Fidelity Offers Free Commissions on iShares ETFs, Make Your Own Free Portfolio
In addition to their new $7.95 per trade price structure, Fidelity is also waiving commissions completely for 25 iShares ETFs. This appears to be a partnership where iShares partially compensates Fidelity themselves for promoting their ETFs.
Fidelity receives compensation from the ETF sponsor and/or its affiliates in connection with a marketing program that includes promotion of iShares ETFs and certain commission waivers. Additional information about the sources, amounts, and terms of compensation is described in the ETF’s prospectus and related documents. Fidelity may add or waive commissions on ETFs without prior notice.
Technically, you could make a relatively complete passive portfolio consisting entirely of these iShares ETFs. For example, if you wanted a stock portfolio encompassing the entire world in proportion to their current market capitalization share, you could go with
45% IWV (Broad United States)
40% EFA (Broad Developed Europe & Pacific)
15% EEM (Emerging Markets)
Since these ETFs have pretty good trading volume, the bid-ask spreads should also be reasonably small. For the bond portion, one possibility would be
50% AGG (Broad, Investment Grade Taxable US Bonds) and
50% TIP (US Treasury Inflation-Protected Bonds)
assuming you had room in a tax-advantaged account like an IRA. Not a recommendation, just what I might buy for myself. Here’s the entire list:
US Equity
Russell 1000 Growth (IWF)
Russell 1000 (IWB)
Russell 1000 Value (IWD)
Russell 2000 Growth (IWO)
Russell 2000 (IWM)
Russell 2000 Value (IWN)
Russell 3000 (IWV)
S&P 500 Growth (IVW)
S&P 500 (IVV)
S&P 500 Value (IVE)
S&P Mid Cap 400 Growth (IJK)
S&P Mid Cap 400 (IJH)
S&P Mid Cap 400 Value (IJJ)
S&P Small Cap 600 Growth (IJT)
S&P Small Cap 600 (IJR)
S&P Small Cap 600 Value (IJS)
International Equity
MSCI ACWI (ACWI)
MSCI EAFE (EFA)
MSCI EAFE Small Cap (SCZ)
MSCI Emerging Markets (EEM)
Bonds
Barclays Aggregate (AGG)
Barclays TIPS (TIP)
iBoxx $ Investment Grade Corporate (LQD)
JP Morgan USD Emerging Markets (EMB)
S&P National AMT-Free Municipal (MUB)
Vanguard, it’s your move… how about commission-free ETFs for Vanguard Brokerage Service customers?
February 3rd, 2010 at 1:55 am
Morningstar has gradually placed their ratings onto ETFs. I supposed they had to wait as they monitored returns and performance.
Of the 15 ETFs here, only 6 have four stars (EEM, AGG, TIP, IVW, IJK IJH). The rest are either three stars or below or not yet rated.
I’ve always had a love-hate relationship with Morningstar. One day a fund can have five stars and in a short time later, that same fund could be a one star fund.
Personally, I would not invest in any of these ETFs. I like my basket of mutual funds and my very tiny collection of stocks. I try to keep it simple, though I have seriously considered Vanguard ETFs and am really curious as to what T Rowe Price’s ETFs will look like.
February 3rd, 2010 at 7:20 am
I only have my IRA/401k w/ Fidelity. Can you then do a brokerage to brokerage move (free?) and move them to TD Ameritrade, I wonder?
February 3rd, 2010 at 7:23 am
Ron says: “I’ve always had a love-hate relationship with Morningstar. One day a fund can have five stars and in a short time later, that same fund could be a one star fund.”
So, you’re basically saying Morningstar ratings are worthless. Morningstar essentially says the same thing if you read their literature. They admit that expenses are much more likely to indicate long-term performance (i.e. lower expenses are better).
If everyone agrees that Morningstar ratings are basically useless, why exactly are we bringing them up?
February 3rd, 2010 at 9:34 am
Also, looking at Morningstar ratings for index ETFs is pointless anyway. The star rankings measure how well a fund did within its category. That means that the index funds will usually come in average. The main reason for 2-star or 4-star performance is that the index followed by the ETF did worse or better than whatever Morningstar category it got lumped into.
February 3rd, 2010 at 9:51 am
Vanguard doesn’t seem to be a fan of cross-subsidization, so I wouldn’t hold my breath for “free” ETF trades through VBS. There is a cost to these things. Vanguard will try to keep it low, but they are going to pass it along directly (except to the extent that it can be offset by the volume of expenses on a large account).
February 3rd, 2010 at 10:01 am
I bring up Morningstar because they are only just recently placing ratings on ETFs and it may seem to some readers of this blog that Morningstar provides reliable ratings.
