In my years of analyzing investment portfolios, I’ve found that expense ratios are the most potent variable an investor can control. They are the silent, relentless drag on performance, a fee paid regardless of whether your fund soars or plummets. When clients ask me about Fidelity, a titan in the investment world, the conversation is never simple. Fidelity is a fascinating paradox: it is both a pioneer of the zero-fee index fund and a purveyor of expensive, actively managed strategies. Therefore, the concept of an “average” expense ratio at Fidelity is almost meaningless without context. It’s like asking for the average temperature on Earth; the number itself isn’t helpful unless you know if you’re standing in the Sahara or the Antarctic.
Today, I will guide you through the diverse landscape of Fidelity’s fund expenses. We will move beyond a single average number and instead build a framework for understanding the cost structures you will encounter. I will show you how to decode a fund’s prospectus, calculate the real dollar impact of fees, and ultimately make informed decisions that align your money with your financial goals.
Table of Contents
Why There Is No Single “Average”
Fidelity Investments operates a vast ecosystem of funds, broadly falling into two distinct categories with wildly different cost philosophies:
- Passive Index Funds: These funds aim to replicate the performance of a specific market index, like the S&P 500 or the total stock market. Their strategy is automated and scalable, leading to incredibly low costs.
- Actively Managed Funds: Here, a portfolio manager and a team of analysts actively select securities, trying to outperform a benchmark index. This requires research, talent, and trading, all of which command higher fees.
Lumping these two categories together to find an average would be misleading. An average might land around 0.50%, but that number would obscure the critical reality: you could be paying 0.015% or 1.00% for a Fidelity fund, and the choice between them is one of the most significant you will make.
The Low-Cost Leader: Fidelity’s Index Fund Arsenal
Fidelity shook the entire investment industry in August 2018 when it introduced the first-ever zero-expense ratio index funds: FZROX (Fidelity ZERO Total Market Index Fund) and FNILX (Fidelity ZERO Large Cap Index Fund). This was a strategic masterstroke, effectively using these funds as loss leaders to attract assets and customer relationships.
The expense ratios in this category are not just low; they are often the lowest in the entire market.
Examples of Low-Cost Fidelity Index Funds:
- FZROX (ZERO Total Market Index Fund): 0.00% expense ratio
- FNILX (ZERO Large Cap Index Fund): 0.00% expense ratio
- FXAIX (500 Index Fund): 0.015% expense ratio
- FSKAX (Total Market Index Fund): 0.015% expense ratio
- FTIHX (Total International Index Fund): 0.06% expense ratio
- FXNAX (U.S. Bond Index Fund): 0.025% expense ratio
The cost savings here are profound. Let’s quantify the impact. Assume an investor has \text{\$100,000} invested in a total U.S. stock market fund.
- Scenario A (FZROX, 0.00% fee): Annual cost = \text{\$100,000} \times 0.0000 = \text{\$0}
- Scenario B (Industry “Average” Active Fund, 0.70% fee): Annual cost = \text{\$100,000} \times 0.0070 = \text{\$700}
The investor in the zero-fee fund has an immediate \text{\$700} advantage each year that remains invested and compounds on their behalf. Over 20 years, assuming a 7% annual return before fees, the difference is staggering.
Table 1: The Power of Low Fees – A $100,000 Investment over 20 Years
| Fund Type | Expense Ratio | Annual Cost (Year 1) | Value After 20 Years* | Total Fees Paid |
|---|---|---|---|---|
| Zero-Cost Index (FZROX) | 0.00% | $0 | $386,968.45 | $0 |
| Low-Cost Index (FXAIX) | 0.015% | $15 | $386,106.03 | ~$1,160 |
| Average Active Fund | 0.70% | $700 | $338,758.48 | ~$36,400 |
*Assumes a 7% gross annual return. Fee compounded annually. Future value calculated as: \text{FV} = \text{PV} \times (1 + (0.07 - \text{expense ratio}))^{20}
The investor in the average active fund ends up with over \text{\$48,000} less, solely due to fees. This is the mathematical reality that has driven the trillions of dollars into low-cost index funds over the past decade.
The Active Management Premium: Paying for Potential Outperformance
On the other end of the spectrum, Fidelity offers a suite of actively managed funds, many with legendary histories. Funds like Fidelity Contrafund (FCNTX), managed for decades by Will Danoff, or Fidelity Magellan Fund (FMAGX), once run by the mythic Peter Lynch, carry higher expense ratios to pay for their research-intensive strategies.
