Maybe you’re looking for a brokerage. Maybe you’re curious about how your current investment company stacks up.
Either way, read on to understand why Fidelity is one of the investment companies that money expert Clark Howard recommends.
Table of Contents
Fidelity Investments Review: Quick Look
| Company Name | Fidelity Investments |
|---|---|
| Company Type | Investment and financial services company |
| Key Features | Minimal fees, strong education and research |
| Downsides | Customers need to take care to avoid more expensive funds |
| Best For | Almost everyone |
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What Is Fidelity?
| Commissions | Minimum Deposit | Robo-Advisor | Financial Advisor | Android App Rating | iOS App Rating |
|---|---|---|---|---|---|
| $0 for stocks, ETFs and options | $0 | Yes | Yes | 4.3 | 4.8 |
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Founded in 1946, Fidelity Investments is based in Boston. With $3.3 trillion assets under management as of June 2020, Fidelity is one of the largest asset managers in the world.
Fidelity's biggest competitors are Vanguard and Schwab. Clark strongly recommends (and actively does business with) all three.
In addition to offering free trades on stocks, exchange traded funds (ETFs) and options, Fidelity requires no minimum deposit. Customers can open the following account types:
- 401(k)
- 529
- Custodial
- Health Savings Account (HSA)
- Individual Retirement Account (IRA)
- Joint
- Taxable
- Trust
"Fidelity is a brilliantly-run company," Clark says. "They have this ability to cut through the clutter and offer certain things that are clearly better than other people.
"The 2% credit card is a perfect example. And the other thing they do is the Fidelity Zero funds where you pay no commission, no ongoing expenses. And they use these things as magnets to pull people into the organization because a lot of stuff at Fidelity is not cheap. It's a really, really smart strategy."
Who Should Use Fidelity Investments?
If you're simply looking for the strongest overall investment company, it's really hard to beat Fidelity. Even compared to Vanguard and Schwab, Fidelity may be the best overall.
Here are some examples of the types of investors whom Fidelity serves especially well:
- Beginners. In my opinion, Fidelity's investor education is the best in the industry. Combine that with free trades, no minimums and strong execution on trades, and Fidelity does a good job of putting newbies in a position to succeed.
- People with only a small amount of money to invest. There is no minimum investment at Fidelity. Vanguard is Fidelity's closest competitor, and most of its funds require a $3,000 minimum investment. Fidelity also offers the opportunity to buy fractional shares.
- Fundamental investors. Schwab (including the recently-acquired TD Ameritrade) is the only brokerage firm that is comparable in terms of research and tools. If you're a regular Warren Buffet who likes to stick to scouring a company's financial statements before making long-term investments, Fidelity is a great choice.
- Swing traders. Fidelity is excellent at order execution. Unlike day trades, which Clark discourages and which rarely involve holding positions overnight, swing trades can take a few days to a few months. Fidelity's fee structure and order execution make it an ideal brokerage for this strategy.
- Investors who follow Clark's "dull" retirement advice. Clark recommends target date funds and/or basic index funds. He also likes IRAs for retirement investing. Fidelity is strong on all of them.
Where Fidelity Shines
If there’s a particular feature or service that matters to many people, chances are Fidelity is one of the best in the business for what you want.
Here are some of the things that Fidelity does well:
- Fees. Fidelity doesn't charge commission on stock, ETF or options trades. That's now standard for most serious brokerage firms, but Fidelity has also removed many common account-related fees. It doesn't use Payment for Order Flow (PFOF) as a revenue stream, and it even offers some funds with zero-expense ratios.
- Order execution. Not using PFOF helps customers get the best possible price on trades. Fidelity takes things a step further with Fidelity Dynamic Liquidity Management (FDLM), which helps facilitate price improvement. The company has improved significantly on order execution in the last several years. According to Fidelity's stats, it executed stock trades at the same price or at a better price than the listed quote more than 96% of the time.
- Investor education. Fidelity excels at offering reliable perspective for all types of investors. There are better websites out there as far as user experience. But it's hard to compete with Fidelity's depth of in-house (and even in-person) educational materials and opportunities. It also offers its users streaming news feeds and video from Bloomberg TV.
- Research. There are more ways to evaluate investments than you can count. Fidelity offers more options than any other brokerage (except possibly Schwab).
- Perks. Fidelity is a massive company with savvy marketing and plenty of capital. It makes sense, then, that it offers customer incentives like Fidelity Zero funds, the Fidelity Rewards Credit Card (more on those below), in-person help at physical locations, seminars and more. Keep reading our Fidelity review for more details on some of those perks.
