For most of the twentieth century, investing in the stock market wasn’t just risky — it was expensive. Not in the “markets go up and down” kind of way. Expensive in the “you’re paying a toll just to play” kind of way. Commissions, sales loads, management fees — the financial industry had built a remarkably effective system for extracting money from investors before the market ever had a chance to do its job.
What happened between 1975 and today is one of the most consequential and under appreciated stories in personal finance. Four companies, across five decades, drove the cost of investing from predatory to essentially zero. They didn’t coordinate. In most cases, they were competing aggressively against each other. But the result for everyday investors has been nothing short of transformational.
The Starting Gun — Chuck Schwab, 1975
The story starts not with a company, but with a regulation.
On May 1, 1975 — a date Wall Street called “May Day” — the SEC ended nearly 200 years of fixed brokerage commissions. Before that date, every broker charged the same mandated rate to execute a trade. There was no competition on price, no shopping around, no incentive to be efficient. If you wanted to buy a stock, you paid what the industry decided you’d pay.
When the rules changed, most established firms did exactly what you’d expect: they chose to increase commissions for individuals while lowering them for institutions. The deregulation that was supposed to create competition was immediately used to widen the gap between Wall Street and Main Street.
Then there was Chuck Schwab. Then 37 years old, he dropped fees by more than 50% and effectively expanded choice and access to investing for all Americans. He also built a new business model that paid brokers a salary rather than commissions, putting clients’ goals first. Schwab launched discount brokerage services charging significantly lower fees — such as $29.95 per trade for orders under 1,000 shares — to attract individual investors who had previously been deterred by high costs.
A 1977 SEC study estimated that competitive pricing saved investors about $700 million in fees within the first 20 months after May Day. The discount brokerage era had begun — and Schwab was at the front of it.
The Expense Ratio War — Vanguard, 1976
One year after May Day, Jack Bogle launched the First Index Investment Trust — now known as the Vanguard 500 Index Fund — and started a different kind of cost war.
The target wasn’t trading commissions. It was the ongoing drag of fund management fees. Before Vanguard, actively managed mutual funds were the primary vehicle for everyday investors who couldn’t afford to build diversified stock portfolios on their own. The problem: those funds came layered with front-end sales loads as high as 5–8.5%, meaning an investor could lose nearly a tenth of their deposit before a single dollar was put to work. Ongoing expense ratios for actively managed funds compounded the damage, running well above 1% annually.
Bogle’s answer was an index fund — a fund that didn’t try to beat the market, just track it, at the lowest possible cost. It was mocked as “Bogle’s Folly.” Critics said settling for average returns wasn’t worth paying for. But average returns at a fraction of the cost compound into something far from average over a career.
The ripple effect is now measurable. Vanguard’s asset-weighted average expense ratio fell from roughly 0.68% in 1975 to about 0.09% today. The industry average was dragged down alongside it, from 0.73% to roughly 0.49%. Index funds today average around 0.11% versus 0.59% for active funds — a gap that, compounded over a 30-year career, represents the difference between retiring comfortably and retiring early.
“In investing, you get what you don’t pay for.”
John Bogle
That’s the Vanguard Effect: lower fees not just for Vanguard customers, but for everyone, because every competitor eventually had to respond.
Commission-Free Trading — Robinhood, 2013
By the early 2010s, discount brokers had driven commissions down significantly from the pre-1975 era — but “significantly lower” still meant $7–10 per trade for a typical online order at Schwab, Fidelity, or E*Trade. For a small investor making regular contributions, that toll still stung. Invest $50 a week and a $7 commission is a 14% haircut before you’ve bought a single share.
Robinhood launched in 2013 with a simple proposition: zero commissions, period. No catch, no minimum balance, no per-trade fee. It was dismissed by industry veterans as unsustainable. It turned out to be unstoppable.
By 2019, Robinhood had amassed millions of users and the pressure on incumbents had become impossible to ignore. Schwab moved first among the major legacy brokers, eliminating online equity commissions entirely in October 2019. The decision forced all major competitors to follow, eliminating a major revenue stream across the industry overnight. Fidelity, E*Trade, and TD Ameritrade all fell within days. What Robinhood had spent six years normalizing became the industry standard in a single week.
Taking It All the Way — Fidelity’s ZERO Funds, 2018
While Robinhood was disrupting trading commissions, Fidelity quietly made the most aggressive move in the expense ratio war since Bogle himself.
In August 2018, Fidelity shocked the investing world by offering, for the first time, zero-fee index funds: the Fidelity ZERO Large Cap Index (FNILX), Fidelity ZERO Total Market Index (FZROX), and Fidelity ZERO International Index (FZILX). Not 0.03%. Not 0.05%. Zero. In addition to offering an expense ratio of zero, these funds had no minimum investment requirement — an individual could begin investing with just $1.
Vanguard had spent four decades proving that low-cost index investing was the right framework. Fidelity took that framework and removed the last decimal place. FZROX tracks Fidelity’s proprietary U.S. Total Investable Market Index — a benchmark Fidelity created specifically to avoid licensing fees from index providers like CRSP or S&P Dow Jones. That is how the zero expense ratio becomes possible.
The ZERO funds were a loss leader designed to attract account holders, but that does not make them any less real for the investors who use them. The outcome — a broadly diversified total market fund that costs nothing to hold — is exactly what Bogle spent his career arguing investors deserved.
What This Means for You
The cumulative result of fifty years of competition, disruption, and one-upmanship is a landscape that would have been unimaginable to an investor in 1970:
- Trading commissions: $0
- Index fund expense ratios: as low as 0.00%
- Account minimums: $0 at most major brokers
- Minimum investment to start: $1
The financial industry spent the better part of the twentieth century charging investors for access. Four companies — Schwab, Vanguard, Robinhood, and Fidelity — each took a sledgehammer to a different part of that structure, at different times, for different reasons. None of them did it purely out of altruism. But the competition between them produced something that looks a lot like it.
If you’re building a portfolio today, you’re the beneficiary of every one of those fights. The race to zero is mostly won. Now the only question is what you do with the access you’ve been handed.
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