In the world of investing, there are a plethora of options to choose from. For those seeking broad market exposure at a low cost, two popular index funds stand out: FZROX and FXAIX. Both funds track different market indices, resulting in subtle yet noteworthy differences. Let’s delve into the world of these two index funds and uncover their key distinctions.

What is FZROX?

FZROX, or the Fidelity ZERO Total Market Index Fund, is a passively managed mutual fund that tracks the U.S. Total Market Index. This index encompasses nearly 3,000 U.S. stocks, representing a vast swath of the American market. As a zero-fee fund, FZROX stands out for its lack of expense ratio, making it an attractive option for cost-conscious investors.

What is FXAIX?

FXAIX, or the Fidelity 500 Index Fund, is another passively managed mutual fund, but it follows a different benchmark: the S&P 500 Index. This index comprises 500 of the largest U.S. companies, representing approximately 80% of the American stock market capitalization. FXAIX charges a minimal expense ratio of 0.015%, making it a relatively low-cost fund.

Key Differences

Tracking Index

The primary distinction between FZROX and FXAIX lies in the market indices they track. FZROX mirrors the U.S. Total Market Index, encompassing a broader range of U.S. stocks, including mid-cap and small-cap companies. In contrast, FXAIX focuses on the S&P 500 Index, limiting itself to large-cap companies.

Investment Strategy

Both FZROX and FXAIX employ a passive investment strategy, meaning they passively track their respective indices rather than actively selecting stocks. This approach aims to replicate the performance of the benchmark, minimizing the impact of individual stock selection and manager risk.

Expense Ratio

FZROX stands out for its zero expense ratio, while FXAIX charges a minimal expense ratio of 0.015%. This difference in fees can impact long-term investment returns, particularly for larger portfolios.

Performance

Over the past decade, both FZROX and FXAIX have exhibited similar performance, with annualized returns ranging from 11% to 12%. This similarity stems from their broad market exposure and passive investment strategies.

Which One is Right for You?

The choice between FZROX and FXAIX depends on individual investment goals and risk tolerance. For investors seeking broad market exposure at the lowest possible cost, FZROX is an excellent choice. However, for those seeking exposure to the largest and most established U.S. companies, FXAIX is a compelling option.

Conclusion

FZROX and FXAIX are both exceptional index funds offering broad market exposure at a low cost. Their key differences lie in the market indices they track, with FZROX encompassing the broader U.S. market and FXAIX focusing on large-cap companies. The choice between the two depends on individual investment preferences and risk tolerance.

I hope this blog post has helped you understand the key differences between FZROX and FXAIX. If you have any further questions, please feel free to leave a comment below.