VTSAX vs FZROX, Who is The Best?

 VTSAX is one of my favorite funds. It is simple and easy, and it has low expenses. This index fund tracks the Total Stock market, and it is efficient. As everyone knows, new products come out all the time. Fidelity released a couple of Fidelity Zero Funds. One, in particular, is FZROX. Today, we will talk about what is better, VTSAX vs FZROX. Let's ride.

VTSAX vs FZROX

The main thing about these two mutual funds is price and performance. These are no load passively managed index funds held by Vanguard (VTSAX) and Fidelity (FZROX). They are total market index funds with low cost, giving us a broad range of ownership of the entire stock market. 

VTSAX:VTSAX is an index fund that tracks the total stock market. It holds around 4000 different companies. It is very tax efficient, and it is the best of the best at Vanguard. 

FZROX:FZROX is a newer fund created by Fidelity. It has a $0 minimum and 0% expense ratio. In the fee wars, the companies have made another type of fund with zero expense ratios and, therefore, zero fees. It may attract the eye, but we shall see how they compare.

Minimum investments.

When searching for index funds, we want to know how much it costs to start investing. Money talks, and the more you have to fork over, the harder it is to get your money working for you. ETFs have this a bit easier having a lower price point to get started. 

VTSAX's minimum is $3,000 to get started. After that, it is just $1. This one is a bit pricier to get started in. First, you need to be able to save up $3,000; secondly, while you are saving up, your money is not working for you. 

FZROX's minimum is $0 to get started. That is truly a great advantage to have. It does not cost much money to start, plus anyone can start now to get their money working for them. That makes it easy for the average joe to start investing without that much money. 

Winner: FZROX

Expense Ratios:

Mutual funds, Index Funds, and ETFs ( Exchange traded funds) have some expenses related to their operations. Therefore expense ratios are added to the fund.Expense ratios are a type of management fee that is added to a fund. They fund the operations of the mutual fund. The expenses are taken out of the fund; therefore, the owner does not see it as a fee. 

VTSAX has one of the lowest expense ratios on the market. It is sitting at 0.04%. At $10,000, it will cost just $4 to operate the fun. That is not bad at all. This expense beats more than 85% of the actively managed mutual funds on the market today.The expense of being so much cheaper is the reason Vanguard can keep their clients and their businesses doing so well. It is low-cost. 

FZROX is the new kid on the block with an expense ratio of 0%. There is no expense ratio, which means at $10,000, there is no fee that comes out of your pocket to own this index fund. That is a fantastic thing. Vanguard beats almost everyone, but Fidelity came out strong with a 0% expense ratio. 

Winner: FZROX

Diversification of the funds:

diversification

Diversification of the funds means that one fund is more diverse than another.It is like the old saying, “Don't put all your eggs in one basket.”If you have an S&P 500 index fund vs a total stock market fund, the entire stock market fund will win due to having more companies within the fund. This effectively has an impact on the diversification of your portfolio. 

VTSAX tracks the total stock market index. It has about 3500 companies in net assets giving it a very diverse outlook on the American stock market. If a new company enters, you will not have to worry about it rising to the top or falling off. 

FZROX tracks about 2500 companies. Given that it only goes with 2500 companies, it is less diversified than VTSAX, but it is still a pretty diverse allocation since it has 2500 companies. It is more into the large cap companies. 

Since VTSAX has about 1000 more companies inside the fund, it is a more diversified portfolio of companies. 

Winner: VTSAX

Dividends

Dividends are the cash that companies give back to their stock owners. Usually, dividends are distributed quarterly, and you can have those reinvested to buy more stock shares. This is like that little reward for being a faithful owner. 

Index funds give out dividends as well. The fund depends on when they give those out and if it has a high yield. I particularly like the ones that send them out quarterly. It is because they can be reinvested and start to work for me sooner rather than later. 

VTSAX sends out a quarterly dividend. Their dividend comes in March, June, September, and December. Four times a year, you can celebrate that you are getting a little bit of a payday. 

FZROX sends out its dividends annually in December I would rather have my money working for me as soon as possible, so it is good to have the dividends four times a year. So with that, VTSAX will be the winner in my book. 

Winner: VTSAX

Tax Efficiency

Tax efficiency

Tax efficiency is a big one relating to mutual funds like VTSAX and FZROX. You can save money on low costs, but if there are tons of taxes coming from it, then where would the savings be.  Mutual Funds often have many trades that can result in capital gains.

They may have short-term or long-term gains. Short-term would be any gains held less than a year. Long-term gains are any gains that result from security (stock) held for more than a year. Short-term is taxed at your regular tax rate, and Long-term is taxed at a rate depending on your income. The highest would be 20%. The lowest would be at 0%. 

VTSAX does a great job of keeping taxes to a minimum. They do not pass on any gains to the investor, making this fund one of the most tax-efficient funds on the market. That is excellent news for the investor. 

FZROX does have some short-term and maybe some long-term capital gains. They will pass this on to the investor. This will increase the fund's expense and cost the investor a bit of money due to taxes. 

Winner: VTSAX

ETF Versions for VTSAX vs FZROX

Many people are looking for ETFs. An Exchange Traded Fund (ETF) is a fund that is traded on the stock exchange like a stock. 

VTSAX and FZROX are both index funds, which are mutual funds. It can be hard to own these if you do not have an account with Vanguard or Fidelity. When determining, which fund (VTSAX vs FZROX) is best, you may look to see if you can buy the ETF shares.

We like ETFs because they just give us more options. Not everyone in the world has access to American mutual funds. ETFs are much easier to buy through different brokerages, especially if you are not an American citizen and want to purchase these funds.

