Fidelity Commission Free ETFs Review and How to Build an All-ETF Portfolio

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ETF:
Fidelity
Price:
$0 commission

Reviewed by:
Rating:
3
On November 1, 2012
Last modified:November 1, 2012

Summary:

Trade 30 iShares ETFs without any brokerage commission at Fidelity and use them to build a diversified all-ETF portfolio. Open an Fidelity brokerage account with $2,500 initial deposit. No annual account fee. Trade other stocks and ETFs with $7.95 commission for any online order regardless the number of shares.

Do you know that you can trade iShares ETFs for free with Fidelity? Well, not exactly all iShares ETFs, but at least 30 of them. Last year, Fidelity joined a growing number of brokers to offer their customers access and trade 30 iShares ETFs without any brokerage trading commission. Usually when you buy of sell Exchange Traded Funds (ETFs), you will pay the broker regular commissions just like you would pay when trading stocks. But in the case of Fidelity, since it received compensation from the ETF provider iShares to promote some of its ETFs to Fidelity customers, the brokerage firm is able to waive trading commissions on those ETFs being offered.

Fidelity Commission Free ETFs Review

Currently, only 30 iShares ETFs are available commission-free at Fidelity. Even though the number may not be seen as impressive given the total number of ETFs on the market, it is still possible to a broad, diversified investment portfolio using just the free iShares ETFs that consists of large-, mid-, and small-cap U.S. equities, emerging and developed international equities, Treasury and corporate fixed income funds, and specialty fund such as real estate. Based on their asset classifications, the commission-free iShares ETFs from Fidelity can be grouped as:

U.S. Equity Index FundsĀ 

  • S&P 500 (IVV)
  • S&P 500 Value (IVE)
  • S&P 500 Growth (IVW)
  • Russell 3000 (IWV)
  • Russell 1000 (IWB)
  • Russell 1000 Value (IWD)
  • Russell 1000 Growth (IWF)
  • Dow Jones Select Dividend (DVY)
  • S&P Mid-Cap 400 (IJH)
  • S&P Mid-Cap 400 Value (IJJ)
  • S&P Mid-Cap 400 Growth (IJK)
  • S&P Small-Cap 600 (IJR)
  • S&P Small-Cap 600 Value (IJS)
  • Russell 2000 (IWM)
  • Russell 2000 Value (IWN)
  • Russell 2000 Growth (IWO)

International Equity Index Funds

  • MSCI ACWI (ACWI)
  • MSCI ACWI ex U.S. (ACWX)
  • MSCI EAFE (EFA)
  • MSCI EAFE Small-Cap (SCZ)
  • MSCI Emerging Markets (EEM)
  • Dow Jones International Select Dividend (IDV)

Fixed Income Funds

  • Barclays Aggregate (AGG)
  • Barclays TIPS (TIP)
  • iBoxx Investment Grade Corporate (LQD)
  • iBoxx High Yield Corporate Bond (HYG)
  • JP Morgan USD Emerging Markets (EMB)
  • S&P National AMT-Free Municipal (MUB)

Real Estate Funds

  • Dow Jones U.S. Real Estate (IYR)

As you can see from the above list, you have plenty of choices in the U.S. equity funds category, while specialty or sector funds, which could include real estate and precious metal, are rather limited. But that should not be a big issue because a broad market fund, such as S&P 500 or Russell 3000, is likely to already have most of sector stocks in its tracking index, thus giving you representations of these sectors in your portfolio. The benefit of having specific sector funds in the portfolio is these sector funds don’t always correlate with the broad market and the weak correlation usually provides diversity, which in the long run could improve the portfolio’s overall return.

All-ETF Asset Allocation and Portfolio

So how can you build a diversified portfolio with these commission-free ETFs then? Well, the first step is determine the allocation of different assets in the portfolio. For example, here’s what I want my all-ETF portfolio look like:

  • 50% U.S. Equity
  • 30% Internation Equity (exclude U.S.)
  • 20% Fixed Income

and among U.S. equities, I would also like to have all three market-cap categories as well as specialty fund in the portfolio, which can be broken down as

  • 50% Large-cap
  • 10% Mid-cap
  • 30% Small-cap
  • 10% Real Estate

The reason to have a large small-cap allocation is that historically, small-cap funds have outperformed large-cap funds (of course, small-cap stocks are also more volatile than large-cap stocks), so by having a large portion of my assets invested in small-cap stocks, my portfolio’s long-term return could get a boost. With the above allocation, my overall all-ETF portfolio could look like this:

  • 25% S&P 500 (IVV)
  • 5% S&P Mid-Cap 400 (IJH)
  • 15% Russell 2000 (IWM)
  • 5% Dow Jones U.S. Real Estate (IYR)
  • 30% MSCI ACWI ex U.S. (ACWX)
  • 20% Barclays TIPS (TIP)

Of course, I can always further break down the international equity part to include both developed and emerging markets, and to include both Treasury and corporate bonds in the fixed income categories.

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