When it comes to choosing the right investment funds, especially within Fidelity, investors often find themselves comparing options like FZROX (Fidelity ZERO Total Market Index Fund) and FSKAX (Fidelity Total Market Index Fund). Both aim to track the total US stock market, but key differences exist, impacting your investment experience. Let’s delve into a detailed Fzrox Compare analysis to understand which fund might be a better fit for your portfolio.
One immediately noticeable difference lies in portability. FSKAX offers broader accessibility; you can hold it across various brokerages. Conversely, FZROX is exclusive to Fidelity accounts. While transferring assets within tax-advantaged accounts like IRAs can mitigate tax implications when moving from FZROX to a more portable alternative like FSKAX before switching brokers, the initial limitation of FZROX remains a factor for some investors prioritizing flexibility.
Another significant distinction is the underlying index methodology. FZROX tracks a proprietary Fidelity index and employs a sampling technique rather than full replication. This means FZROX may not hold every single stock in its target index but rather a representative sample. FSKAX, while also potentially using sampling for efficiency, generally aims for a more comprehensive replication of its broader market index. This difference in index tracking can lead to slight variations in performance and tracking error between the two funds.
Expense ratios are a frequent point of discussion when comparing FZROX and FSKAX. FZROX boasts a 0.00% expense ratio, famously advertised as “zero expense.” FSKAX, in contrast, has a very low expense ratio of 0.02%. While a 0% expense ratio sounds incredibly appealing, the practical difference in cost is minimal, especially for smaller investment amounts.
To illustrate, consider a hypothetical $10,000 investment in both funds since FZROX’s inception in August 2018. Over roughly 1.5 years, even with a 0.02% expense ratio, FSKAX would have only incurred approximately $3.75 in expenses on an average balance of $12,500. The seemingly significant difference in expense ratios translates to a negligible few dollars in actual cost for most investors during this period.
However, examining real-world performance data reveals a surprising outcome. Instead of FZROX outperforming FSKAX by a small margin due to the expense ratio advantage, historical data from the period following FZROX’s inception actually shows FZROX underperforming FSKAX. An investment in FZROX would have returned approximately $92.91 less than the same investment in FSKAX during that timeframe, as illustrated in the chart below.
This performance discrepancy underscores that while a lower expense ratio is generally desirable, it’s not the sole determinant of investment returns. Factors like index construction, sampling methodologies, and even slight tracking errors can influence fund performance, sometimes outweighing minor expense ratio differences, especially between already low-cost funds.
The “zero expense ratio” of FZROX serves as a potent marketing tool. It captures attention and positions Fidelity’s ZERO funds as incredibly cost-effective. However, as the performance comparison demonstrates, focusing solely on this zero expense ratio can be misleading. It’s crucial for investors to look beyond marketing gimmicks and consider the overall fund characteristics, including index methodology, portability, and long-term performance trends when making investment decisions between FZROX and FSKAX.
In conclusion, when you fzrox compare with FSKAX, the expense ratio difference is practically insignificant in real-world investment outcomes. While FZROX’s zero expense ratio is a compelling marketing point, FSKAX offers greater portability and potentially a more comprehensive index replication strategy. Investors should weigh these factors and not solely fixate on the negligible expense ratio difference when choosing between these two Fidelity total market index funds.