ETFs, give a more accessible option to own index funds. So let's see if these two index funds have an ETF equivalent. VTSAX has an ETF equivalent. It is VTI. VTI has an expense ratio of 0.03%, which is 0.01% lower than VTSAX. That is great. Cheaper is better. 

FZROX does not have an ETF. Therefore, it will be hard to incorporate this into your portfolio if you do not already have an account with Fidelity. If you are into ETF trading, VTI will be your best bet since FZROX does not have an ETF.

Winner: VTSAX

Vanguard vs Fidelity

Vanguard vs Fidelity

The last thing I want to talk about is the two companies. There is Vanguard and Fidelity. They are at the top of the top. You cannot go wrong with being in with these brokerage companies. The only thing I see a difference in is who owns the company.

The Johnson family owns Fidelity. The family has a venture company called F-Prime, which will go after pre-IPO companies before their mutual funds can. This allows the family to increase their wealth instead of the fund holders. It is interesting to speculate why Fidelity isn't all about their investors. Reuters reported on this called “How the Owners of Fidelity Get Richer.” 

The investors own Vanguard, on the other hand. The people that invest their money into Vanguard own the company. The company is not obligated to make any decisions that hurt its investors. This is a tie because you can go to whichever company you choose. It is all up to you.

Some Last Thoughts:

VTSAX vs FZROX

As you may tell, FZROX has a 0% expense ratio and you can start with as little as $1. VTSAX has an expense ratio of 0.04% and you need $3,000. If you want more options VTI can help out with a lower expense, but once again FZROX is the best for lower expenses. Each one is greater.

So I just broke down VTSAX vs FZROX. These are two funds that people will be talking about for years to come. Which one is better is all up to you. I put out some information to help you decide.  It may be an ongoing debate. Who is best? VTSAX vs FZROXWhat would you choose?

Related Posts:

“Spend less than you make, stay out of debt, and invest the rest.”

 

14 thoughts on “VTSAX vs FZROX, Who is The Best?”

  1. Happy Birthday Steve!!
    You are really a kind person with amazing influence that you even wrap your knowledge as gifts and send them to your readers on your own birthday:)

    This is a terrific comparison with a full breakdown, but I searched for FZROX in ETF equivalent and didn’t find anything…

    Also I just heard from my colleague that foreigners are subjected to US withholding tax rate of 30% on dividends paid out by U.S. companies. Typically U.S. brokers will pay those taxes to government before we get our dividends.

    Reply
    • Thank you for the Birthday wishes. You are so kind Tommy.

      I do not think there is an ETF equivalent for FZROX. It is just an index fund. If I did ETFs, it would be VTI.

      There is a 30% withholding tax on certain foreigners from countries that do not have a tax treaty with the U.S. Taiwan is one of those. Now, they will pre take it out of the dividends. Depending on the ETF that you may get or the fund depends on the dividends. With VTI, the dividend is around 1.80%, but the fund is growing like 8-14% on average since its inception. So, a 30% tax on a 1.80% dividend really does not do to much damage to the growth of the fund.

      Ex: VTI dividend this quarter is $0.78. So at 30%, it will take $0.234 from the divdend. It is all about what you value. I value the growth of the fund, so it will keep growing and growing. The dividend helps it to buy more shares, but the fund keeps growing.

      I hope that helps.
      Steve

      Reply
  2. Wow you are right Steve, we buy-and-holder do not have to worry too much about dividends being eaten out a little bit haha, it’s only a matter of how we feel.
    Just my colleague said there seems to be a way to prevent it, so I did some research on it but didn’t really find out much. I’m with you and think that 30% on ETF’s dividends doesn’t really sting, but I can understand why he cares because he buys stocks…

    Reply
  3. A nice comparison between VTSAX and FZROZ, very thorough! You hit the nail on the head with who owns these companies. While Fidelity has zero fees right now, it doesn’t mean they always will. Overall, I agree that VTSAX is better. Perhaps I’m biased, but it’s what I choose to invest in. Great post, appreciate the information!

    Reply
    • I was going through and someone’s tweet really sparked my interest to look into who is the best. I totally agree that I think VTSAX is the best, but often times people choose price over anything even though taxes can sting a bit. I may be a bit biased as well.

      Thank you.

      Reply
      • This can be said for VTSAX as well. Dividends for different stocks get delivered throughout the year. At the end of the year, FZROX will need to have some cash to pay their dividend or they will need to sell some of the shares.

        Reply
        • You are misunderstanding how Fidelity pays dividends. They are “paid out” in December but the share price takes a hit by the equivalent price. The dividend reinvestment throughout the year is incorporated into the price. See the update in this article.

          Reply
          • Thank you Steve for your comment.

            I am not misunderstanding how Fidelity pays dividends. That is how dividends work. When one company pays a dividend its share prices take a hit by the equivalent price. I have an article about dividends. https://thefrugalexpat.com/what-is-a-dividend/. As I mentioned in this article VTSAX vs FZROX, “I would rather have my money working for me as soon as possible so it is good to have the dividends four times a year.”

            I believe that time in the market is much better than timing the market. For instance, a quarterly dividend for VTI on March 31st, 2020 had a base price of $130.45. So my dividend could buy cheaper shares. In December of 2020, the base price was $194.24 giving me fewer shares with the dividend.

            Which one would you rather choose?

  4. One correction to your article. I’m not sure about vanguard, but Fidelity is a private company, they do not have shareholders or trade on the market.

    Carl

    Reply
    • Carl, you are absolutely right. I had to look it just to make sure. I read that Vanguard was only one without shareholders, and it was owned by the people. Fidelity is owned by the FMR LLC. Thank you for opening my eyes to this.

      Reply

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