Fidelity Investor Class Vs Premium Class – Where To Invest?

One might want to invest in the premium class if they have a low tolerance for investment risk and wish to keep their investment’s value relatively stable. Or for someone seeking to complement their bond and stock fund holdings to reach a particular asset allocation. The investor class is for those seeking a total high return until this fund’s retirement date is relatively riskier than the premium class. Fidelity recently removed their minimum investment rule on all classes. Always decide on investing after carefully reading all the terms and conditions as the decision may vary individually. 

When it comes to investing your hard-earned money, there’re many popular choices for casual investors and traders.

Fidelity offers commission-free trading for stocks, EFTs, and options contracts and is among the oldest and most favorable people’s choices.

People love this platform for its no-account opening fees, account inactivity fees, or fees for domestic wires with either broker.

Those familiar with it don’t face any issues navigating their way, but those new to the scene might become confused.

There’s a need to distinguish between investor class and premium class for an investor. One might be more suitable for you according to your needs than the other. 

Fidelity investments

Before jumping into the various classes, a little background history can help even beginners understand what Fidelity offers.

Fidelity has offered investors high value with excellent research, valuable tools, and extensive educational resources for a long time.

A young man is using his laptop and smartphone to invest online

Especially for the new individual investors entering the market for the time, it has made investing relatively easy to understand.

While experts can take benefit of the services fidelity has to offer, the novice can also carve out their own space.

Fidelity is easy for the casual, buy-and-hold investor by taking advantage of a broad selection of tools, research, and resources coupled with easy order entry.

Fidelity offers Active Trader Pro, a downloadable program with streaming real-time data and a customizable trading interface for experts. 

For new rules on the minimum investment check their new rules regarding it.

Fidelity investor class shares

Investor shares are mutual fund classes of shares explicitly structured for investment by individual (retail) investors instead of institutional investors.

They are most commonly offered in open-end mutual funds. 

The objective of the investor class is to seek a high total return until its target retirement date.

The main aim is to seek high current income, and the secondary objective is capital appreciation.

While Fidelity doesn’t charge for opening an account, there are still some fees and expenses when you decide to buy and hold shares of this class.

There are no shareholder fees, and they are paid directly from your investment.

Annual Operating Expenses (expenses that you pay each year as a % of the value of your investment)
Management fee0.12%
Distribution and/or Service (12b-1) feesNone
Other expenses0.00%
Total annual operating expenses0.12%

While the calculations might seem complex, an example might clarify how investing in the investor class can be different from the premium class fund.

If the annual return of the shares of the fund is 5%. And your shareholder fees plus annual operating expenses for shares of the fund are as described in the table above.

The expenses and fees may vary. But let’s say that for every $10,000 you decide to invest, below is how much you would pay in total expenses if you sell all of your shares at the end of each time period:

1 year$12
3 years$39
5 years$68
10 years$154

For individual investors investing in the investor class, there would be no transaction costs, such as commissions, when it buys and sells shares of underlying Fidelity funds.

Still, it could incur transaction costs if it were to buy and sell other types of securities directly. 

Suppose this fund was to buy and sell other types of securities directly. In that case, a higher portfolio turnover rate could indicate higher transaction costs and result in higher taxes when fund shares are held in a taxable account.

Such costs won’t be reflected in annual operating expenses or in the example and would affect the fund’s performance. 

During the recent fiscal year, the fund’s portfolio turnover rate was 33% of the average value of its portfolio. 

Principal investment strategies

A young woman is using her laptop to check her investments in the stock market
  1. Investing primarily in a combination of Fidelity U.S. equity funds, international equity funds, bond funds, and short-term funds (underlying Fidelity funds) seeks to provide investment results that correspond to the total return of a specific index.
  2. Allocating assets according to a stable asset allocation strategy.
  3. Buying and selling futures contracts to manage cash flows efficiently remain fully invested, or facilitate asset allocation. 

Principal investment risks

Risks are always there in each class fund when you decide to invest. It’s better to be aware of these risks before investing in them to decide where to invest.

The fund’s share price fluctuates, and one might lose their money near or after the target retirement date.

  • This class is subject to risks resulting from the Adviser’s asset allocation decisions.
  • This fund all bears risks of investment strategies employed by the underlying funds, including the risk that the underlying funds will not meet their investment objectives.
  • Stock markets are volatile and can decline significantly due to adverse issuer, political, regulatory, market, or economic developments. 
  • Interest rate increases can cause the price of a debt security to decrease.
  • Foreign exposure.
  • Industry exposure.
  • The ability of an issuer of a debt security to repay principal before a security’s maturity can cause greater price volatility if interest rates change.
  • Issuer-specific changes.
  • Correlation to index.
  • Passive management risk.
  • Leverage risk.
  • Inflation protected debt exposure.
  • Securities lending risk.

