FNILX (Fidelity ZERO Large Cap Index Fund) vs FXAIX (Fidelity 500 Index Fund)?

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paramedic
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FNILX (Fidelity ZERO Large Cap Index Fund) vs FXAIX (Fidelity 500 Index Fund)?

Post by paramedic »

FNILX is Fidelity's zero expense ratio index fund that mirrors the S&P 500 (not by name, but by investment composition). It obviously has an expense ratio of 0.00%.

FXAIX is basically Fidelity's S&P 500 index fund (apparently by name). It carries an expense ratio of 0.015%.

Would there be *any reason* to invest a Roth IRA in FXAIX (with the expense ratio, albeit small) instead of in FNILX (with the zero expense ratio)? I'm assuming not, but wanted to double-check with the folks here.

-mike
jbranx
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Re: FNILX (Fidelity ZERO Large Cap Index Fund) vs FXAIX (Fidelity 500 Index Fund)?

Post by jbranx »

Only issue might be if you wanted to transfer since the Zeros can only be held at Fidelity. And that would not be a big one since you could simply sell it in the tax exempt fund and buy another index fund at the new broker. Otherwise, S&P supplies Fido with the stocks float adjusted per Fidelity's prospectus, though that would not be the exact 500 fund. Performance apt to be the same, give or take a few basis points, with the zero fee adding a tiny bit to the fuel tank.
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whodidntante
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Re: FNILX (Fidelity ZERO Large Cap Index Fund) vs FXAIX (Fidelity 500 Index Fund)?

Post by whodidntante »

Some people really like the active management and somewhat opaque approach of the s&p 500 index committee. It sometimes trips up less clever front runners. Own indexing can possibly be better still. DFA has certainly done well applying quantitative and rules based passive active frankenfunds. But if you're struggling with the decision you could apply a structured decision making process like eeny meenie miny moe.
What was the question again?
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paramedic
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Re: FNILX (Fidelity ZERO Large Cap Index Fund) vs FXAIX (Fidelity 500 Index Fund)?

Post by paramedic »

Thanks! I ended up investing in FXAIX today for the new Roth IRA.

-mike
cowbman
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Re: FNILX (Fidelity ZERO Large Cap Index Fund) vs FXAIX (Fidelity 500 Index Fund)?

Post by cowbman »

If it's in a Roth, I'd do Zero. I invest in FZROX in my Roth.
Ferdinand2014
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Re: FNILX (Fidelity ZERO Large Cap Index Fund) vs FXAIX (Fidelity 500 Index Fund)?

Post by Ferdinand2014 »

paramedic wrote: Wed Apr 10, 2019 10:26 pm Thanks! I ended up investing in FXAIX today for the new Roth IRA.

-mike
Excellent choice. I use it exclusively. however, FNILX is perfectly fine.

It is almost identical to FXAIX, however it is pure market cap based, where FXAIX is pure S&P 500 based. This means there may be a few stocks that the S&P 500 'committee' decides to include/not include in the index besides pure market cap such as consistent history of liquidity, string of profitable quarters, etc. The difference is incredibly small.

I prefer FXAIX (and the S&P 500 index) because of the track record, portability, almost perfect tracking of the index, size of AUM, quarterly dividends (makes me feel good even though silly), less cash drag in its holdings and the very slight selection discretion of the committee. In general I prefer a large cap bias to my equities because I like the better international footprint, slightly lower volatility and typically longer track record then smaller cap companies. In the end, the differences are small to meaningless except these reasons keep me from changing my mind and asset allocation with the wind.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett
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nedsaid
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Re: FNILX (Fidelity ZERO Large Cap Index Fund) vs FXAIX (Fidelity 500 Index Fund)?

Post by nedsaid »

The Fidelity Zero funds are perfectly good investments, in my view they have a few disadvantages compared to their low fee index funds but the "disadvantages" are so minor that they are hardly worth worrying about. Any tracking error with similar low fee Fidelity index funds or those at Vanguard would be very minor indeed. Vanguard has funds that actually do a tad better than the indexes they track and this is probably due to income from portfolio lending, in effect these funds are free already. Not sure if Fidelity pockets the income from portfolio lending or shares any of it with its investors but one can't complain too much about free. Pretty much six of one and half dozen of another.
A fool and his money are good for business.
jmanter
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Re: FNILX (Fidelity ZERO Large Cap Index Fund) vs FXAIX (Fidelity 500 Index Fund)?

Post by jmanter »

This certainly falls into the "difference is so small, it doesn't matter" categories.

But thinking of diversification, free lunches, etc...

