FZROX vs FSKAX

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Nick1918
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FZROX vs FSKAX

Post by Nick1918 »

Any consensus on here of which is better for a tax deferred IRA? I’m rolling over a work plan.

Since both of these are total stock market index funds I image they are basically the same, but may as well choose the slightly better if there is one! Which would you invest in?

Thanks
fwellimort
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Re: FZROX vs FSKAX

Post by fwellimort »

On a tax deferred, I would choose the lower expense ratio: FZROX.

The only practical difference between FZROX and FSKAX is portability. You can't move FZROX outside Fidelity brokerage without selling (which generally triggers taxes).
However on a tax deferred IRA, none of that matters so :sharebeer
Plus, inside Fidelity's IRA, you can always convert your FZROX to FSKAX in a day. You aren't really missing out on anything.

On a taxable account (not your IRA), I would rather recommend VTI, ITOT, SPTM, SCHB instead.
The benefit of portability might be worth it especially for those who might consider tax loss harvesting in the near future.
carminered2019
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Re: FZROX vs FSKAX

Post by carminered2019 »

I stick with FSKAX, it's more established and been around much longer so I rather pay $150 for every 1 million for FSKAX.
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nisiprius
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Re: FZROX vs FSKAX

Post by nisiprius »

It's really hard to say which is "better."

I've switched brokerages two or three times in my forty or so years of investing, and so the possibility of moving is always in my mind, and I personally would opt for FSKAX simply because it is portable--you can hold it at other brokerages--while FZROX can only be held at Fidelity. That isn't a compelling reason, because in a tax-deferred IRA there are no tax consequences for doing something like first swapping FZROX for FSKAX (or VTI or ITOT or many others) and then moving it, but still.

The other big difference is that FZROX uses a proprietary Fidelity index, and it samples, rather than replicating the full index.

The expense ratio difference--what matters is the difference, not the ratio--is really insignificant. To show you why I say this, the expense ratio for FSKAX is 0.02%, for FZROX it is famously 0.00%.

FZROX had inception on 8/2/2018, so it has been out for roughly 1½ years. During that time, a $10,000 investment in it would have grown to almost $15,000. So, mental arithmetic, say on the average it had about $12,500.

FSKAX has an expense ratio of 0.02%, so it should have cost about $12,500 x 0.02% = $2.50/year in expenses. for 1½ years = $3.75.

So based on the expense ratio, we'd expect a $10,000 investment in FZROX since inception should have given an investor three or four bucks more than FSKAX. Not worth fussing about. But wait, there's more.

What really happened? Instead of returning $3 or $4 more, FXROX returned $92.91 less!.

Image

That doesn't mean FZROX will always return less or that it's a bad fund. It just means that having an expense ratio of 0.02% less is not enough to guarantee actually getting the three or four bucks the math seems to be promising.

The 0.00% expense ratio is a fantastic marketing gimmick... but it's a gimmick. It's like the cigarette brand that once based a marketing campaign on cigarettes that were 101 mm. long, when the competition's were only 100 mm.
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pasadena
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Re: FZROX vs FSKAX

Post by pasadena »

Another difference is that FZROX tends to throw off more dividends and capital gains than FSKAX. I wouldn't recommend it in taxable, but that doesn't matter in a tax deferred account.

I hold FZROX and FZILX in my HSA - as an experiment. I'm still holding FSKAX and FTIHX in my 401(k).
fwellimort
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Re: FZROX vs FSKAX

Post by fwellimort »

nisiprius wrote: Wed Mar 31, 2021 4:15 pm It's really hard to say which is "better."

FSKAX has an expense ratio of 0.02%, so it should have cost about $12,500 x 0.02% = $2.50/year in expenses. for 1½ years = $3.75.
So based on the expense ratio, we'd expect a $10,000 investment in FZROX since inception should have given an investor three or four bucks more than FSKAX. Not worth fussing about. But wait, there's more.
No. We shouldn't expect FZROX to always return more.
FZROX is less concentrated on the low market cap firms because it holds about 2442 companies unlike FSKAX which holds 3532 firms.

And this year (so far), large cap has been underperforming small cap.
The long term difference of the two should be negligible.
There were times last year in which FZROX was returning more than FSKAX because of this.

