FZROX vs. VTI: Cost-Free vs. King of Liquidity

The Ultimate Total Market Showdown

When building a long-term investment portfolio, total market funds form the backbone of many strategies. Two titans stand out in this arena: Fidelity’s revolutionary zero-fee FZROX and Vanguard’s established VTI. But which deserves your investment dollars?

The appeal is clear: one broad fund capturing the entire U.S. market from blue-chip giants to emerging small-caps. Let’s dive into what separates these seemingly similar offerings and why your choice matters more than you might think.

Fund Structure: Mutual Fund vs. ETF

The fundamental difference between these funds lies in their structure:

FZROX (Fidelity ZERO Total Market Index Fund) is a mutual fund that:

• Trades once daily after market close
• Requires a Fidelity account
• Has no minimum investment
• Cannot be transferred between brokerages without selling

VTI (Vanguard Total Stock Market ETF) is an exchange-traded fund that:

• Trades throughout the day like a stock
• Is available at virtually any brokerage
• Requires enough capital to buy at least one share
• Can be transferred between brokerages without selling

This structural difference creates cascading implications for tax treatment, availability, and trading flexibility.

The Cost Equation: Is Zero Better Than Almost Zero?

The headline difference that attracts most investors:

Fund	Expense Ratio	Annual Cost per $10,000 invested
FZROX	0.00%	$0.00
VTI	0.03%	$3.00

Fidelity’s zero-fee innovation seems like an obvious winner—who wouldn’t prefer paying nothing over something? But this seemingly clear advantage requires context.

While FZROX eliminates fees entirely, VTI’s 0.03% expense ratio means paying just $3 annually per $10,000 invested. This minuscule difference only becomes meaningful with very large investments held for decades.

How Fidelity Offers Zero Fees (The Secret Sauce)

Fidelity didn’t discover free money—their zero-fee model relies on several revenue streams:

1. Proprietary Indexing: By creating their own index, Fidelity avoids licensing fees paid to index providers like S&P or CRSP, as explained by Bankrate

2. Securities Lending: FZROX generates income by lending holdings to institutions, earning 1-5 basis points annually

3. Cross-Selling Opportunity: The zero-fee fund attracts investors to Fidelity’s ecosystem, where they might use other revenue-generating services

4. Cash Management: Fidelity earns interest on uninvested cash in customer accounts

This business model innovation disrupted the industry, forcing competitors to slash their own fees.

Holdings: Nearly Identical Twins

Despite tracking different indexes, these funds hold remarkably similar portfolios:

Fund	Top Holdings (% of Assets)	Top Sectors
FZROX	Apple (6.21%), Microsoft (5.16%), NVIDIA (4.92%)	Technology (29.75%), Healthcare (11.30%)
VTI	Apple (6.19%), Microsoft (5.17%), NVIDIA (4.66%)	Technology (29.41%), Healthcare (11.45%)

The correlation between these funds stands at an impressive 0.99, meaning they move virtually in lockstep. Any performance difference from holdings alone would be negligible for most investors.

Performance: A Statistical Dead Heat

While FZROX launched in 2018 (giving us limited comparison data), their nearly identical holdings suggest similar returns. VTI has averaged approximately 12.18% annually over the past decade according to StockAnalysis, and FZROX’s performance closely shadows this trajectory.

Though FZROX has a technical advantage from its zero fees, the 0.03% difference hasn’t materially impacted relative performance. Market movement dwarfs this tiny fee disparity.

Caption: FZROX vs. VTI Performance · Powered by Portfolio Analyzer

Tax Efficiency: VTI’s Clear Advantage

For taxable accounts, VTI offers significant advantages:

1. Minimized Capital Gains Distributions: VTI’s ETF structure allows for in-kind redemptions, dramatically reducing capital gains distributions, as detailed by Investopedia

2. Control Over Tax Timing: With VTI, you only realize gains when you choose to sell

3. Lower Turnover: VTI’s 2% turnover rate minimizes taxable events

FZROX, like all mutual funds, must sell holdings to meet redemptions, potentially triggering capital gains distributions that investors must pay taxes on—even if they never sold shares themselves.

