VOO vs. FXAIX: ETF Flexibility or Mutual Fund Tradition
Comparing Vanguard's S&P 500 ETF Against Fidelity's Lowest-Cost Index Alternative
Since the 2008 financial crisis, index investing has become the dominant strategy for retail investors seeking long-term growth. Two of the most popular S&P 500 index funds come from competing financial giants: Vanguard’s VOO and Fidelity’s FXAIX. While both track the same index and deliver nearly identical returns, their structural differences create important distinctions for investors.
The Fundamentals: Two Paths to the Same Index
VOO (Vanguard S&P 500 ETF) and FXAIX (Fidelity 500 Index Fund) both track the S&P 500 index, providing exposure to America’s 500 largest publicly traded companies. However, VOO is structured as an exchange-traded fund (ETF) with a 0.03% expense ratio, while FXAIX is a traditional mutual fund with an even lower 0.01% expense ratio.
| Feature | VOO | FXAIX |
|---|---|---|
| Structure | ETF | Mutual Fund |
| Expense Ratio | 0.03% | 0.01% |
| Minimum Investment | Price of 1 share (~$500) | No minimum at Fidelity |
| Trading | Intraday | End of day |
| Tax Efficiency | Highly tax-efficient | Potential capital gains distributions |
| Availability | Any brokerage | Primarily Fidelity |
Performance: Virtually Identical Returns
Since both funds track the same index with minimal tracking error, their performance differences are negligible. Over the past five years (2020-2025), both have delivered approximately 15-17% annualized returns, with FXAIX’s slightly lower expense ratio providing a theoretical 0.02% annual advantage that’s barely perceptible in real-world results.
The Surprising Cost Leader
While Vanguard built its reputation on low-cost investing, Fidelity has actually undercut Vanguard in this particular matchup. FXAIX’s 0.01% expense ratio means you’ll pay just $1 annually per $10,000 invested, compared to $3 for VOO. This represents one of the few instances where a mutual fund from one provider has a lower expense ratio than a competing ETF.
The Tax Efficiency Advantage
Despite FXAIX’s cost advantage, VOO holds a significant edge in tax efficiency. As an ETF, VOO rarely distributes capital gains due to its unique redemption mechanism. In contrast, FXAIX must occasionally distribute capital gains when underlying stocks are sold, triggering potential tax liabilities for investors in taxable accounts.
For example, in December 2023, FXAIX distributed capital gains of approximately $0.35 per share, creating taxable events for holders in non-retirement accounts. VOO made no such distribution, highlighting the ETF’s structural advantage for taxable investing.
Accessibility and Trading Flexibility
VOO offers intraday trading like a stock, allowing investors to buy and sell at precise price points throughout the market day. FXAIX, following mutual fund tradition, trades only once daily after market close at the net asset value (NAV).
For active investors or those implementing specific timing strategies, VOO’s flexibility provides clear advantages. However, long-term, buy-and-hold investors may find FXAIX’s end-of-day pricing perfectly adequate.
VOO is widely available across brokerages, while FXAIX is primarily available commission-free at Fidelity. Non-Fidelity customers may face transaction fees when purchasing FXAIX, effectively negating its expense ratio advantage.
The Minimum Investment Consideration
FXAIX requires no minimum investment for Fidelity account holders, making it accessible for investors starting with small amounts or those wanting to invest specific dollar amounts. VOO requires purchasing at least one full share (approximately $500 as of May 2025), though some brokerages now offer fractional share investing to mitigate this limitation.
The Verdict: Which is Better?
