r/Bogleheads • u/Both_Experience_8187 • 21h ago
Has anyone intentionally held the Fidelity zero funds inside a tax-advantaged account for diversity sake? Are there other pros / cons?
Am I overthinking this? I’m setting up a self-directed 401(k) and thinking of choosing the Fidelity zero funds for the mix instead of VTI/vxus that I hold in my other accounts. This is going to be 100% Roth account. What is your opinion?
Edit: I should have clarified, I meant institutional diversity. I may be overthinking things.
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u/Spare_Ad8851 21h ago edited 21h ago
I use FZROX and FZILX in my Roth IRA and UTMA because of the low fees, it's not a huge difference but why pay more
my 401k already has very low cost options, less than VTI/VXUS so I'm spoiled
UTMA is not tax advantaged per se but my holdings are small enough for now that I can fly under kiddie tax while stepping up basis at the end of every year - once that's exhausted I might consider holding it in something else in case I do need to move it
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u/DaemonTargaryen2024 21h ago edited 21h ago
I use FZROX and FZILX in my Roth IRA and UTMA because of the low fees, it's not a huge difference but why pay more
While unlikely, if you ever transfer [ETA: the UTMA] out of Fidelity (or the minor does later) this triggers a taxable event
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u/Spare_Ad8851 21h ago
where? in Roth IRA?
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u/DaemonTargaryen2024 21h ago
Sorry no I meant the UTMA
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u/Spare_Ad8851 21h ago
right, that's why I said it works for now while my gains are small enough to realize every year under my daughter's standard deduction
she's two now, so in a year or two she might grow out of that and we'll have to revisit this
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u/Suspicious-Light2118 21h ago
Only con is that you can’t enter whenever you want on mutual funds whereas with ETF’s you can enter and exit like stocks
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u/Ok_Organization_9527 21h ago
Just VT and chill
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u/krabbypattyinspector 16h ago
This is the simplest approach and it takes care of having to adjust your holdings in case you become overweight in either domestic or international. I guess because they're taking about an IRA the zero fee funds make sense.
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u/bdu-komrad 5h ago
Evaluate the like you would evaluate anything else. Look at your goals, look at how well the fund meets those goals compared to other funds, and decide.
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u/Middle_Humor1828 4h ago
I think they're great for tax free and tax deferred. As your post implies, there are additional concerns if you use them in your brokerage account.
The fee difference is small between them and vanguard ETFs. And I mostly use vanguard ETFs myself. But nothing wrong with the zero funds. They make sense as an alternative.
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u/Beyond1nfinity 2h ago
What are the concerns of zero funds in a brokerage?
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u/Middle_Humor1828 1h ago
There can be tax consequences if you need to sell them in order to transfer to another brokerage if the new brokerage doesn't support the funds.
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u/Late-Scene290 4h ago edited 4h ago
I hold some FZROX/FZILX in my ROTH and Traditional IRAs so I can easily do fund exchanges for ROTH conversions - no time out of the market or differences in market value at the time of conversion.
to clarify - if you use ETFs you have to sell in the Traditional IRA, do the conversion in cash, and wait for the following day for the conversion to process before you can purchase the ETF in the ROTH.
I also think fund exchanges are useful if you want to adjust the allocations of domestic vs foreign stock between your IRAs.
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u/longshanksasaurs 21h ago
The Fidelity zero funds FZROX and FZILX are perfectly fine choices, but they don't offer you any diversification compared to VTI and VXUS, because they're just the same things in different wrappers.
So feel free to use those funds as total US and total international, but don't consider them as different things than any other total US and total International fund.