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FXAIX vs VOO: Which Is a Better Investment Option?

FXAIX (Fidelity 500 Index Fund) and VOO (Vanguard S&P 500 ETF) are two investment options that offer to return similar returns to the S&P 500.

In large part, these two investment options are very similar, except FXAIX is a mutual fund offered by Fidelity, and VOO is an exchange-traded fund (ETF) offered by Vanguard.

ETFs and mutual funds are mostly distinguished by their trading mechanisms. ETFs trade on stock exchanges throughout the trading day, much like individual stocks, while mutual funds are priced and traded based on their end-of-day net asset values (NAV).

In this post, we’ll compare VOO and FXAIX in terms of their structure, expense ratio, performance, and tax efficiency.

What is VOO?

The Vanguard 500 Index Fund (VOO) is Vanguard’s S&P 500 index-tracking ETF offering. VOO is the ETF alternative to Vanguard’s VFIAX S&P Index tracking mutual funds.

VOO’s main objective is to generate similar overall returns as the market using the S&P 500 as its index. The ETF is inherently diversified and is generally considered safer than holding individual stocks within an index.

What is FXAIX?

FXIAX is similar to VOO in its objective. FXAIX is the Fidelity 500 Index fund, which aims to provide similar returns as the S&P 500. Unlike VOO, FXIAS is a mutual fund offered by Fidelity that uses a market capitalization-weighted index of 500 common stocks to generate similar returns as the S&P 500.

The 500 Fidelity index fund has a 5-start Morningstar rating with moderate risk and moderate to high returns.

FXAIX vs. VOO: Which S&P 500 Index Fund is Better?

FXAIXVOOEdge
Fund TypeMutual FundETFSplit Decision
DiversificationS&P IndexS&P IndexTie
Number of Holdings506505Tie
Risk RatingModerateModerateTie
Minimum InvestmentNo minimum$1.00Tie
Expense Ratio0.02%0.03%Slight edge to FXAIX
Tax EfficiencyGenerates slightly more capital gains, which is less tax-efficientGenerates slightly less capital gains which is more tax-efficientVOO - ETFs are slightly more tax-efficient since they generate less capital gains
Tax Loss HarvestingFunds can be reinvested on the same-dayFunds must settle and may need 1-2 days to be available for reinvestmentFXAIX
Trading & LiquidityEOD trading on NAVDaily trading during Market HoursSplit Decision based on Investment Strategy
Performance-18.13% in 2022-18.15% in 2022Tie
Dividend Yield1.58% in 20231.57% in 2023Split Decision - Slight Edge to FXAIX

Diversification – Tie

FXIAX and VOO both have the same investment strategy and thus have a very similar portfolio composition. Both assets attempt to generate similar returns as the S&P 500 by creating a portfolio composition.

Below, we can see the portfolio composition of each asset.

08/31/202309/30/2023
IndustryFXAIXVOO
Information Technology28.14%27.50%
Health Care13.12%13.40%
Financials12.43%12.70%
Consumer Discretionary10.59%10.70%
Communication Services8.78%8.90%
Industrials8.40%8.30%
Consumer Stables6.55%6.60%
Energy4.41%4.70%
Materials2.46%2.40%
Real Estate2.44%2.40%
Utilities2.42%2.40%
Multi Sector0.23%0.00%

Source: FXAIX, VOO

The portfolios are very similar, with each category falling with less than 1% of one another. The similarity in industry composition is an indicator that both portfolios are holding very similar stocks inside.

Below is a list of the top 10 holdings of each portfolio to see how they compare with one another.

IndustryFXAIXVOO
Apple Inc.7.36%7.35%
Microsoft Corp.6.45%6.45%
Amazon.com Inc.3.26%3.26%
NVIDIA Corp3.23%3.23%
Alphabet Inc. A2.14%2.14%
Alphabet Inc Class C1.86%1.86%
Tesla Inc C1.84%1.84%
Meta Platforms Inc Class A1.73%1.73%
Berkshire Hathway Inc Class B1.70%1.70%
Exon Mobile Corp1.19%1.19%
Total30.76%30.75%

As the table shows, FXAIX and VOO have a nearly identical composition of their top 10 holdings. We can see that the total top 10 holdings for FXAIX account for 30.76% of the portfolio, while the top 10 holdings for VOO account for 30.75%.

Minimum Investment – Tie

Both FXAIX and VOO have very low minimum investment requirements.

