Fidelity Target 2060 Index Fund has an expense ratio of 0.12%
vs.
Having FZROX and FZILX in a proportionate 3 fund portfolio with ZERO % expense ratio
Is there a catch to the zero percent expense ratio? What am I missing?
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Good question. I’m not sure either but following this post.
Add to those first two the 3rd part of the portfolio… 10% of FXNAX.
Can anyone help chime in?
There’s not really a catch! If you wanted to make a three fund portfolio with the two zero expense ratio funds and the cheap bond fund that would be a fantastic investment which I would absolutely support.
If you want the argument for the target date fund, it’s as follows:
- The expense ratio is still very close to zero. Investing $500/month at a 10% rate of return with 0% expense ratio for 40 years would net you: $3,162,040. The same thing with a 0.12% expense ratio would net you $3,048,832. So… it adds up a bit, but proportionately they’re pretty close.
- The target date fund handle asset allocation, rebalancing, and reallocating for you. For example, let’s say the US has a terrible year and international does great. Now you have to figure out how much US to buy and how much international to buy to stay on your target asset allocation. Same thing as you age. It’s not THAT complicated, but does introduce the opportunity for human emotion/error. A target date fund is just a single fund you dump your money into with ultimate simplicity.
That’s all I can think of. I tend to think the simplicity may be worth it. One human error in 40 years could wipe out the savings from that slightly lower expense ratio. But if you don’t mind investing in 3 funds instead of one, go for it! 
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