Four Funds, Two Questions, Two Traps

FXAIX, FNILX, FZROX and FSKAX are four of Fidelity’s most popular index funds, and the differences between them are smaller and more important than most people realise. FXAIX and FNILX hold large US companies, while FSKAX and FZROX hold the entire US stock market. FXAIX and FSKAX charge a very small fee and can generally be held at other brokers, while the two ZERO funds, FNILX and FZROX, charge nothing but can only be held at Fidelity.

That is really the whole decision. Choosing between these funds comes down to two questions: how much of the US market you want to own, and whether you are certain you will always stay with Fidelity.

Get those two answers right, avoid the two traps that catch many investors, and the choice becomes simple. This guide walks through each fund, the real costs, the traps, how these mutual funds compare with ETFs, and exactly what to check before you invest. FRC has no relationship with Fidelity and no stake in what you buy: we do not sell investments, manage portfolios or earn commission, so everything here is explained impartially.

Prefer to watch? See every video in the FRC Retail Investing series, and if you are building your first portfolio, FRC’s ETF Investing for Beginners course takes you through index funds, ETFs and portfolio building step by step.

What an Index Fund Actually Does

An index fund does not try to beat the market. It simply holds the companies in a chosen index, in roughly the same proportions, so its performance follows that index up and down.

Because there is no team of managers picking stocks, costs are very low. That is the main reason index funds have become the foundation of so many long-term portfolios, from first-time investors to retirement savers.

All four Fidelity funds in this guide work this way. Where they differ is in which index they follow, what they charge, and where you are allowed to hold them. If you already know the basics and want to combine funds like these into a complete portfolio, FRC’s ETF Investing Strategies course covers asset allocation, rebalancing and investing tax-efficiently.

FXAIX: The Fidelity 500 Index Fund

FXAIX tracks the S&P 500, an index of around five hundred of the largest companies in the United States. These are the household names that dominate the US economy, across technology, healthcare, finance, consumer goods and more.

The S&P 500 represents roughly 80 percent of the value of the US stock market, so a fund that tracks it gives you most of the market’s weight in one holding. Fidelity lists FXAIX with an expense ratio of 0.015 percent and no minimum investment.

FXAIX is a conventional index fund in one important sense: it follows a widely used, independent index, and it can generally be held at other brokerage firms. That flexibility becomes significant later in this guide.

FNILX: The Fidelity ZERO Large Cap Index Fund

FNILX holds similar large US companies, but it does not track the S&P 500. Instead, it follows Fidelity’s own large cap index, built in-house rather than licensed from an outside index provider.

Its headline feature is its expense ratio: zero. Fidelity launched its ZERO index funds in 2018, and they charge no annual fund fee at all.

In practice, FNILX and FXAIX hold many of the same companies and tend to move closely together. The differences are the index each one follows, the cost, and where you can hold the fund.

FSKAX: The Fidelity Total Market Index Fund

FSKAX goes wider. It tracks the Dow Jones U.S. Total Stock Market Index, which adds mid-sized and smaller companies to the large ones, giving you thousands of US stocks in a single fund.

Like FXAIX, Fidelity lists FSKAX with an expense ratio of 0.015 percent and no minimum. It also follows an independent, widely recognised index and can generally be held at other brokers.

If you want exposure to the whole US market rather than just its largest names, FSKAX is the conventional way to get it at Fidelity.

FZROX: The Fidelity ZERO Total Market Index Fund

FZROX also covers the entire US stock market, but through Fidelity’s own index rather than an outside one. Like FNILX, it is part of the ZERO family, with an expense ratio of zero.

FZROX has become one of the most talked-about funds among do-it-yourself investors because of that zero fee. As with FNILX, the trade-off is not in the cost; it is in where you can keep it.

What the Fees Really Mean in Dollars

An expense ratio is the percentage of your investment a fund charges each year to cover its running costs. It is taken from the fund’s assets, so you never see a bill, but it reduces your return.

At 0.015 percent, FXAIX and FSKAX cost about $1.50 a year for every $10,000 invested. At zero, FNILX and FZROX cost nothing in annual fund fees.

The gap between the two is real but tiny. On $100,000, it is about $15 a year, which is why the other differences in this guide often matter more than the fee itself.

Over long periods, of course, every saving compounds. If you want to see how small costs and returns grow over time, FRC’s dictionary entry on compound interest explains the maths.

The Two Questions That Decide It

Question one: how much of the US market do you want to own? If you want only the largest companies, your choice is between FXAIX and FNILX. If you want the whole market, including mid-sized and smaller companies, your choice is between FSKAX and FZROX.

Question two: are you certain you will always stay with Fidelity? If the answer is yes, the ZERO funds remove the fee entirely. If there is any chance you will move your account to another broker, the conventional funds give you flexibility for a very small cost.

Those two questions narrow four funds down to one. Everything else in this guide helps you check that your answer still holds up.

Trap One: ZERO Funds Cannot Leave Fidelity

This trap usually surfaces years after an investor buys. Fidelity’s ZERO funds, including FNILX and FZROX, can only be held at Fidelity.

If you ever decide to move your account to another broker, you cannot transfer these funds across. You would have to sell them first, then move the cash.

In a retirement account such as an IRA, selling inside the account generally does not create a tax bill. In a taxable brokerage account, however, selling can trigger capital gains tax on any growth, which can turn a zero-fee fund into an expensive exit.

