1

I currently use Fidelity for my Roth IRA. I am very interested in socially-responsible/sustainable/alternative energy investing. However for these type of funds I am typically finding 2 options:

  1. ex: expense ratio of .22 BUT with a $75 transaction fee
  2. ex: expense ratio of .94-.99 (I don't let myself even consider ratios greater than 1.0), BUT with no transaction fee (ie a Fidelity fund)

At what point does one take precedence over the other? I know that in general you want the lowest expense ratio possible. But if I can get a really low expense ratio is it worth paying the $75 fee? Which I think is a 1x fee?

I have been searching the internet for an answer to this question, but any time a similar question is asked the responses manage to become tangential, discussing using both Fidelity and Vanguard and Schwab and whatever else and have all your funds in different places. Maybe one day I will be savvy enough to keep track of multiple different accounts, but I am currently not at that point and need to see everything on 1 screen.

So which ends up being more important in the end: low expense ratio or no-transaction fee?

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The question is valid, you just need to work backwards. After how much money-time will the lower expense offset the one time fee? Lower expenses will win given the right sum of money and right duration for the investment.

1

The fee representing the expense ratio is charged as long as you hold the investment. It is deducted daily from the fund assets, and thus reduces the price per share (NAV per share) that is calculated each day after the markets close. The investment fee is charged only when you make an investment in the fund. So, invest in the fund in one swell foop (all $5500 or $6500 for older people, all invested in a single transaction) rather than make monthly investments into the fund (hold the money in a money-market within your Roth IRA if need be). But, do check if there are back-end loads or 12b1 fees associated with the fund. The former often disappear after a few years; the latter are another permanent drain on performance. Also, please check whether reinvestment of dividends and capital gains incur the $75 transaction fee.

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