Examples of Fidelity’s Active Fund Expenses:
- FCNTX (Contrafund): 0.82% expense ratio
- FMAGX (Magellan Fund): 0.59% expense ratio
- FDGRX (Growth Company Fund): 0.77% expense ratio
- FSPHX (Select Health Care Portfolio): 0.68% expense ratio
The rationale for these higher fees is the potential for alpha—returns that exceed the market benchmark after accounting for risk. The critical question is: do these funds consistently generate enough excess return to justify their cost?
This is where the hurdle rate concept from our previous discussion on load funds becomes relevant. An active fund must outperform its benchmark by at least the amount of its expense ratio gap just to break even.
For example, take FCNTX (Contrafund), which benchmarks against the S&P 500. Its expense ratio is 0.82%. A comparable Fidelity index fund, FXAIX, has an expense ratio of 0.015%. The hurdle for FCNTX is significant:
\text{Performance Hurdle} = 0.0082 - 0.00015 = 0.0805 \text{ or } 0.805\%The Contrafund manager must outperform the S&P 500 by more than 0.80% per year, net of trading costs and taxes, just for an investor to be as well off as they would have been in the cheap index fund. This is a formidable challenge that many, though not all, active managers fail to meet consistently over the long term.
Beyond the Expense Ratio: Other Costs to Consider
As a fiduciary, I must look beyond the headline expense ratio. Two other costs can impact your net returns:
- Transaction Costs (Turnover): While not listed in the expense ratio, the internal trading costs incurred by the fund—especially high-turnover active funds—reduce its net asset value (NAV). A fund with a 100% turnover rate effectively trades its entire portfolio once a year, incurring bid-ask spreads and commissions. This is a hidden cost borne by shareholders.
- Tax Inefficiency: Active funds typically have higher turnover, which can lead to larger distributions of capital gains. These distributions are taxable events for investors holding the fund in a taxable brokerage account. In contrast, a low-turnover index fund like FXAIX is far more tax-efficient, allowing your investment to compound longer without the drag of annual tax payments.
A Practical Framework for Evaluating Any Fidelity Fund
When you analyze a Fidelity fund, don’t look for an average. Instead, follow this process:
- Identify the Strategy: Is the fund passive (index) or active? This will immediately tell you which cost universe it should belong to.
- Find the Expense Ratio: Look on Fidelity’s website or the fund’s prospectus. It’s listed as a percentage.
- Calculate the Dollar Cost: For any fund you are considering, do the math yourself:
\text{Annual Cost} = \text{Your Investment Amount} \times \text{Expense Ratio}
Is the service—whether it’s automated indexing or active management—worth that concrete dollar amount to you? - Compare to a Benchmark: For an active fund, compare its long-term performance (net of fees) to a low-cost index fund in the same category. Has it consistently cleared its hurdle?
- Consider the Context: Are you investing in a tax-advantaged account (like an IRA or 401(k)) or a taxable brokerage account? In a taxable account, the tax inefficiency of active funds adds another layer of cost.
Table 2: Fidelity Fund Cost Spectrum & Decision Guide
| Fund Name | Ticker | Type | Expense Ratio | Best For |
|---|---|---|---|---|
| ZERO Total Mkt | FZROX | Passive Index | 0.00% | The cost-conscious investor seeking ultimate efficiency in a tax-advantaged account. |
| 500 Index | FXAIX | Passive Index | 0.015% | The core equity holding for nearly any investor; industry-leading low cost. |
| Total Int’l Index | FTIHX | Passive Index | 0.06% | Low-cost, diversified international equity exposure. |
| Contrafund | FCNTX | Active | 0.82% | An investor willing to bet on a specific star manager’s ability to overcome a high fee hurdle. |
| Magellan Fund | FMAGX | Active | 0.59% | An investor seeking a piece of Fidelity’s history, understanding the active risk and cost. |
The Verdict: Your Cost, Your Choice
Fidelity’s genius is that it provides options for every type of investor. You can build a complete, globally diversified portfolio using only funds with expense ratios below 0.10%. This is a powerful and incredibly cheap toolkit for wealth building.
Alternatively, you can choose to pay a premium for the potential of market-beating returns through their active funds. This is a conscious, speculative bet, and you must go into it with your eyes wide open to the math.
There is no “average” Fidelity fund expense. There is only the cost of the strategy you select. In my professional opinion, the evidence is overwhelming: minimizing costs is one of the most reliable predictors of investment success. Fidelity, perhaps better than any other firm, gives you the tools to do exactly that. The choice, and the cost, are yours.