FXAIX has no minimum investment, which means you can invest a fraction of a dollar when buying FXIAX. FXIAX stands out compared to other mutual funds because many mutual funds have higher investment minimums, especially those offered by Vanguard.

VOO has an investment minimum of $1.00. This is higher than FXAIX, but the difference is, once again, marginal.

Whether you are investing in FXIAX or VOO, their low investment minimums make them perfect for any level of investment.

Expense Ratios – Slight Edge to FXAIX

In many cases, mutual funds have higher expense ratios than ETFs. But in this case, FXAIX has an expense ratio of 0.02% which is slightly lower compared to VOO’s 0.03% expense ratio.

Keep in mind that the difference between these two ratios are marginal and unlikely to have a meaningful impact when investing and holding these assets. However, this difference may become more meaningful at higher investment levels.

Trading and Liquidity – Split Decision

As an ETF, you can buy and sell VOO throughout the day at any time during market hours. This makes VOO more tradable and liquid compared to FXAIX, which is a mutual fund.

One drawback of trading ETFs is that they typically trade at prices slightly different from their Net Asset Value (NAV). The difference is also known as bid-ask spread). When trading VOO throughout the day, you will likely pay a premium compared to the actual market value.

FXAIX, on the other hand, can only be traded at the end of the day based on NAV. While this makes FXIAX less liquid compared to VOO, it offers the benefit of dollar cost-averaging rules to automate your investing.

Neither VOO nor FXIAX has the advantage here because the advantage depends on your investment style and strategy.  If you are an investor and like to trade daily or change positions frequently, VOO is the better option. On the other hand, If you are a long-term buy-and-hold investor not concerned with trading execution strategies and small entry and exit “fees” associated with bid-ask spreads, you may prefer FXIAX.

Tax Efficiency – Slight Edge to VOO

As investors, it’s always important to consider the tax efficiency of investment returns. This means you need to factor in indirect costs such as taxes when comparing final returns for two investments.

The key distinction between VOO and FXAIX for tax efficiency is their investment structure. VOO is an ETF, and FXAIX is a mutual fund.

If you hold the assets in tax-deferred/non-taxable accounts (such as IRAs), ETFs will generally have a slight edge from a tax efficiency perspective. As a result of some of the internal workings of ETFs vs. mutual funds, ETFs tend to distribute comparatively fewer capital gains to shareholders – these same gains are simply more challenging to manage efficiently via the mutual fund format.

Tax Loss Harvesting – Slight Edge to FXAIX

Tax-loss harvesting is a strategy that involves selling investments at a loss to offset gains (and up to $3,000 in ordinary income). This strategy can be implemented for any investment type, including mutual funds and ETFs.

In general, mutual funds are better for tax loss harvesting than ETFs because of how they are traded. FXAIX and all other mutual funds are only traded after the market closes. When you sell mutual funds, you can have funds scheduled to be reinvested on the same day. This allows you to harvest tax losses and reinvest your funds the same day.

ETFs such as VOO are traded and sold throughout the day. While this makes them more tradable, funds made from a sale must settle before you can reinvest those funds. With most accounts, you will have to wait two days after the order is executed, commonly referred to as T+2.

Performance and Dividends – Tie

In theory, we expect assets trying to generate similar returns to the S&P 500 to have similar returns, especially two investment choices as well recognized as FXIAX and VOO.

Below is a comparison of VOO and FXAIX  annual total return by NAV.

Totel Returns by NAV
YearFXAIXVOODifference
2022-18.13%-18.15%0.02%
202128.69%28.66%0.03%
202018.40%18.35%0.05%
201931.47%31.460.01%
2018-4.40%-4.42%0.02%
201721.81%21.78%0.03%
201611.97%11.93%0.04%
20151.38%1.35%0.03%
201413.66%13.63%0.03%

Source: FXAIX, VOO

From the table above, you can see there is a small variation year-over-year between FXAIX and VOO with the largest difference in annual total returns only being 0.05% from 2014 to 2022. That said, the table shows that FXAIX has consistently slightly outperformed VOO.

Because the variation is marginal and has little effect on actual returns, VOO and FXAIX are generally considered to have the same return levels.

We can see similar returns and differences when comparing the cumulative total returns.

Commulative Returns by NAV
YearFXAIXVOODifference
1-Yr21.61%21.57%0.04%
3-Yr10.14%10.11%0.03%
5-Yr9.90%9.88%0.02%
10-Yr11.90%11.87%0.03%

Source: FXAIX, VOO

Over cumulative returns, VOO and FXAIX have similar returns.