I was looking at FZROX (total US ZERO) and FSKAX (total US)... According to M*, FZROX has 2522 holdings compared to 3373 for FSKAX (.015 ER).

FNILX (ZERO Large Cap) has 513 holdings and FZIPX (ZERO Extended Market) has 2009. Together, they are the exact composition of FZROX.

The traditional funds are FXAIX (500 index, 505 holdings, .015 ER) and FSMAX (Extended Market index, 3086 holdings, .045 ER).

It seems reasonable (is it?) that the vast majority of the funds in FNILX will be the same as in FXAIX, even though the former is not exactly an S&P 500 index fund. So I wondered about holding FNILX and pairing it with FSMAX in a 80/20 ratio to simulate a total market fund for a weighted ER of .009. That would give me around 3600 holdings compared to 2522 for FZROX.

Are those extra 1000+ holdings worth the 90 cents over $10k, or is it just complexity for the sake of complexity?
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nedsaid
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Re: FNILX (Fidelity ZERO Large Cap Index Fund) vs FXAIX (Fidelity 500 Index Fund)?

Post by nedsaid »

jmanter wrote: Tue Jun 25, 2019 7:40 pm This certainly falls into the "difference is so small, it doesn't matter" categories.

But thinking of diversification, free lunches, etc...

I was looking at FZROX (total US ZERO) and FSKAX (total US)... According to M*, FZROX has 2522 holdings compared to 3373 for FSKAX (.015 ER).

FNILX (ZERO Large Cap) has 513 holdings and FZIPX (ZERO Extended Market) has 2009. Together, they are the exact composition of FZROX.

The traditional funds are FXAIX (500 index, 505 holdings, .015 ER) and FSMAX (Extended Market index, 3086 holdings, .045 ER).

It seems reasonable (is it?) that the vast majority of the funds in FNILX will be the same as in FXAIX, even though the former is not exactly an S&P 500 index fund. So I wondered about holding FNILX and pairing it with FSMAX in a 80/20 ratio to simulate a total market fund for a weighted ER of .009. That would give me around 3600 holdings compared to 2522 for FZROX.

Are those extra 1000+ holdings worth the 90 cents over $10k, or is it just complexity for the sake of complexity?
I would say that the Fidelity Zero funds, though they have fewer stocks than their traditional index fund cousins, should achieve nearly identical investment results. Just think of sample sizes vs. population and relate this to polling. It doesn't take a huge sample size for a sample to be representative of a population as a whole. I would say that 513 holdings for a Large Cap Index fund and 2009 for an Extended Market Index are plenty big. They are larger samples than a lot of national polls sampling a US population of over 300,000,000. Fidelity Zero has pretty darned big samples compared to their stock universes, tracking error should be pretty small.

Maybe a statistics geek can explain this better than I.
A fool and his money are good for business.
jmanter
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Re: FNILX (Fidelity ZERO Large Cap Index Fund) vs FXAIX (Fidelity 500 Index Fund)?

Post by jmanter »

nedsaid wrote: Tue Jun 25, 2019 7:54 pm I would say that the Fidelity Zero funds, though they have fewer stocks than their traditional index fund cousins, should achieve nearly identical investment results. Just think of sample sizes vs. population and relate this to polling. It doesn't take a huge sample size for a sample to be representative of a population as a whole. I would say that 513 holdings for a Large Cap Index fund and 2009 for an Extended Market Index are plenty big. They are larger samples than a lot of national polls sampling a US population of over 300,000,000. Fidelity Zero has pretty darned big samples compared to their stock universes, tracking error should be pretty small.

Maybe a statistics geek can explain this better than I.
Thanks for sharing your thoughts. This makes sense to me. I imagine one approach will lag the other by a few basis points - the Fidelity Large Cap Index is leading the 500 index by a bit since its inception [edit: it's lagging a bit since its inception, but it's leading this year] - but 2500 holdings systematically selected certainly seems adequate. On its face, 1000 additional holdings for less than $1 for every 10K seems interesting.
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JoMoney
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Re: FNILX (Fidelity ZERO Large Cap Index Fund) vs FXAIX (Fidelity 500 Index Fund)?

Post by JoMoney »

I would expect the differences between them would be negligible if anything at all, either should be fine.
I prefer the S&P index. There are several reasons why, but among them is the availability of data, and being able to check for myself that my index fund is indeed tracking the index (not just being 'close enough'). I also would expect that a fund that's name is explicit about tracking the S&P 500 index is kind of 'locked in' to that index. For better or worse, other funds have drifted around to using other indices over time... I would expect that in the large-cap space there isn't much room to make a difference, but at Vanguard they've switched what indexes many of their funds have tracked over time, and in some cases (particularly in the small and mid-cap, and international space) it makes a difference in the size, risk profile, and tax impacts of the fund.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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nedsaid
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Re: FNILX (Fidelity ZERO Large Cap Index Fund) vs FXAIX (Fidelity 500 Index Fund)?

