in large-cap stocks could be one of the safest choices offered by the stock market. Large-cap stocks are companies with market capitalizations of $10 billion or more. These companies are well-established, have a proven track record, and are less volatile than smaller companies.
Despite the Federal Reserve's increasingly hawkish stance, inflation continues to be a problem. In March, U.S. consumer prices rose 8.5%, the biggest year-over-year gain since 1982. Inflation erodes the value of money over time, which means that investors need to find ways to fight it.
Fighting inflation isn't complicated. There are three passive ways to do it: invest in real estate, invest in commodities, and invest in Treasury Inflation-Protected Securities (TIPS). Real estate and commodities are physical assets that tend to rise in value as inflation increases. TIPS are bonds that are designed to protect against inflation by adjusting their principal value based on changes in the Consumer Price Index (CPI).
Fidelity is doubling the number of zero-fee index fund offerings in its stable. The Fidelity ZERO funds offer investors the opportunity to invest in a broad range of asset classes at no cost. This is a game changer in the index fund industry, as it makes investing in index funds even more accessible to the average investor.
The Fidelity ZERO Total Stock Market Fund, the first fee-free fund in the marketplace, is approaching $6 billion in assets. This fund tracks the performance of the entire U.S. stock market, providing investors with exposure to thousands of companies across all sectors and industries.
Investors should get to know Fidelity's free funds before investing in them. While these funds offer zero expense ratios, minimum investment requirements, and transaction fees, they still carry risks. Investors should understand the risks associated with investing in these funds and ensure that they align with their investment objectives.
In conclusion, Fidelity's ZERO funds are a game changer in the index fund industry. These funds offer investors the opportunity to invest in a broad range of asset classes at no cost. While they carry risks, investors should get to know these funds before investing in them. As the investment world continues to evolve, it's important to stay informed and make informed investment decisions.