FZROX vs FXAIX: which Fidelity index fund

These are the two funds most people at Fidelity end up choosing between for the core of a portfolio, and the comparison usually gets made on the wrong axis. The expense ratio is the headline. It's not the thing that should decide it.

What each one holds. FXAIX is the Fidelity 500 Index Fund: the S&P 500, so roughly the 500 largest US companies. FZROX is the Fidelity ZERO Total Market Index Fund: the whole US market, which adds mid- and small-cap companies on top of those same large ones.

In practice this difference is smaller than it sounds. A total-market fund is weighted by company size, so the large companies dominate it too — the extra thousands of smaller holdings make up a modest share of the fund. The two track each other closely year to year. You are not choosing between two different bets on the market.

The cost. FZROX charges 0.00%. FXAIX charges 0.015%. On $10,000 that's a difference of $1.50 a year. It is real, and it is not a reason to choose anything. If you find yourself agonising over this line, you have found the least consequential decision in your portfolio.

The difference that actually matters: portability. FZROX is a proprietary Fidelity fund. You cannot transfer it to another brokerage. If you ever want to move your account to Schwab or Vanguard, you have to sell it first — and in a taxable account, selling means realising capital gains and paying tax on them in that year, whether or not you wanted to.

FXAIX doesn't have that problem in the same way. It's a conventional Fidelity mutual fund, and while some brokerages won't accept it either, it isn't structurally locked to one firm the way the ZERO funds are.

This is why my own answer splits by account type. In a Roth IRA or 401(k), where selling triggers no tax and a transfer can be done in cash without consequence, FZROX is fine and I hold it. In a taxable account, I'd rather own something I can move without a tax bill deciding for me — because the fund you pick today is one you might hold for thirty years, and you cannot know now which brokerage you'll want to be at then.

The other quiet difference: FZROX tracks Fidelity's own in-house index rather than a published one like the S&P 500 or a CRSP index. That means no licensing fee, which is part of how the expense ratio reaches zero. It also means the index is defined by the company selling you the fund. This has not been a problem in practice, and the tracking has been fine. It's simply worth knowing that the benchmark is not independent.

So: which one. If it's a retirement account, either — take FZROX and the zero expense ratio, or FXAIX if you prefer a fund tracking a published index. If it's a taxable account you might one day want to move, FXAIX or a total-market ETF like ITOT is the choice that leaves the door open.

And if this decision has been sitting on your to-do list for a month: buy either one today. The gap between them is a rounding error next to the gap between being invested and not.