Keep an Eye on Those Bond Investment Fees

While re-balancing my portfolio stock/bond/cash ratios, I discovered something I had not seen before…

While I talk about my Fidelity account, it is almost certain that this issue will be found with most brokerages. 

If you use the Brokerage link option to manage your 401K investments, and if you have other Fidelity investment accounts, it is worth taking a look at your “core position”.  Depending on the account type, your “un-invested” money is not in cash. When you sell a stock or bond, if you don’t re-invest, it sits in a core position. 

If you aren’t leaving your money in the core for long, it doesn’t matter much.  If you decide to use it to “pull some money out of the scary market”, this is probably a bad place for it to sit. Your core position is probably mostly bonds, so it may just be your default bond allocation. 

If the position is a non-cash position, like in the Brokerage link account or the one you get with an ESPP, then the money is in a super low risk investment. The key here is that they are in a managed investment with fees! Everyone knows how to invest for low risk and low returns, so this should be free or near free.  The fees are low for mutual and bond funds in general, but for some default positions, surprisingly high for the lack of value the fund manager has to deliver.

I find 3 possible core positions in my plans:

·         SPAXX 0.42%

·         FZFXX 0.35%

·         FDRXX 0.35%

I don’t like to give investment advice, just things to ponder, but I will point out that there are many Vanguard funds with much lower expense ratios, like 0.07% .  Many of these are in super low risk government bonds. Most consider those bonds less risky than cash due to inflation.  All three above have about 70% of your money in cash, 25% in government bonds and 5% misc. As far as I can tell, you are paying a higher fee to have your money as cash.

Before you say, “All this is sub 1% stuff, so what”, take a look at the cost of a long term over pay. Take a look at a comparison. 

FWIW, if you are using Index Funds for you Stock investments, the expense ratios should be crazy low as well.  How hard is it to read the S&P 500 and buy a bunch for your investors??? 

As always, trust no one…