Where Fidelity Falls Short
Especially if you're making standard investments, the "cons" for Fidelity probably seem like nitpicking. If you want to follow Clark's advice on saving and investing, Fidelity is an excellent choice.
However, no restaurant can be all things to all people. The same goes for brokerage firms.
People who want the best sushi aren’t necessarily best served by a five-star French restaurant that happens to serve sushi. Especially when there’s a Japanese restaurant up the street that specializes in it.
Here are some of Fidelity’s shortcomings:
- Range of prices on funds. I'll discuss the Fidelity Zero funds in more detail shortly. However, investors should consider the "best" funds that a brokerage offers as well as the breadth of funds that it offers. Fidelity has plenty of funds with acceptable or excellent expense ratios. But, for example, as of June 2020, Vanguard's average expense ratio was 0.09% vs. just 0.38% for Fidelity.
- Not always the best choice for specialists. Fidelity offers a respectable platform for active traders. But those who trade at a high volume on a daily basis are probably better off elsewhere. Fidelity's fractional shares program isn't as extensive as some competitors'. You can't buy individual cryptocurrencies on the platform.
- Cash management account pays little interest. Fidelity pays 0.01% APY on your uninvested dollars. That's paltry even in this low-interest environment.
- Information and platform overload. Fidelity caters to active and passive investors separately. That includes a different set of educational materials, charts, tools and trading platforms. If you prefer simplicity, other investment platforms may be more appealing to you. If you're someone who uses both passive and active investing strategies, you may need to toggle back and forth between different platforms.
Fidelity Review: Zero Index Funds
In 2018, Fidelity became the first brokerage to offer 0% expense ratio funds. It also doesn't require a minimum investment. For many people, those two things are the real headline. Not even Vanguard, recognized as the leader in low-cost index fund investing, can claim either of those features.
The Fidelity Zero funds are:
- Large Cap Index Fund (FNILX)
- Total Market Index Fund (FZROX)
- International Index Fund (FZILX)
- Extended Market Index Fund (FZIPX)
Consider these three things before you purchase Fidelity Zero funds.
- Tax obligations ETFs tend to be more tax-advantaged than mutual funds. Mutual funds have to distribute capital gains (which are taxable). So if you have a retirement account and don't have to worry about capital gains taxes, zero-expense funds are great. But the bottom-line costs may make these funds a net negative compared to ETFs if you have a taxable account.
- Not every Fidelity fund includes a superior expense ratio Fidelity has continually improved its fees, minimums and expense ratios. But relative to competitors like Vanguard and Schwab, it still offers a fairly high percentage of funds with pricey expense ratios.
- Consider the big picture You can get funds with near-zero expense ratios at Fidelity, Vanguard, Schwab and others. Yes, there's a difference between paying 0% and 0.10% per year. But if you're currently invested in low-cost funds at another brokerage, you'll have to close those positions to move your money into Fidelity Zero funds. That move could cost you in taxes and/or fees, so you need to do the math. Plus, even with index funds tracking the same benchmark, there can be performance differences big enough to overcome a 0.10% difference.
Fidelity Review: Rewards Credit Card
Clark loves the Fidelity Rewards Visa Signature Card, which we recently reviewed.
The card offers customers 2% cash back on all purchases. That’s highly competitive, especially considering that it doesn’t charge an annual fee or require you to spend within certain categories.
The cash back is unlimited. So for every $1,000 you spend using your Fidelity Rewards Visa Signature Card, you’ll get $20 in rewards.
You aren’t forced to put your cash back into a Fidelity account, but you can. It’s a nice automated way to build your investment portfolio (and, of course, keeps your money at Fidelity). You can put your cash back into the following account types at Fidelity:
- Brokerage account
- Fidelity Cash Management Account
- Fidelity 529 College Savings plan
- Retirement account such as an IRA
- Fidelity Go account
- Fidelity Charitable Giving account
- Health Savings Account (HSA)
Instead of cash, you can also exchange your rewards points for travel, gift cards, credit card statement credits or merchandise.
Fidelity Review: Investor Education
If I had to describe Fidelity in one word, I’d pick “comprehensive.”
That extends to the company's educational content, housed within the Fidelity Learning Center. We're talking articles, podcasts, videos, webinars, in-person help and third-party content from Bloomberg.
