Minafi's Take on FSKAX vs FZROX
Both $FSKAX and $FZROX are both Total US Stock Market Index Funds – specifically mutual funds – created and run by Fidelity. Both funds aim to invest in 80% of all publicly listed companies in US Stocks markets. Because of this, the performance of these two funds should be nearly identical.
The difference between these two is their expense ratio. $FSKAX, Fidelity’s older fund, has an expense ratio of 0.02% – one of the best expense ratios of any Total US Stock Market Fund. $FZROX is a newer fund, started in 2018, with a 0.00% fee – zero.
Although Minafi’s algorithm gives $FSKAX a higher FI Score, $FZROX is a better fund. Minafi’s FI Score algorithm takes into account the total amount of assets under management. That’s a place where $FSKAX shines (45 billion) over $FZROX (5 billion). Since $FZROX is a newer fund, that makes sense. Over time as more people invest in $FZROX, their FI Score may swap.
Adam’s Take: If you have the choice between these two, choose $FZROX, the Fidelity ZERO Total Market Index Fund.
The difference in fees over one year won’t matter much – only a difference of 0.02%. Fees compound over time – so each year you invest with a 0.02% fee that’s money that wouldn’t compound in growth. Over 30 years this would make a 0.69% difference in your total portfolio value. (You can calculate this below using the fees comparison tool)
Why Doesn’t FZROX Charge a Fee?
Fidelity doesn’t make any money from $FZROX. It’s what’s known as a loss-leader. Fidelity’s hope is that people will switch from whatever brokerage they’re currently at to Fidelity to take advantage of this no-fee fund.
Fidelity offers a number of zero-fee funds:
- $FNILX – Fidelity ZERO Large Cap Index Fund
- $FZIPX – Fidelity ZERO Extended Market Index Fund
- $FZILX – Fidelity ZERO International Index Fund
This fund, $FZROX, and the Fidelity’s ZERO International Fund $FZILX can be used to create a simple three-fund portfolio. Fidelity doesn’t offer a no-fee bond fund, but they do offer $FXNAX, Fidelity US Bond Index Fund with a 0.02% expense ratio.
But be careful! Fidelity has a lot of great funds, but they also have higher-fee funds. The reason they provide $FZROX for free is that they are able to profit from people choosing other funds with higher fees. If you design your portfolio with only low-fee funds, you’ll end up with one of the lowest-fee portfolio possible on any brokerage.
Is There Any Reason to Avoid Either of These?
There is one reason for concern: Fidelity needs to keep their lights on. They do this by charging fees in other funds and using that money to reduce fees on these two funds. It’s impossible to know what the future will hold, but it wold be possible for Fidelity to raise the fees on any of their funds at any time.
If you’re thinking about selling funds you already own, you’ll want to keep that in mind – especially if you’ll need to pay taxes on any transactions.