At this point, we are splitting hairs. Either are great and in an IRA, there's really no justification for one over the other.
Especially because inside an IRA, there should be no issues switching in-between the two mutual funds before transferring out.
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Re: FZROX vs FSKAX

Post by FIREchief »

nisiprius wrote: Wed Mar 31, 2021 4:15 pm The expense ratio difference--what matters is the difference, not the ratio--is really insignificant. To show you why I say this, the expense ratio for FSKAX is 0.02%, for FZROX it is famously 0.00%.
Actually, FSKAX is down to 0.015%, but it really doesn't make much difference. I personally like the fact that Fidelity can use their own proprietary index instead of being tightly tied to a third party index. That said, I hold both as well as VTI in after-tax.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
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FIREchief
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Re: FZROX vs FSKAX

Post by FIREchief »

pasadena wrote: Wed Mar 31, 2021 4:23 pm Another difference is that FZROX tends to throw off more dividends and capital gains than FSKAX.
Are you sure about this?
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
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Re: FZROX vs FSKAX

Post by ruralavalon »

Nick1918 wrote: Wed Mar 31, 2021 2:44 pm Any consensus on here of which is better for a tax deferred IRA? I’m rolling over a work plan.

Since both of these are total stock market index funds I image they are basically the same, but may as well choose the slightly better if there is one! Which would you invest in?

Thanks
It's hard to say which will be better.

Portfolio Visualizer, 2029-2021. So far performance has been similar, but 2 years is a very short period for comparison. Despite the much advertised 0.00% expense ratio Fidelity ZERO Total Market Index Fund (FZROX) has had a lower return so far.
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Nick1918
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Re: FZROX vs FSKAX

Post by Nick1918 »

Thanks, seems like a coin flip. I’m leaning toward fskax.
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Re: FZROX vs FSKAX

Post by pasadena »

FIREchief wrote: Wed Mar 31, 2021 5:07 pm
pasadena wrote: Wed Mar 31, 2021 4:23 pm Another difference is that FZROX tends to throw off more dividends and capital gains than FSKAX.
Are you sure about this?
Actually no, I'm not. I'll double check.
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bonjour
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Re: FZROX vs FSKAX

Post by bonjour »

https://youtu.be/v_H-tM1RkXA

This guy ran the numbers for the period starting when each Zero fund began, and the Zero funds very slightly outperformed their older Fidelity siblings (assuming reinvested dividends, of course). This was true for FZROX, FZILX, and FZNILX.
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Re: FZROX vs FSKAX

Post by drumboy256 »

FSKAX, zero funds are lost leaders that aren’t as diversified as the older funds.
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Re: FZROX vs FSKAX

Post by ruralavalon »

bonjour wrote: Tue Apr 06, 2021 12:12 am https://youtu.be/v_H-tM1RkXA

This guy ran the numbers for the period starting when each Zero fund began, and the Zero funds very slightly outperformed their older Fidelity siblings (assuming reinvested dividends, of course). This was true for FZROX, FZILX, and FZNILX.
But see: Financial Planning (8/14/2018) "Fidelity Zero vs Vanguard: Which index fund is better?" link.

"Clearly, Vanguard’s competitors are using these funds as loss leaders, while Vanguard continues to gain market share."

"When I consider the once-undisputed champion, Vanguard, against Fidelity’s new Zero funds in five areas — fees, index construction, fee offsets, tax efficiency and trust — I found Vanguard still came out on top."

"Expense ratios are very important, but Vanguard more than easily offsets its higher fees with much greater tax efficiency, though this wouldn’t be relevant in a tax-deferred or tax-free Roth account. In addition, the portfolio construction is better because it encompasses more of the market."

Portfolio Visualizer shows that the Vanguard funds have done better so far.

For U.S. total stock market Fidelity's lower expense ratio funds FZROX and FSKAX have not outperformed Vanguard VTSAX: link. Vanguard beat the ZERO fund by 0.15% in Compound Annual Growth Rate (CAGR).

For U.S. large-cap index funds, Fidelity's lower expense ratio funds FNILX and FLCSX have not done better than Vanguard VLCAX: link. Vanguard beat the ZERO fund by 0.11% in CAGR.

