FITLX vs. FZROX: Fidelity's Index Fund Showdown
Two Low-Cost Index Funds for Lazy Portfolios.
When building a lazy portfolio, Fidelity offers two standout options: FZROX (Fidelity ZERO Total Market Index Fund) and FITLX (Fidelity® U.S. Sustainability Index Fund). Both are excellent choices, but they cater to different investment objectives. Let’s break it down.
FITLX vs. FZROX: Key Differences
While both funds are passive and low-cost, their goals differ significantly. FITLX focuses on companies with strong sustainability practices, while FZROX provides exposure to the entire U.S. stock market with a 0% expense ratio.
Here’s a quick comparison:
| Feature | FITLX | FZROX |
|---|---|---|
| Expense Ratio | 0.11% | 0.00% |
| Index Tracked | MSCI USA ESG Leaders Index | Fidelity U.S. Total Investable Market Index |
| Management Style | Passive | Passive |
| Minimum Investment | None | None |
| Tax Efficiency | Slightly lower due to ESG filtering | Slightly higher due to broader index |
Expense Ratio
FZROX’s 0% expense ratio is a game-changer, making it the cheapest way to track the U.S. stock market. FITLX, with an expense ratio of 0.11%, remains competitive for a sustainability-focused fund.
Index Differences
FITLX tracks the MSCI USA ESG Leaders Index, which focuses on companies with high environmental, social, and governance (ESG) ratings. In contrast, FZROX tracks the broader Fidelity U.S. Total Investable Market Index, providing exposure to the entire U.S. stock market.
Tax Considerations
FZROX is exclusive to Fidelity accounts and uses a proprietary structure that can lead to slightly less tax efficiency in taxable accounts. FITLX, structured as a traditional mutual fund, offers broader compatibility but may experience higher turnover due to ESG screening.
Combining FITLX with Sustainable International Funds
To complement FITLX’s U.S. sustainability focus, consider pairing it with FNIDX (Fidelity® International Sustainability Index Fund). FNIDX tracks the MSCI ACWI ex USA ESG Leaders Index, focusing on international companies with strong ESG performance. This combination offers comprehensive global exposure to sustainable investments.
Here’s an example allocation using both funds:
Example Sustainable Portfolio
| Asset Class | Fund | % |
|---|---|---|
| U.S. Stocks | FITLX | 50% |
| International Stocks | FNIDX (Fidelity® International Sustainability Index Fund) | 30% |
| Bonds | FXNAX (Fidelity® U.S. Bond Index Fund) | 20% |
Key Features of This Portfolio
- Sustainability Focus: FITLX and FNIDX ensure investments align with ESG principles both domestically and internationally.
- Low Costs: While slightly higher than FZROX, these funds remain competitively priced for ESG-focused investments.
Rebalancing and Long-Term Strategy
Both funds make excellent core holdings for sustainability-focused lazy portfolios. Annual rebalancing ensures you stay aligned with your target allocation and risk tolerance. Consider adjusting allocations based on performance or shifting gains into bonds (FXNAX) for added stability.
Conclusion
Choosing between FITLX and FZROX boils down to priorities. FZROX offers unbeatable cost efficiency for total market exposure, while FITLX appeals to investors looking for sustainability and ESG alignment. For a global sustainability strategy, pair FITLX with FNIDX to build a comprehensive portfolio.
Start with what fits your values and brokerage. Fidelity’s low-cost funds, combined with disciplined rebalancing, make reaching financial independence easier than ever.
FAQ
Q: Is FITLX a good investment?
Yes, FITLX is an excellent investment for those seeking broad exposure to the U.S. stock market with minimal fees. It’s a low-cost, passively managed fund that fits well in a lazy portfolio, particularly for Fidelity investors.
Q: Is FZROX a good index fund?
Absolutely! FZROX is one of the most cost-effective ways to invest in the total U.S. stock market, with its 0% expense ratio making it unbeatable for fee-conscious investors. It’s a great core holding for a diversified portfolio.
Q: How is FZROX compared to VTI?
Both FZROX and VTI (Vanguard Total Stock Market ETF) offer exposure to the U.S. stock market. The key difference lies in the indices they track: FZROX follows Fidelity’s proprietary index, while VTI tracks the CRSP U.S. Total Market Index. Performance is nearly identical, but VTI is more tax-efficient and tradable, while FZROX is exclusive to Fidelity accounts.
Q: Does FZROX follow the S&P 500?
No, FZROX tracks the Fidelity U.S. Total Investable Market Index, which includes a much broader range of stocks than the S&P 500, covering small-, mid-, and large-cap companies.
Q: What is the future of FZROX?
As a part of Fidelity’s ZERO Fee Index Funds, FZROX is expected to remain a popular choice for investors seeking low-cost exposure to the U.S. stock market. Its future depends on Fidelity’s continued commitment to offering innovative and cost-effective investment products.
Q: Who is better, Fidelity or Vanguard?
Both have strengths:
- Fidelity: Best for zero-fee funds, a wide range of actively managed funds, and investor-friendly features like no account minimums.
- Vanguard: Known for ultra-low fees, tax efficiency, and its investor-owned structure. Your choice depends on your priorities and existing brokerage accounts.
Q: Is FZROX tax efficient?
While FZROX is not as tax-efficient as ETFs like VTI, it remains a good choice for tax-advantaged accounts such as IRAs. For taxable accounts, ETFs may be a better option due to their unique tax advantages.
Q: Should I own both VTI and SPY?
Owning both VTI (total market exposure) and SPY (S&P 500 exposure) can lead to overlap, as SPY is a subset of VTI. It’s usually more efficient to choose one, depending on your investment goals.
Q: Is FZROX passively managed?
Yes, FZROX is passively managed, aiming to replicate the performance of the Fidelity U.S. Total Investable Market Index.
Q: Is it a good time to buy FZROX?
Timing the market is challenging, so the best strategy is to dollar-cost average (DCA) into FZROX consistently, regardless of market conditions. It’s an excellent long-term holding for diversified portfolios.
Q: Does FZROX pay dividends?
Yes, FZROX pays dividends, which are automatically reinvested unless specified otherwise. These dividends come from the companies in the fund’s portfolio.
Q: Is FZROX US-only?
Yes, FZROX focuses exclusively on the U.S. stock market, covering small-, mid-, and large-cap companies.
Q: Does FITLX pay dividends?
Yes, like FZROX, FITLX also pays dividends from the stocks in its portfolio, which can be reinvested or withdrawn depending on your preference.
Q: Which Fidelity funds outperform the S&P 500?
Funds like Fidelity Contrafund (FCNTX) and Fidelity Blue Chip Growth Fund (FBGRX) have historically outperformed the S&P 500, though they come with higher expense ratios and risks compared to index funds.
Q: What is Fidelity’s best performing ETF?
Fidelity’s FTEC (Fidelity MSCI Information Technology Index ETF) has been a top performer, offering concentrated exposure to the booming tech sector. Its performance depends heavily on the growth of tech giants like Apple and Microsoft.
—
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investing involves risks, including the possible loss of principal. Always conduct your own research before making investment decisions.