Zero-Fee Index Fund vs S&P 500: Does FZROX Actually Beat FXAIX Over 5 Years?
Zero-Fee Index Fund vs S&P 500: Does FZROX Actually Beat FXAIX Over 5 Years?
TL;DR
- FZROX charges exactly 0% in fees (US total market, 2,532 stocks); FXAIX charges 0.02% (S&P 500, 500 stocks)
- After 5 years: FZROX reaches $927,680 vs FXAIX at $980,962 — the fund with a fee wins by $53,282
- The cheapest fund doesn't always win. The index you track matters more than the fee you pay
Fidelity's Zero-Fee Disruption
In 2018, Fidelity launched FZROX — a mutual fund with a 0% expense ratio. Not 0.03%, not 0.01%. Zero. The entire return stays with the investor. Competitors started cutting fees the same week it launched.
FZROX tracks Fidelity's proprietary US Total Investable Market Index, holding roughly 2,532 stocks covering the entire American market. Nvidia, Apple, Microsoft, Amazon sit at the top. The other 2,500+ names fill out the rest. You're not betting on any particular sector or size — you're owning the whole thing.
The S&P 500 Benchmark: FXAIX
FXAIX tracks the S&P 500, the 500 largest US companies by market cap. Over $750 billion in total assets makes it one of the most widely held mutual funds on the planet. The expense ratio is 0.02% — roughly $2 per year for every $10,000 invested.
It tracks a licensed external index, which is why it costs slightly more than FZROX. In practice, that difference amounts to about $100 per year on a $500,000 investment. Practically invisible.
Key Comparison: Lower Fees Don't Guarantee Higher Returns
| Metric | FZROX | FXAIX |
|---|---|---|
| Expense Ratio | 0.00% | 0.02% |
| Index Tracked | US Total Market (2,532 stocks) | S&P 500 (500 stocks) |
| Avg. Annual Price Appreciation | 12.23% | 13.50% |
| Dividend Yield | 1.01% | 1.10% |
| Dividend Growth Rate | — | 4.93% |
| 5-Year Ending Balance | $927,680 | $980,962 |
Despite charging more, FXAIX finishes $53,282 ahead after 5 years. The S&P 500 has historically outpaced the total market index over this kind of window, and the 0.02% fee difference is far too small to close the gap. That's worth understanding before assuming the cheapest option always wins.
$500,000 Invested: Year-by-Year Comparison
| Year | FZROX Balance | FXAIX Balance | Difference |
|---|---|---|---|
| Year 1 | $566,200 | $573,111 | +$6,911 |
| Year 2 | $640,877 | $656,144 | +$15,267 |
| Year 3 | $725,930 | $750,771 | +$24,841 |
| Year 4 | $820,430 | $858,453 | +$38,023 |
| Year 5 | $927,680 | $980,962 | +$53,282 |
On the income side, neither fund delivers meaningful cash flow. FZROX pays $5,050 in year 1 ($421/month), rising to $6,375 by year 5. FXAIX pays $5,500 initially ($458/month), growing to $6,598 ($550/month). If income matters to you, neither fund solves that problem.
Investment Implications
- The cheapest fund doesn't always produce the best results. Index performance matters more than fee savings
- The S&P 500 (large-cap focused) has historically outperformed the total market (which includes mid and small caps)
- Both funds deliver minimal dividend income, so look elsewhere if cash flow is your goal
- Either choice gives you low-cost, broad US market exposure — the core strategy is the same
FAQ
Q: How does Fidelity make money on a 0% fee fund? A: FZROX is a loss leader. Fidelity uses it to attract investors to their platform, generating revenue from other financial products and services in their ecosystem.
Q: How much is the 0.02% fee on FXAIX in real dollars? A: On a $500,000 investment, approximately $100 per year. Over 5 years, roughly $500 total — negligible compared to the $53,282 outperformance FXAIX delivers over FZROX.
Q: Which fund should I choose between FZROX and FXAIX? A: If you want large-cap concentration that has historically outperformed, go with FXAIX. If you want broader diversification including mid and small caps, choose FZROX. The fee difference is essentially irrelevant — focus on your investment philosophy.
Q: Is there a meaningful risk difference between the two? A: FZROX holds 2,532 stocks vs FXAIX's 500, offering slightly more diversification in theory. In practice, both are heavily weighted toward the same large-cap US companies, so the risk profiles are very similar.
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