If there’s a quibble, it’s that Fidelity’s website doesn’t feel modern as far as content consumption goes. There are other brokerages that offer sites with better design and navigation.
But if you’re looking for learning material you can trust, Fidelity may be unmatched. It’s an added benefit that Fidelity designs its content with different audiences in mind, catering to investors of all levels.
And Fidelity has lots of webinars. The week I wrote this article, there were four webinars scheduled in three days. You can also watch these webinars on demand, take classes for beginners or sign up for virtual coaching sessions.
Frequently Asked Questions About Fidelity
Does Fidelity Have Physical Locations?
Yes. Fidelity operates physical branches throughout the United States. According to Fidelity's website, it has 206 locations in 37 different states, plus Washington D.C.
Does Fidelity Offer a Robo-Advisor?
Yes. In fact, Fidelity Go made my list of the best robo-advisors.
Its portfolios are more correlated with large-cap U.S. stocks than most robo-advisors, so it has performed well in the last several years.
Fidelity Go doesn’t charge an annual fee until you invest $10,000. Then it’s $3 per month until you invest $50,000, at which time the price levels out at 0.35% annually.
It’s the only robo-advisor I’ve reviewed with no underlying expense ratios, so the numbers you just read are all-in costs.
What Are Fidelity’s Financial Advisor Options?
Fidelity has three tiers to its financial advisor services:
| Name | Minimum Investment | Annual Fee |
|---|---|---|
| Personalized Planning & Advice | $25,000 | 0.50% |
| Wealth Management | $250,000 | 0.5%-1.5% |
| Private Wealth Management | $2 million via Fidelity, $10 million in total assets | 0.20%-1.04% |
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Fidelity's financial advisors are fiduciaries, which Clark says is a must.
He’s a fan of hybrid options that use digital or “robo” advisors to handle your investments while offering you full-fledged access to Certified Financial Planners (CFPs).
However, Clark prefers Vanguard's Personal Advisor Services ($50,000 minimum, 0.30% annual fee) and Schwab's Intelligent Portfolios Premium ($25,000 minimum, one-time $300 planning fee, $30 per month).
If you have enough assets to take advantage of Fidelity’s higher-tier financial advisor options, you’ll get perks like a credit card with 3% cash back and access to CFP specialists who focus on things like tax strategy.
Read more of Clark's advice on financial advisors here.
Which of Fidelity’s Target Date Funds Should I Pick?
Target date funds are a simple yet effective way to invest for retirement. They're one of Clark's top investment recommendations.
However, if you choose to utilize Fidelity’s target date funds, be very careful. Upon first glance, does it seem like there would be a major difference between these?
- Fidelity Freedom 2055 Fund (FNSDX)
- Fidelity Freedom Index 2055 Fund (FDEWX)
That one extra word makes a huge difference. The first fund, which is standard at Fidelity, is actively traded with a 0.65% expense ratio. The second fund — the one with the word “index” in it — is passively traded with a 0.12% expense ratio.
Guess which one performed better since the inception of FNSDX in July 2017? The one that’s more than five times cheaper, and it beat the other fund by a wide margin (7.7% to 6.7% annual ROI).
If you use a Fidelity target fund, take care to pick the one with the word “index” in it.
Can I Use Fidelity As My Bank?
Yes. Fidelity offers cash management accounts. You can invest from these accounts, but they also offer many features of a traditional bank including:
- A debit card
- Free checking
- Free ATM access at any bank
- Electronic bill pay and transfers
- $0 monthly fees
- $0 minimum account balance
- 0.01% APY on uninvested cash
- Money insured by the FDIC up to $1.25 million
As you’d expect after reading this Fidelity review, the company excels in this area, too: It doesn’t charge the types of fees that many of the big banks do.
However, Fidelity is set up to make a decent amount of profit on your cash, so you'll find much better interest rates at some online banks and credit unions.
Final Thoughts
As you can tell from my Fidelity review, whether you're just getting started or you have a sizeable portfolio, we here at Clark.com think it's a great place to invest.
In almost every major category, it’s difficult to find a single brokerage that’s better than Fidelity. If I want to pick some nits here, I would say that Vanguard has a better overall selection of index funds. And especially after purchasing TD Ameritrade, Schwab may edge Fidelity in terms of research.
Fidelity’s strengths are nice. But its lack of weaknesses is what impresses me the most. If you’re looking to invest with the best all-around brokerage, you can pick Fidelity and not think twice.
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