Morningstar appears to be an authority and yet this company (in my opinion) is a group of analysts of past performance. I am not saying they are useless or worthless. I think their analysis can be valuable at times.
I’m merely mentioning Morningstar because they are one entity that looks at past performance and are not necessarily a predictor or a recommender of potential future direction of a particular investment. And despite the fact that they gave some of these ETFs 4 stars, I would not buy any one of them. I have not fully embraced the idea of owning one. With regards to the notion that lower expenses are influential of long-term performance, I’m certainly not in full agreement with that. Some low expense ratio mutual funds and ETFs are not good performers. But most importantly, thank you again Jonathan for the insights, the tips, and the regular blogging.
February 3rd, 2010 at 10:35 am
I am very new at investing and just wondering…… I have a traditional and Roth with Scottrade. Now, i am thinking of opening Vanguard (both Traditional and Roth) to buy their index fund to avoid paying brokerage fee. Would you recommend this? The advantage would be i don’t have to pay brokerage fee but I will have 4 accts instead of 2 accts……….I was thinking i will use Vanguard strictly for Vanguard mutual fund and scottrade for anything else. Should i just open Roth with Vanguard and keep traditional with Scott?????? So i will only have 2 accts instead of 4??? Should i also get Fedelity acct???
February 3rd, 2010 at 11:16 am
Yes Vanguard, how about them commission free ETF’s?
February 3rd, 2010 at 2:45 pm
I place zero significance on the star ratings of Morningstar. I do appreciate their other data offerings, and organized layout of their site.
If you could get great future investment performance simply by looking in the rearview mirror, life would be quite simple, no?
February 3rd, 2010 at 7:55 pm
Regardless of the Morningstar ratings, what is the general thought on ETFs?
February 3rd, 2010 at 8:30 pm
ETFs are basically mutual funds that are traded on an exchange. Thus they are constantly changing price all day long, instead of just once a day, and so you have a bid/ask spread to deal with. You usually pay a trade commission, but in this case they are free.
Just like mutual funds, they can hold all kinds of stuff so they can be good or bad.
February 4th, 2010 at 4:37 am
How do these compare to Schwab’s free ETF’s? Is it worth switching over to Fidelity to trade similar ETF’s with higher volume?
February 4th, 2010 at 10:50 am
Should I open Vanguard even though I have scottrade? I was thinking of getting Vanguard Star fund after reading your posting about some recommendation to your sis.
February 5th, 2010 at 8:57 am
At this point, I’m considering switching my entire Vanguard Portfolio over to a different provider.
It is really crazy that you can buy Vanguard ETFs cheaper at places like Schwab and Fidelity than you can at Vanguard. (Not to mention other ETFs trade free at those places!)
My only concern is how to do it without incurring huge charges or tax consequences. Right now, I’m leaning toward Schwab. I have my parents with them and have had a lot of good experiences.
I believe Vanguard will allow me to convert my Vanguard funds to ETFs without charges or tax consequences. That may be step 1. Step 2 is to move those to a different provider. I’ve loved ya Vanguard, but you are now a dinosaur…
February 5th, 2010 at 4:52 pm
I had heard about the drop in commissions but I did not know about the ETF’s commission free. That is one fine deal! Thank you!
February 6th, 2010 at 11:04 am
It seems to me that the Vanguard equivalent ETFs are better choices.
If you have an account at Vanguard, it’s not clear to me why one would be buying ETFs for a fee rather than buying the sister mutual fund for free. If you’re investing, you can convert to the ETF for free.
February 7th, 2010 at 7:13 am
Has anyone done a price and performance difference between Vanguard’s ETFs, Schwab’s ETF (avaiable free to Schwab One Brokerage accts), and iSHares ETF’s (available free to Fidelity accounts)? iShares has much higher expense ratio fees for their ETF’s compared to their counterparts at Vanguard. It would be interesting to see if buy&sell commissions savings for iShares is worth it compared to paying, say $20 for buy&sell, of Vanguard’s ETFs??
February 8th, 2010 at 2:32 pm
Only drawback with ETFs till now as trade commissions
With that gone, what will happen to Mutual Funds?
I dont have any ETFs yet, all mutual funds
If everyone starts seeling their mutual fund holdings and invest in ETFs, what will happen to the mutual fund price?
February 9th, 2010 at 8:47 am
I like you have my 401 and Roth accounts with Fidelity. Another reason to go with ETF’s is that I am charged a $75.00 transaction fee in my Fidelity accounts every time I want to make an additional deposit to one of my Vanguard accounts. It does feel limiting and I am thinking of going directly with Vanguard but I like the convenience of having Fidelity offices in Boston where I live.