VTI vs. FZROX: Comparing Two Popular U.S. Total Stock Market ETFs

It’s no secret that staying on top of the ever-changing world of finance can be a complex and time-consuming task. When choosing investments, so many options are available, making it difficult for investors to determine the right course of action. For those looking to stay diversified through ETFs while investing in U.S stocks, two popular choices include Vanguard Total Stock Market (VTI) and Fidelity ZERO Total Market Index (FZROX). In this blog post, we will compare both ETFs as potential investments, exploring whether one is superior to the other or if both have their merits when building a portfolio.

What Is VTI? Let’s Talk About It:

Vanguard Total Stock Market ETF (VTI) is an ETF that tracks the performance of the entire U.S. stock market. It holds a diversified portfolio of stocks from large, mid-sized, and small U.S. companies and is managed by Vanguard, a renowned investment company globally.

Investors can gain broad-based diversification in the entire U.S. equity market by investing in VTI, which is a cost-effective and convenient option. Additionally, VTI is renowned for its low expense ratio, making it an attractive choice for long-term investors who wish to build a diverse investment portfolio while maintaining low costs.

Pros of investing in VTI:

1. Diversification: VTI invests in diverse stocks from various sectors and with different market values. This approach helps to lower the risk and give exposure to the general performance of the US stock market.
2. Low expenses: VTI has a considerably lower expense ratio compared to actively managed mutual funds and some other ETFs. This implies that you can retain a greater portion of your investment returns.
3. Easy to trade: You can easily trade VTI similar to stocks, buying and selling it quickly during trading.
4. Passive investing: VTI is a type of investment known as passive, meaning that it is not dependent on the abilities of a fund manager in selecting stocks. Rather, it follows the performance of the underlying index, making it suitable for those who prefer a less involved approach to investing.

Cons of investing in VTI:

1. No active management: VTI does not have a manager who actively makes investment decisions, which could limit its ability to seize market opportunities or mitigate market risks.
2. Market volatility: VTI’s price can go up and down based on the market, just like any other stock. This could be a concern for investors looking to cash out quickly or investing for a short period.
3. Limited international exposure: VTI focuses on investing in U.S. stocks, implying that it doesn’t offer any exposure to international markets. To gain exposure to global markets, one must explore other funds.
4. Limited sector exposure: Although VTI covers the entire US stock market, certain sectors you are interested in may not be included. In such cases, you must invest in other funds that specifically focus on those sectors.

Now, Let’s Discuss FZROX:

FZROX is short for Fidelity ZERO Total Market Index Fund. This mutual fund tracks the performance of the entire U.S. stock market. It does so by investing in a wide range of U.S. stocks of different sizes and across all sectors. The fund is managed by Fidelity Investments, which is a prominent and trusted investment company worldwide.

FZROX is an index fund that aims to mimic the performance of the overall U.S. stock market. This means that by investing in FZROX, you can get access to a wide range of companies and sectors and diversify your portfolio. Like other index funds, FZROX is designed to track a benchmark index, which is the total U.S. stock market.

Pros of investing in FZROX:

1. Low expenses: Investing in FZROX does not involve any fees as it has no expense ratio. This can potentially boost long-term investment returns for investors.
2. Diversification: FZROX offers a diverse selection of U.S. stocks across various sectors and capitalizations, which can lower risk and offer exposure to the overall performance of the U.S. stock market.
3. Passive investing: FZROX is a passive investment that doesn’t depend on a fund manager’s stock-picking abilities. It just follows the underlying index’s performance, making it ideal for investors who prefer a less involved investment strategy.
4. Accessibility: Investors of all levels of experience and wealth can easily buy and sell FZROX, just like any other mutual fund.

Cons of investing in FZROX:

1. No active management: It is possible that FZROX will not be able to seize market opportunities or mitigate market risks because there is no active manager making investment decisions.
2. Market volatility: The price of FZROX, like any other stock, can vary greatly based on market conditions. This can pose a risk for investors with a short-term investment horizon or needing to withdraw their funds immediately.
3. Limited international exposure: FZROX exclusively invests in U.S. stocks, thus, it doesn’t offer exposure to global markets. If you desire exposure to international markets, you must invest in other funds.
4. Limited sector exposure: FZROX gives you access to the entire US stock market. However, if you have a preference for particular sectors, you may want to consider additional funds that focus on those sectors.

How to Choose the Best for You:

Deciding between VTI and FZROX will rely on your personal investment objectives, likes, and comfort level with taking risks. To assist you in making a choice, we have outlined some significant factors for comparison between the two options:

Expense Ratio: 

FZROX has no expense ratio, meaning there are no fees for investors to pay to invest in the fund. On the other hand, VTI has a very low expense ratio of 0.03%. While both funds have low costs, FZROX has the advantage in terms of cost as there are no fees to be paid.

Investment Minimums: 

Some investors may find it difficult to meet the minimum investment requirement of at least one share for VTI. However, FZROX does not have a minimum investment requirement, allowing investors to start investing with any amount of money.

International Exposure: 

The VTI includes stocks of U.S. companies that have significant global operations, providing exposure to international markets. Conversely, FZROX only invests in U.S. stocks and does not offer exposure to international markets.

Fund Manager: 

Vanguard, one of the world’s biggest and most highly regarded investment companies, manages VTI, while Fidelity manages FZROX. Both have a lengthy history of managing index funds.

Investment Strategy: 

VTI and FZROX are investment options that follow a benchmark index to track its performance. VTI follows the CRSP US Total Market Index, and FZROX tracks the Fidelity U.S. Total Investable Market Index. These indexes include the entire U.S. stock market.

Final Verdict:

If your main priority is cost, FZROX is the better option since it has no expense ratio. However, if you want exposure to international markets or prefer Vanguard’s reputation and investment philosophy, VTI may be a better fit for you. It’s crucial to consider your investment goals, risk tolerance, and strategy carefully when deciding between these two funds.