The choice between VOO and FXAIX ultimately depends on your specific circumstances:
Choose VOO if:
- You primarily invest in taxable accounts
- You value trading flexibility
- You use a non-Fidelity brokerage
- You might need to transfer holdings between brokerages in the future
Choose FXAIX if:
- You invest primarily in tax-advantaged accounts (IRAs, 401(k)s)
- You’re a Fidelity customer
- You invest in small or specific dollar amounts regularly
- You prioritize the absolute lowest expense ratio
Real-World Impact: The Cost Difference Quantified
The 0.02% expense ratio difference between these funds amounts to $2 annually per $10,000 invested. While this adds up over decades, it’s important to maintain perspective:
- On a $100,000 investment over 30 years (assuming 9% annual returns before expenses):
- VOO would grow to approximately $1,326,650
- FXAIX would grow to approximately $1,335,220
- Difference: $8,570 (less than 0.7% of the total)
This modest difference could easily be overshadowed by tax implications in taxable accounts, where VOO’s advantage would likely exceed the expense ratio benefit of FXAIX.
The Hidden Insight: Platform Lock-In
Fidelity’s strategy of offering ultra-low-cost funds like FXAIX creates a subtle form of platform lock-in. While beneficial for committed Fidelity customers, this approach means investors may face tax consequences or fees if they later wish to switch brokerages, as FXAIX cannot be directly transferred to other platforms without selling.
VOO, available across the investment ecosystem, offers greater portability and flexibility for investors who may change platforms in the future.
Conclusion: Excellence Either Way
Both VOO and FXAIX represent the pinnacle of efficient, low-cost index investing. The minor differences between them matter primarily for investors with specific needs or large portfolios where small percentage differences translate to meaningful dollar amounts.
For most long-term investors, either fund serves as an excellent core holding to build wealth through America’s largest companies. The choice ultimately comes down to your brokerage preference, account type, and whether you value the mutual fund or ETF structure more.
In the spirit of the late Jack Bogle, founder of Vanguard and pioneer of index investing, the most important decision isn’t between VOO and FXAIX—it’s choosing to invest consistently in low-cost index funds rather than trying to beat the market through active management or market timing.
FAQ
What is the difference between VOO and FXAIX? +
VOO is Vanguard's S&P 500 ETF with a 0.03% expense ratio, while FXAIX is Fidelity's S&P 500 index mutual fund with a 0.01% expense ratio. VOO offers better tax efficiency and intraday trading, while FXAIX has slightly lower fees and automatic investment options.
Is VOO or FXAIX better for taxable accounts? +
VOO is generally better for taxable accounts due to its superior tax efficiency. As an ETF, VOO rarely distributes capital gains, unlike FXAIX which may issue capital gains distributions that trigger tax liabilities.
Is VOO or FXAIX better for retirement accounts? +
For retirement accounts like IRAs and 401(k)s where tax efficiency isn't a concern, FXAIX's lower 0.01% expense ratio (compared to VOO's 0.03%) might provide a slight edge over time, particularly for Fidelity account holders.
Can I buy FXAIX at any brokerage? +
No, FXAIX is primarily available through Fidelity's platform without transaction fees. Other brokerages may offer it with additional fees, making it less attractive outside of Fidelity accounts.
Is VOO available at Fidelity? +
Yes, VOO can be purchased at Fidelity, but may incur commission fees depending on your account type, whereas FXAIX is available commission-free for Fidelity customers.
Which has better long-term performance, VOO or FXAIX? +
VOO and FXAIX have nearly identical long-term performance since both track the S&P 500 index. FXAIX's slightly lower expense ratio (0.01% vs. VOO's 0.03%) may theoretically provide a minimal performance advantage over extremely long time periods.
What is the minimum investment for VOO and FXAIX? +
VOO requires only the price of one share (approximately $500 as of May 2025), while FXAIX has no minimum investment requirement for Fidelity account holders.
Do VOO and FXAIX pay dividends? +
Yes, both VOO and FXAIX pay dividends quarterly with similar yields (approximately 1.3% as of May 2025) since they hold the same underlying stocks.
Which fund is more liquid, VOO or FXAIX? +
VOO is more liquid as it trades throughout the day like a stock, while FXAIX trades only once per day after market close. VOO's high trading volume ensures tight bid-ask spreads.
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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.
