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Global fund manager reduces fees to 0%

Throughout the last century the best way to create wealth has been simply owning shares for the long-term.

However, the biggest roadblock to regular people achieving those strong investment returns has been fees. If you achieve the market return but are paying out a lot of the returns as fees then you’re losing out. That doesn’t even include thinking about buying and selling at the wrong time.

If you don’t have the patience or skill to invest in individual shares then it could be better to invest in a low-cost index fund like iShares S&P 500 ETF (ASX: IVV) or Vanguard MSCI Index International Shares ETF (ASX: VGS).

These exchange-traded funds disrupted the whole investing game. Vanguard has revolutionised fund management by allowing regular people to invest at extremely low costs. Some of the ETFs these days have annual management fees as low as 0.05% or even lower.

Over the past few years passive funds have seen enormous inflow and active funds are increasingly unpopular as a percentage of where funds are flowing.

Fidelity is an investment business in the US which offers a wide range of products. It will soon be launching two funds with zero management fees in the US. Not 0.03%. Not 0.02%. Not 0.01%. 0%.

Why do this? Well I believe the idea is a similar concept to credit cards and reward points. Fidelity probably hopes that margin lending profit will make up for the cost of offering these funds for free.

Foolish takeaway

It is slightly ironic that the passive sector itself is being disrupted. We’ll see what Blackrock and Vanguard do next to combat this move. I’m sure Fidelity’s offering will be popular.

However, with more money blindly buying assets with no regard to prices I think the smart money is best left with quality growth shares like these hot stocks.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Vanguard MSCI Index International Shares ETF. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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