As an investor, I always look for ways to maximize returns while minimizing costs. One option that has gained traction is Ally Invest’s no-commission mutual funds. In this guide, I break down everything you need to know—how they work, their advantages, potential drawbacks, and whether they fit into your investment strategy.
Table of Contents
What Are Ally No Commission Mutual Funds?
Ally Invest, the online brokerage arm of Ally Bank, offers a selection of mutual funds with no transaction fees (NTF). This means I can buy or sell these funds without paying a commission, which can save me money over time.
How Do No-Commission Mutual Funds Work?
Most brokerages charge fees when trading mutual funds—typically between $10 and $50 per trade. Ally’s NTF funds eliminate these costs, making them cost-efficient for frequent traders or long-term investors.
However, no commission doesn’t mean no fees. Mutual funds still have expense ratios, which cover management and operational costs. For example, if a fund has an expense ratio of 0.50\%, I pay $5 annually for every $1,000 invested.
Advantages of Ally No Commission Mutual Funds
1. Lower Transaction Costs
By avoiding per-trade fees, I keep more of my money invested. If I invest $10,000 across 10 different funds, traditional brokerages might charge me $100 to $500 in commissions. With Ally, I pay $0 in trading fees.
2. Diversification Made Easier
Since I’m not penalized for multiple trades, I can build a diversified portfolio without worrying about excessive fees.
3. Ideal for Dollar-Cost Averaging (DCA)
DCA involves investing fixed amounts regularly. With no commissions, I can invest small sums frequently without eroding returns.
Example:
If I invest $500 monthly in a no-commission fund vs. a fund with a $10 fee:
| Scenario | No-Commission Fund | Fund with $10 Fee |
|---|---|---|
| Annual Cost | $0 | $120 |
| 10-Year Cost | $0 | $1,200 |
Over a decade, avoiding commissions saves me $1,200, which could compound into a significant amount.
Potential Drawbacks
1. Limited Fund Selection
Ally’s NTF list is smaller than some competitors like Fidelity or Schwab. If I want niche funds, I may need to pay commissions elsewhere.
2. Expense Ratios Still Apply
Even with no trading fees, high expense ratios can eat into returns. For example:
- Fund A: Expense ratio = 0.10\%
- Fund B: Expense ratio = 1.00\%
If I invest $100,000 for 20 years with an average return of 7\%:
FV_A = 100,000 \times (1 + 0.07 - 0.001)^{20} \approx \$387,000 FV_B = 100,000 \times (1 + 0.07 - 0.01)^{20} \approx \$320,000The higher fee reduces my final value by over $67,000.
3. Possible Conflict of Interest
Some no-commission funds may be proprietary or have revenue-sharing agreements. I always check if Ally promotes certain funds because they earn extra fees from fund providers.
Comparing Ally to Other Brokerages
| Feature | Ally Invest | Fidelity | Charles Schwab | Vanguard |
|---|---|---|---|---|
| No-Commission Funds | Yes | Yes | Yes | Yes |
| Number of NTF Funds | ~100 | ~3,500 | ~4,000 | ~1,800 |
| Minimum Investment | Some funds have $0 minimum | Varies | Varies | Often $3,000 |
| Expense Ratios | Competitive | Low (some zero-fee funds) | Low | Very low |
Ally’s selection is modest, but if I stick to mainstream index funds, it’s a solid choice.
Who Should Consider Ally No Commission Mutual Funds?
- Cost-Conscious Investors – If I want to avoid trading fees.
- Passive Investors – If I prefer low-cost index funds.
- Beginners – Easy access with no minimums on some funds.
Final Thoughts
Ally’s no-commission mutual funds are a smart option for investors who prioritize low costs. However, I must still evaluate expense ratios and fund quality. If I need a broader selection, I might consider Fidelity or Schwab.