For total international stock index funds Fidelity's lower expense ratio funds FZILZ and FTIHX have not outperformed Vanguard VTIAX: link. Vanguard beat the ZERO fund by 0.40% in CAGR.
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SmileyFace
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Re: FZROX vs FSKAX

Post by SmileyFace »

I went with FZROX.
There can be a lot of speculation of which might perform better over time - the one thing you know for sure is which will have an advantage by having the lowest Expense Ratio. FZROX won the game for being the lowest.
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Re: FZROX vs FSKAX

Post by SmileyFace »

ruralavalon wrote: Tue Apr 06, 2021 10:34 am
bonjour wrote: Tue Apr 06, 2021 12:12 am https://youtu.be/v_H-tM1RkXA

This guy ran the numbers for the period starting when each Zero fund began, and the Zero funds very slightly outperformed their older Fidelity siblings (assuming reinvested dividends, of course). This was true for FZROX, FZILX, and FZNILX.
But see Financial Planning (8/14/2018) "Fidelity Zero vs Vanguard: Which index fund is better?"
You are comparing a recent video to an article that is approaching 3 years old (with the zero funds being pretty new at the time of your cited article).
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Re: FZROX vs FSKAX

Post by ruralavalon »

SmileyFace wrote: Wed Apr 07, 2021 10:08 am I went with FZROX.
There can be a lot of speculation of which might perform better over time - the one thing you know for sure is which will have an advantage by having the lowest Expense Ratio. FZROX won the game for being the lowest.
SmileyFace wrote: Wed Apr 07, 2021 10:13 am
ruralavalon wrote: Tue Apr 06, 2021 10:34 am
bonjour wrote: Tue Apr 06, 2021 12:12 am https://youtu.be/v_H-tM1RkXA

This guy ran the numbers for the period starting when each Zero fund began, and the Zero funds very slightly outperformed their older Fidelity siblings (assuming reinvested dividends, of course). This was true for FZROX, FZILX, and FZNILX.
But see Financial Planning (8/14/2018) "Fidelity Zero vs Vanguard: Which index fund is better?"
You are comparing a recent video to an article that is approaching 3 years old (with the zero funds being pretty new at the time of your cited article).
The Financial Planning article which I quoted, which is 3 years old, points out that although low expense ratios are important other things like the index used and tax efficiency are also important.

The three Portfolio Visualizer links I gave on fund returns are up to date, not three years old. In each case the low expense Vanguard fund beat the ZERO expense Fidelity fund by the Compound Annual Growth Rate (CAGR) margin which I stated.

My point is that the ZERO expense ratios have not so far given the performance advantage that some people have expected.

I don't say that the Fidelity ZERO funds are bad funds, just that those microscopic differences in expense ratios have not produced an advantage in performance. Other factors are more important.
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Re: FZROX vs FSKAX

Post by bonjour »

I should not be surprised that a thread titled "FZROX vs FSKAX" has swerved into "what about Vanguard," though all of the discussed options are fine in my opinion.
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Re: FZROX vs FSKAX

Post by Dude2 »

If I was going to pay double in expenses for a fund, then somebody better do some justification of what makes the "special sauce".
Then ’tis like the breath of an unfee’d lawyer.
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Re: FZROX vs FSKAX

Post by ruralavalon »

bonjour wrote: Wed Apr 07, 2021 12:57 pm I should not be surprised that a thread titled "FZROX vs FSKAX" has swerved into "what about Vanguard," though all of the discussed options are fine in my opinion.
Already said "It's hard to say which will be better" and "So far performance [of FZROX and FSKAX] has been similar".
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Re: FZROX vs FSKAX

Post by SmileyFace »

ruralavalon wrote: Wed Apr 07, 2021 11:01 am
SmileyFace wrote: Wed Apr 07, 2021 10:08 am I went with FZROX.
There can be a lot of speculation of which might perform better over time - the one thing you know for sure is which will have an advantage by having the lowest Expense Ratio. FZROX won the game for being the lowest.
SmileyFace wrote: Wed Apr 07, 2021 10:13 am
ruralavalon wrote: Tue Apr 06, 2021 10:34 am
bonjour wrote: Tue Apr 06, 2021 12:12 am https://youtu.be/v_H-tM1RkXA

This guy ran the numbers for the period starting when each Zero fund began, and the Zero funds very slightly outperformed their older Fidelity siblings (assuming reinvested dividends, of course). This was true for FZROX, FZILX, and FZNILX.
But see Financial Planning (8/14/2018) "Fidelity Zero vs Vanguard: Which index fund is better?"
You are comparing a recent video to an article that is approaching 3 years old (with the zero funds being pretty new at the time of your cited article).
The Financial Planning article which I quoted, which is 3 years old, points out that although low expense ratios are important other things like the index used and tax efficiency are also important.