Portability: VTI’s Universal Acceptance

FZROX’s Fidelity-only availability creates a significant limitation:

• If you switch brokerages, you must sell FZROX (potentially triggering taxes)
• Job changes may force account consolidation outside Fidelity
• Estate planning becomes more complex with broker-specific holdings

VTI’s universal acceptance makes it significantly more flexible throughout your investment journey.

The Verdict: Which Investor Profile Fits Each Fund?

Choose FZROX if:

• You’re committed to Fidelity for the long term
• You’re investing in tax-advantaged accounts like IRAs or 401(k)s
• You value absolute fee minimization
• You prefer mutual fund features like automatic investments and fractional shares

Choose VTI if:

• You want maximum portability between brokerages
• You’re investing in taxable accounts
• You value intraday trading flexibility
• You prefer ETF benefits like tax efficiency and transparency

The Surprising Truth About These Funds

Despite their marketing differences, both funds represent a remarkable achievement: nearly the entire U.S. stock market available to individual investors at essentially zero cost. Just twenty years ago, such access would have been unimaginable.

Whether you choose FZROX’s zero-fee innovation or VTI’s battle-tested structure, you’re participating in one of the greatest wealth-building opportunities ever created for average investors. The most important decision isn’t which fund you choose—it’s starting to invest in either one as soon as possible.

The Bottom Line

FZROX and VTI are both exceptional vehicles for capturing the U.S. market’s growth. Their differences matter most in specific contexts:

• Tax status matters: VTI for taxable, slight edge to FZROX for tax-advantaged
• Brokerage commitment matters: FZROX locks you to Fidelity, VTI goes anywhere
• Trading style matters: VTI offers intraday flexibility, FZROX trades once daily

For most long-term investors building wealth through regular contributions, either fund provides an excellent foundation for financial independence. The choice ultimately depends on your broader investment strategy and personal circumstances rather than a clear winner in the fund comparison alone.

The best fund is the one that helps you start—and continue—investing consistently.

FAQ

Is FZROX better than VTI? +

Neither is objectively better. FZROX offers a 0% expense ratio but is only available at Fidelity, while VTI has a 0.03% expense ratio but offers greater tax efficiency, portability, and intraday trading flexibility.

What's the main difference between FZROX and VTI? +

The main differences are structure (mutual fund vs. ETF), expense ratio (0% vs. 0.03%), and availability (Fidelity-only vs. any brokerage). VTI also offers better tax efficiency for taxable accounts.

Does FZROX or VTI have better returns? +

Their historical returns are extremely similar due to nearly identical holdings and sector allocations, with a correlation of 0.99. Any performance differences are negligible over the long term.

Can I buy VTI at Fidelity? +

Yes, you can buy VTI at Fidelity with no commission, making it possible to hold both funds in a Fidelity account if desired.

Can I buy FZROX anywhere besides Fidelity? +

No, FZROX is only available through Fidelity brokerage accounts, which limits its portability compared to VTI.

Which is better for a taxable account, FZROX or VTI? +

VTI is generally better for taxable accounts due to its superior tax efficiency. The ETF structure minimizes capital gains distributions compared to mutual funds like FZROX.

Which is better for an IRA, FZROX or VTI? +

FZROX may have a slight edge in tax-advantaged accounts like IRAs, where its 0% expense ratio can compound over time without tax efficiency concerns.

How many stocks are in FZROX vs. VTI? +

VTI holds approximately 3,800+ stocks, while FZROX holds around 2,600 stocks. Both cover the entire U.S. market, but VTI includes more small and micro-cap companies.

What indexes do FZROX and VTI track? +

FZROX tracks the proprietary Fidelity U.S. Total Investable Market Index, while VTI tracks the CRSP US Total Market Index.

Do FZROX and VTI pay dividends? +

Yes, both funds pay dividends. FZROX distributes dividends quarterly with a yield around 1.22%, while VTI also pays quarterly with a similar yield.

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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.