When I plan for retirement, I want every dollar to work for me. High fees erode returns over time, and commission-based financial products often hide costs that chip away at wealth. Fidelity Investments offers both commission-free and commission-based retirement options. In this guide, I break down how to avoid unnecessary fees while maximizing growth.
Table of Contents
Why Commission Fees Hurt Retirement Savings
Financial advisors sometimes recommend products that pay them commissions. These fees reduce my investment gains without adding value. Consider a simple example: if I invest \$100,000 in a fund with a 1% annual commission, I pay \$1,000 yearly just for holding it. Over 30 years, assuming a 7% annual return, that fee could cost me over \$100,000 in lost growth.
The math behind this is straightforward. The future value (FV) of an investment with fees is calculated as:
FV = P \times (1 + r - f)^tWhere:
- P = Principal investment
- r = Annual return
- f = Annual fee
- t = Time in years
Without fees, \$100,000 grows to:
FV = 100,000 \times (1 + 0.07)^{30} = \$761,225With a 1% fee, it becomes:
FV = 100,000 \times (1 + 0.07 - 0.01)^{30} = \$574,349That’s a difference of \$186,876.
Fidelity’s Commission-Free Options
Fidelity provides several ways to invest without paying commissions:
1. Fidelity ZERO Funds
These index funds have no expense ratio and no commissions. Examples:
- Fidelity ZERO Total Market Index Fund (FZROX)
- Fidelity ZERO International Index Fund (FZILX)
2. ETF and Mutual Fund Commission-Free List
Fidelity offers over 3,000 no-transaction-fee (NTF) mutual funds and ETFs. I can trade these without paying extra.
3. Self-Directed Brokerage Accounts
If I prefer picking individual stocks, Fidelity charges $0 commissions for US stock trades.
Comparison of Fidelity’s Commission-Free vs. Commission-Based Options
| Feature | Commission-Free | Commission-Based |
|---|---|---|
| Expense Ratio | 0% – 0.15% | 0.5% – 1.5% |
| Trading Fees | $0 | $5 – $50 per trade |
| Advisor Involvement | Self-directed | Often recommended |
| Investment Flexibility | High | Limited by product |
How to Spot Hidden Commissions
Not all fees are obvious. Some ways advisors earn commissions include:
- Load Fees: Front-end (charged when buying) or back-end (charged when selling).
- 12b-1 Fees: Marketing fees deducted from fund assets.
- Revenue Sharing: Brokerages get payments for promoting certain funds.
I always check the prospectus for “shareholder fees” and “annual fund operating expenses.”
The Role of Fidelity’s Advisors
Fidelity offers both fee-only and commission-based advisors. If I seek advice, I opt for a fee-only advisor who charges a flat rate or hourly fee rather than earning commissions. This reduces conflicts of interest.
Tax Efficiency in Retirement Planning
Commission-free investing also helps with tax efficiency. Fewer transactions mean fewer taxable events. If I trade frequently in a taxable account, capital gains taxes eat into returns. Index funds like FZROX minimize turnover, keeping taxes low.
Behavioral Pitfalls to Avoid
- Chasing Performance: High-commission funds often market past returns, but past performance doesn’t guarantee future results.
- Overconfidence in Stock Picking: Most active funds underperform the market after fees.
- Ignoring Rebalancing Costs: Frequent trading increases fees. I rebalance annually, not monthly.
Final Thoughts
Avoiding commissions in Fidelity retirement planning ensures more money stays invested. I stick to low-cost index funds, avoid unnecessary advisor fees, and stay disciplined. Over decades, these small savings compound into significant wealth.