The three Portfolio Visualizer links I gave on fund returns are up to date, not three years old. In each case the low expense Vanguard fund beat the ZERO expense Fidelity fund by the Compound Annual Growth Rate (CAGR) margin which I stated.

My point is that the ZERO expense ratios have not so far given the performance advantage that some people have expected.

I don't say that the Fidelity ZERO funds are bad funds, just that those microscopic differences in expense ratios have not produced an advantage in performance. Other factors are more important.
Okay. Note the topic here was FZROX vs FSKAX
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Re: FZROX vs FSKAX

Post by fwellimort »

FSKAX vs FZROX is essentially:
Is it worth paying 0.015% long term for a bit more on small caps.

If large/mid cap outperforms small cap in our lifetime, then FZROX will be 'slightly ahead'.
If small cap outperforms large/mid cap in our lifetime, then FSKAX might be 'slightly ahead' even after the 0.015% fee.

For all practical purposes, these two are identical.
We are really splitting hairs. If something like 0.015% will break your retirement in your lifetime, then you really need to rethink your retirement.
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Re: FZROX vs FSKAX

Post by David Jay »

Dude2 wrote: Wed Apr 07, 2021 1:10 pm If I was going to pay double in expenses for a fund, then somebody better do some justification of what makes the "special sauce".
Actually, you aren't paying double, you are paying infinitely more expense with FSKAX. Do the math...:wink:
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Re: FZROX vs FSKAX

Post by SmileyFace »

David Jay wrote: Wed Apr 07, 2021 2:33 pm
Dude2 wrote: Wed Apr 07, 2021 1:10 pm If I was going to pay double in expenses for a fund, then somebody better do some justification of what makes the "special sauce".
Actually, you aren't paying double, you are paying infinitely more expense with FSKAX. :wink:
Of course with FSKAX at 0.02% that infinitely higher ER only amounts to $20 on each $100,000 invested. But again - why not take the lower ER.
Someone mentioned simply splitting their money between the two in another thread - put half in FZROX and half in FSKAX - lots of duplication but that would be another way to go.
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Re: FZROX vs FSKAX

Post by David Jay »

SmileyFace wrote: Wed Apr 07, 2021 2:37 pm
David Jay wrote: Wed Apr 07, 2021 2:33 pm
Dude2 wrote: Wed Apr 07, 2021 1:10 pm If I was going to pay double in expenses for a fund, then somebody better do some justification of what makes the "special sauce".
Actually, you aren't paying double, you are paying infinitely more expense with FSKAX. :wink:
Of course with FSKAX at 0.02% that infinitely higher ER only amounts to $20 on each $100,000 invested. But again - why not take the lower ER.
Well, per Nisiprius' post above, because I want to earn larger return...
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
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Re: FZROX vs FSKAX

Post by SmileyFace »

David Jay wrote: Wed Apr 07, 2021 2:40 pm
SmileyFace wrote: Wed Apr 07, 2021 2:37 pm
David Jay wrote: Wed Apr 07, 2021 2:33 pm
Dude2 wrote: Wed Apr 07, 2021 1:10 pm If I was going to pay double in expenses for a fund, then somebody better do some justification of what makes the "special sauce".
Actually, you aren't paying double, you are paying infinitely more expense with FSKAX. :wink:
Of course with FSKAX at 0.02% that infinitely higher ER only amounts to $20 on each $100,000 invested. But again - why not take the lower ER.
Well, per Nisiprius' post above, because I want to earn larger return...
I guess I missed the part in the post above whereby we have some analysis that shows the future return is guaranteed to be higher. I will go back and re-read it. (EDIT ADD: Just re-read it - still don't see the part that says FSKAX will deliver a larger return going forward.... so why not go with the lower ER....)
Last edited by SmileyFace on Wed Apr 07, 2021 2:47 pm, edited 1 time in total.
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Re: FZROX vs FSKAX

Post by Dude2 »

David Jay wrote: Wed Apr 07, 2021 2:33 pm Actually, you aren't paying double, you are paying infinitely more expense with FSKAX. Do the math...:wink:
I can't afford that.
Then ’tis like the breath of an unfee’d lawyer.
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Re: FZROX vs FSKAX

Post by Strifey »

I read up on this a bunch before and ultimately went with FSKAX.

It basically came down to the fact that the ER is so low that I'd rather just stick with the fund that had more history and was more portable.

Essentially they do the same thing, FZROX has less companies which is part of the reason it's cheaper, it's not exactly 1:1 and who knows which actually performs better in the long run, but I imagine they would be roughly inline.