When you look at the dividend yield performance of VOO and FXAIX, there is a slightly different picture.

YearFXAIXVOODifference
20231.58%1.57%0.01%
20221.49%1.50%-0.01%
20211.36%1.36%0.00%
20202.06%1.84%0.22%
20192.08%1.94%0.14%
20181.93%1.80%0.13%
20172.43%1.89%0.54%
20162.52%2.06%0.46%
20152.48%1.97%0.51%
20141.84%1.84%0.00%
20131.90%1.91%-0.01%

The table above shows that, since 2013, FXAIX has outperformed VOO in 7 out of 11 years. While the difference in dividend yield is quite small, the difference is larger than the difference in total returns.

Between 2015 and 2017, FXAIX had the largest difference in dividend yield with an average outperformance of 0.50%. But, from 2021 to 2023, FXAIX and VOO have an identical performance. Historically, FXIAX has a slide edge in dividend yield performance, but there has been no difference in performance over the last three years.

To summarize, whether you invest in FXAIX or VOO, you can expect similar performance with some marginal differences in dividend yield and total returns.

Vanguard vs. Fidelity

My primary brokerage for these investments is Vanguard. This site and this post are not sponsored by Vanguard, but I wholeheartedly recommend them for several reasons.

First, there are no shareholders to please with profits. The company is owned by those who invest in the funds. That’s right — you and us, the client-owners.

Second, Vanguard was the original low-cost brokerage firm. While this is no longer the case, the average Vanguard mutual fund expense ratio is significantly lower than the industry average. In general, you can expect to have lower expense ratios across all mutual funds than other brokerages.

Finally, Vanguard has always provided good customer service. In addition, while most might complain about the user-friendly nature of Vanguard compared to Fidelity (which is true), they are continually improving their mobile app and desktop. The difference in user interface has never been significant enough to prevent us from effectively investing.

FXAIX vs. VOO: Which One Should I Invest In?

Ultimately, deciding whether to invest in VOO or FXAIX will depend on your investment strategy and preferred financial broker.

VOO and FXAIX aim to generate similar returns as the S&P 500 by investing in a large blend of approximately 500 common stocks. Both of these funds offer a very similar, if not identical, risk and return profile. In addition, since both funds index the S&P 500, their portfolio diversification is nearly identical, with no significant difference between each portfolio.

One key distinction when deciding on whether you should invest in VOO and FXAIX is your trading preference. VOO offers more trading flexibility and allows you to buy and sell when the market is open. On the other hand, investing in FXAIX might be a better option if you prefer to buy and hold. In addition, when you do sell or trade FXAIX, you can only sell once the market is closed, but you can also schedule funds to be reinvested the same day, whereas in ETFs, there is a settlement period.

In terms of performance, neither VOO nor FXAIX has a clear advantage. Both generate very similar annual and cumulative total returns. Likewise, for Dividend yield, returns are very similar with an FXAIX having a slight edge, but this marginal difference in performance is unlikely to generate meaningful differences.

One final consideration when deciding between VOO or FXAIX is your preferred online investment broker. VOO is offered by Vanguard and FXAIX is offered by Fidelity. If you already have a brokerage account with one firm, it might be best to invest in the option that aligns with your current portfolio for ease of use and tracking. If you like content like this check out Stocktrades covers a wide variety of S&P 500 ETFs in Canada.



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3 thoughts on “FXAIX vs VOO: Which Is a Better Investment Option?”

  1. Could you please provide some numbers to help us compare the tax efficiency of the two? I understand that they are both efficient and that VOO is a little more efficient, but I would love some hard numbers to support that qualitative assessment.

    Reply
  2. Subscribe to get more great content like this, an awesome spreadsheet, and more!
  3. Considering the similarities between FXAIX and VOO in terms of performance and portfolio composition, do you believe that the marginal difference in costs and trading structure is sufficient to highlight one option as superior to the other? How would you suggest that investors choose between these two funds, taking into account these factors?

    Reply
  4. The tax loss harvesting information you present must be Vanguard specific. On fidelity one can TLH between ETFs in seconds. There is no settlement period as long as the funds are not removed from the account.

    Conversely, mutual funds are settled after hours and one has to wait overnight to buy another security.

    Thus, at least on fidelity (but I suspect on most brokerages), ETFs like VOO are substantially better for TLH than mutual funds.

    Reply

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