We can understand the risk of investing in this fund from the year-by-year returns. From the year 2011 to 2020, the return observed were:

During the periodsReturnQuarter ended
Highest quarter return5.31%June 30, 2020
Lowest quarter return2.10%September 30, 2011
Year-to-date return1.02%March 31, 2021

Return After Taxes on Distributions and Sale of Fund Shares may be higher than other returns for the same period due to a tax benefit of realizing a capital loss upon the sale of fund shares.

For the periods ended December 31, 2020Past 1 yearPast 5 yearsPast 10 years
Investor class   
Return Before Taxes8.54%5.68%4.22%
Return After Taxes on Distributions7.67%4.59%3.38%
Returns After Taxes on Distributions and Sale of Fund Shares5.14%4.05%3.01%
Bloomberg Barclays U.S. Aggregate Bond Index7.51%4.44%3.84%
Fidelity Freedom Index Composite Index8.61%5.82%4.55%

Premium class 

Investing in the premium class is to know that this fund seeks as high a level of current income as is consistent with preservation of capital and liquidity.

Here’s a table showing the fees and expenses you’ll have to incur when buying and holding shares of this fund.

Annual Operating Expenses (expenses that you pay each year as a % of the value of your investment)
Management fee0.25%
Distribution and/or Service (12b-1) feesNone
Other expenses0.11%
Total annual operating expenses0.36%
Fee waiver and/or expense reimbursement0.06%
Total annual operating expenses after fee waiver and/or expense reimbursement0.30%

Suppose the annual return for shares of the fund is 5% and that your shareholder fees and annual operating expenses for shares of the fund are exactly as described in the fee table.

If you invest $10,000, then below is an estimation of how much you would pay in total expenses if you sell all of your shares at the end of each time period:

1 year$31
3 years$107
5 years$194
10 years$448

Principal investment strategies

  • Normally, investing at least 99.5% of total assets in cash, U.S. Government securities, and/or repurchase agreements that are collateralized fully.
  • Investing in U.S. Government securities issued by entities that are chartered or sponsored by Congress but whose securities are neither issued nor guaranteed by the U.S. Treasury.
  • Investing in compliance with industry-standard regulatory requirements for money market funds for the quality, maturity, liquidity, and diversification of investments.

The Adviser stresses maintaining a stable $1.00 share price, liquidity, and income. 

Principal investment risks

  • Interest rate changes such as increases can cause the price of money market security to decrease.
  • A low or negative interest rate environment can adversely affect the fund’s yield.
  • A decline in the credit quality of an issuer or a provider of credit support or a maturity-shortening structure for a security can cause the price of a money market security to decrease. 

You could lose money by investing though the fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. An investment in the premium class fund isn’t insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. 

Fidelity Investments and its affiliates, the fund’s sponsor, have no legal obligation to provide financial support to the fund. You shouldn’t expect that the sponsor will provide financial support to the fund at any time.

The fund will not impose a fee upon the sale of your shares. It won’t temporarily suspend your ability if the fund’s weekly liquid assets fall below 30% of its total assets because of market conditions or other factors. 

Analyzing the year-by-year returns from the year 2016 to 2020 to form an estimation of the return, which is as follows:

During the period of 2016 to 2020ReturnsQuarter ended
Highest Quarter Return0.54%June 30, 2019
Lowest Quarter Return0.00%December 31, 2020
Year-to-Date Return0.00%March 31, 2021

The Average Annual Return ending December 31, 2020, for the premium class, was 0.42% for the past one year, 1.18% for the past five years, and 1.03% for the life of the class.


What is the difference between a Class A and Class B mutual fund?

Class A shares charge an upfront sales fee, or front-end load, that is deducted from your initial investment. 

Class B shares have a back-end or contingent deferred sales charge.

This fee is paid when you sell shares for a specified year after the original purchase. Someone who has limited cash will be good for these kinds of shares.

B shares are slowly disappearing from the mutual fund industry because of more regulatory focus on fees.

Many funds companies are dropping these fees and shrinking the class offerings to compete with exchange-traded funds.

Class A shares would be best for those looking to plan their retirement because they offer costs that decline over time.

Also good for those looking to invest one lump-sum amount, which is enough to qualify 

To summarise

Investing is a big decision, but it’s a great option for both the novice and the expert when it comes to Fidelity.

It’s popular because of its low costs, excellent trade executions, robust research and asset screeners, and rich educational offerings.

There’re pros and cons to both investor class and premium class, but the good thing is that Fidelity offers commission-free trading, and they charge no account fees.

The investor class is designed chiefly for retirement purposes. 

If you think of investing in the investor class, you might want to consider its high risk compared to the premium class, where there’s low investment risk. It’s a very personal decision varying from individual to individual.

Carefully read all terms and conditions before thinking of investing any amount. 

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