Really you're fine with either.
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Re: FZROX vs FSKAX

Post by ruralavalon »

SmileyFace wrote: Wed Apr 07, 2021 2:23 pm
ruralavalon wrote: Wed Apr 07, 2021 11:01 am
SmileyFace wrote: Wed Apr 07, 2021 10:08 am I went with FZROX.
There can be a lot of speculation of which might perform better over time - the one thing you know for sure is which will have an advantage by having the lowest Expense Ratio. FZROX won the game for being the lowest.
SmileyFace wrote: Wed Apr 07, 2021 10:13 am
ruralavalon wrote: Tue Apr 06, 2021 10:34 am
bonjour wrote: Tue Apr 06, 2021 12:12 am https://youtu.be/v_H-tM1RkXA

This guy ran the numbers for the period starting when each Zero fund began, and the Zero funds very slightly outperformed their older Fidelity siblings (assuming reinvested dividends, of course). This was true for FZROX, FZILX, and FZNILX.
But see Financial Planning (8/14/2018) "Fidelity Zero vs Vanguard: Which index fund is better?"
You are comparing a recent video to an article that is approaching 3 years old (with the zero funds being pretty new at the time of your cited article).
The Financial Planning article which I quoted, which is 3 years old, points out that although low expense ratios are important other things like the index used and tax efficiency are also important.

The three Portfolio Visualizer links I gave on fund returns are up to date, not three years old. In each case the low expense Vanguard fund beat the ZERO expense Fidelity fund by the Compound Annual Growth Rate (CAGR) margin which I stated.

My point is that the ZERO expense ratios have not so far given the performance advantage that some people have expected.

I don't say that the Fidelity ZERO funds are bad funds, just that those microscopic differences in expense ratios have not produced an advantage in performance. Other factors are more important.
Okay. Note the topic here was FZROX vs FSKAX
As shown by this Portfolio Visualizer link I posted earlier, Fidelity® Total Market Index (FSKAX) has had a 0.11% higher CAGR than Fidelity ZERO Total Market Index Fund (FZROX). The ZERO expense ratio has not produced a performance advantage.

Tiny differences in expense ratio are just not very important.

As I said earlier "It's hard to say which will be better" and "So far performance [of FZROX and FSKAX] has been similar".
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
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Re: FZROX vs FSKAX

Post by SmileyFace »

ruralavalon wrote: Wed Apr 07, 2021 4:36 pm
SmileyFace wrote: Wed Apr 07, 2021 2:23 pm
ruralavalon wrote: Wed Apr 07, 2021 11:01 am
SmileyFace wrote: Wed Apr 07, 2021 10:08 am I went with FZROX.
There can be a lot of speculation of which might perform better over time - the one thing you know for sure is which will have an advantage by having the lowest Expense Ratio. FZROX won the game for being the lowest.
SmileyFace wrote: Wed Apr 07, 2021 10:13 am
ruralavalon wrote: Tue Apr 06, 2021 10:34 am
But see Financial Planning (8/14/2018) "Fidelity Zero vs Vanguard: Which index fund is better?"
You are comparing a recent video to an article that is approaching 3 years old (with the zero funds being pretty new at the time of your cited article).
The Financial Planning article which I quoted, which is 3 years old, points out that although low expense ratios are important other things like the index used and tax efficiency are also important.

The three Portfolio Visualizer links I gave on fund returns are up to date, not three years old. In each case the low expense Vanguard fund beat the ZERO expense Fidelity fund by the Compound Annual Growth Rate (CAGR) margin which I stated.

My point is that the ZERO expense ratios have not so far given the performance advantage that some people have expected.

I don't say that the Fidelity ZERO funds are bad funds, just that those microscopic differences in expense ratios have not produced an advantage in performance. Other factors are more important.
Okay. Note the topic here was FZROX vs FSKAX
As shown by this Portfolio Visualizer link I posted earlier, Fidelity® Total Market Index (FSKAX) has had a 0.11% higher CAGR than Fidelity ZERO Total Market Index Fund (FZROX). The ZERO expense ratio has not produced a performance advantage.

Tiny differences in expense ratio are just not very important.

As I said earlier "It's hard to say which will be better" and "So far performance [of FZROX and FSKAX] has been similar".
The last 3 years of performance doesn't predict what will happen in the next 20-30. While the 0.02% advantage that FZROX has is small - it is still an advantage.
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