Post by nedsaid »

jmanter wrote: Wed Jun 26, 2019 7:58 am
nedsaid wrote: Tue Jun 25, 2019 7:54 pm I would say that the Fidelity Zero funds, though they have fewer stocks than their traditional index fund cousins, should achieve nearly identical investment results. Just think of sample sizes vs. population and relate this to polling. It doesn't take a huge sample size for a sample to be representative of a population as a whole. I would say that 513 holdings for a Large Cap Index fund and 2009 for an Extended Market Index are plenty big. They are larger samples than a lot of national polls sampling a US population of over 300,000,000. Fidelity Zero has pretty darned big samples compared to their stock universes, tracking error should be pretty small.

Maybe a statistics geek can explain this better than I.
Thanks for sharing your thoughts. This makes sense to me. I imagine one approach will lag the other by a few basis points - the Fidelity Large Cap Index is leading the 500 index by a bit since its inception [edit: it's lagging a bit since its inception, but it's leading this year] - but 2500 holdings systematically selected certainly seems adequate. On its face, 1000 additional holdings for less than $1 for every 10K seems interesting.
The other thing is that there will be small amounts of tracking error because Fidelity uses its own proprietary indexes for the Zero Funds, that way they don't have to pay licensing fees to someone like Standard & Poor's. So it comes down to this, tracking error compared to what?
A fool and his money are good for business.
wwtraveler
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Re: FNILX (Fidelity ZERO Large Cap Index Fund) vs FXAIX (Fidelity 500 Index Fund)?

Post by wwtraveler »

One additional difference is number of dividend payments per year. That's not to say the total dividend yield is different (although I think it is a smidge) but if you want the 4 quarterly payments then FXAIX is your choice. FNILX so far has only paid dividends one time a year in December which I assume is also for efficiency and cost's sake.

When that would matter depends probably only when you consider your theory on how to sell assets. For instance, one concept which would be impacted by this is if you used dividends exclusively as your payout and wanted those to happen 4x a year vs. 1x a year. Another is if instead of reinvesting dividends you automatically invested dividends in something else in order to bleed off exposure to the market over time. In that case that would still happen but now just 1x a year vs. 4x.

FNILX has also managed to only have to make one capital gains distribution (also in Dec). Someone that's better in taxes may be able to explain if one or the other fund is better for taxable accounts based on that but assuming we are talking retirement accounts that factor wouldn't matter.

For what it's worth, I use both funds because of what's available in my 401(k) plan and i sleep plenty fine at night.
nix4me
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Re: FNILX (Fidelity ZERO Large Cap Index Fund) vs FXAIX (Fidelity 500 Index Fund)?

Post by nix4me »

Use the zero fund, there is no reason not to. Some people just want to make up excuses not to use them.
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Re: FNILX (Fidelity ZERO Large Cap Index Fund) vs FXAIX (Fidelity 500 Index Fund)?

Post by jco »

nix4me wrote: Tue Sep 15, 2020 11:57 am Use the zero fund, there is no reason not to. Some people just want to make up excuses not to use them.
+1.

It shouldn't make a difference. We started a Roth IRA for my wife earlier this year. As a test, I split half the money between FSKAX and FZROX (the total market equivalents of the ones you talk about). Their value has increased exactly the same (literally).

If you think you will switch brokerage firms, the FXAIX would be easier to transfer, I suppose. But it would be easy to sell and then transfer, or even better, just use the ETF versions.
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Re: FNILX (Fidelity ZERO Large Cap Index Fund) vs FXAIX (Fidelity 500 Index Fund)?

Post by nix4me »

jco wrote: Tue Sep 15, 2020 12:09 pm
nix4me wrote: Tue Sep 15, 2020 11:57 am Use the zero fund, there is no reason not to. Some people just want to make up excuses not to use them.
+1.

It shouldn't make a difference. We started a Roth IRA for my wife earlier this year. As a test, I split half the money between FSKAX and FZROX (the total market equivalents of the ones you talk about). Their value has increased exactly the same (literally).

If you think you will switch brokerage firms, the FXAIX would be easier to transfer, I suppose. But it would be easy to sell and then transfer, or even better, just use the ETF versions.
Exactly. I use FZROX in my Roth. Exact same performance as any other total stock market index fund or etf.
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