FXAIX and FSKAX, by contrast, can generally be transferred to other brokers in kind, without selling. If you value the freedom to move, that portability is worth far more than the small fee difference.

Before you move any account, check the rules with both firms. FRC’s guide to IRA rollovers and transfers explains how retirement money moves between providers.

Trap Two: Owning the Same Companies Twice

The second trap is overlap. Many investors buy two, three or even all four of these funds, believing they are spreading their risk.

But the largest US companies sit inside every one of them. A total market fund already contains the S&P 500 companies, and because those companies are so large, they make up most of its value.

So owning FXAIX alongside FSKAX, or FNILX alongside FZROX, often means owning the same companies twice rather than adding real diversification. True diversification usually means spreading across different kinds of assets, such as international stocks or bonds, rather than across funds that hold the same names.

If you want international exposure, Fidelity offers international index funds as well, including a ZERO version. They hold companies outside the US, so they add something your US funds do not.

These Are Mutual Funds, Not ETFs

All four funds in this guide are mutual funds, which affects how you buy them and how they are taxed. Mutual funds are regulated under the Investment Company Act of 1940, the same law that governs ETFs, but they trade very differently.

A mutual fund is bought and sold once a day, at the price calculated after the market closes. An ETF trades throughout the day on an exchange, like a share, at whatever price the market sets at that moment.

Mutual funds do have a convenience. You can invest exact dollar amounts, such as $250, and set up automatic contributions on a schedule, which makes regular investing very simple.

The Tax Difference in a Taxable Account

The biggest practical difference between mutual funds and ETFs shows up in taxable accounts. When a mutual fund sells holdings at a profit, for example to meet redemptions, it may have to distribute those gains to shareholders, who then owe tax on them even if they did not sell anything.

ETFs can often avoid this through the in-kind creation and redemption process, which moves securities in and out without selling them for cash. Index mutual funds tend to have low turnover, which keeps distributions down, but the ETF structure generally has the edge on tax efficiency.

That is why many investors hold funds like these inside retirement accounts, such as an IRA or a workplace plan, where gains are not taxed each year. In a taxable account, an ETF with similar exposure may be the more tax-efficient choice.

FRC’s guide on how to choose tax-efficient ETFs for a taxable brokerage account explains how to compare funds for a taxable account in detail.

Matching the Fund to the Account

The account you use can change which fund makes most sense. In an IRA or other retirement account, the tax drawbacks of mutual funds largely disappear, and selling a ZERO fund inside the account to move providers does not usually create a tax bill.

In a taxable brokerage account, the picture shifts. Capital gains distributions are taxed each year, and selling a ZERO fund to move brokers can be costly, so portability and tax efficiency deserve more weight.

Workplace plans such as a 401(k) are different again. You can only choose from the funds your plan offers, which may include an S&P 500 or total market index option, sometimes in a different share class from the retail funds described here.

A Worked Example

Imagine an investor opening a Roth IRA at Fidelity, who wants the whole US market and expects to stay with Fidelity for years. FZROX fits that plan well: it covers the entire market at zero cost, and if they ever left Fidelity, selling inside the Roth IRA would not usually trigger tax.

Now imagine the same investor opening a taxable brokerage account, unsure whether they will stay with Fidelity long term. Here FSKAX, or a total market ETF, may suit better, because it can generally be moved to another broker without selling, avoiding a possible capital gains bill.

Same investor, same goal, different account, different answer. The account you invest through carries as much weight as the fund you choose.

What If You Do Not Invest at Fidelity?

You do not need a Fidelity account to get the same kind of exposure. S&P 500 ETFs and total US market ETFs are offered by several large fund providers and can be bought at almost any US broker.

Many investors at other firms use ETFs for exactly this reason. They give broad, low-cost exposure, trade throughout the day, and can be moved between brokers without being sold.

If you are choosing where to invest, FRC’s side-by-side comparison of Fidelity vs Charles Schwab vs Vanguard explains how the three largest firms differ on structure, cash handling, fund ranges and support.

How Safe Is Your Money in These Funds?

Two kinds of safety are worth separating. The first is the safety of the fund itself: the stocks inside a fund belong to the fund and its shareholders and are held by a custodian, not on Fidelity’s own balance sheet.

The second is the safety of your brokerage account. FRC’s guide to whether Fidelity is safe explains every layer of protection around a Fidelity account, from SIPC to Fidelity’s own guarantee against unauthorised activity.

Neither protects you from the market. All four funds rise and fall with US stocks, and in a sharp downturn, they will fall together.

What to Check Before You Invest

Before you choose any of these funds, open its official page on Fidelity’s website and check three things. First, the index it tracks, so you know exactly what you own.

Second, its current expense ratio, because fund details can change. Third, its distribution history, which shows how much it has paid out in dividends and capital gains over time.

Then check your own situation. Which account are you using, taxable or retirement? How long do you plan to invest, and how likely are you to move brokers in the future?

Common Questions

Is FXAIX or FZROX better? Neither is better in general. FXAIX tracks the S&P 500 and can be moved to other brokers, while FZROX covers the whole US market at zero cost but can only be held at Fidelity.

What is the difference between FXAIX and FNILX? Both hold large US companies. FXAIX tracks the S&P 500 at a very small fee and is portable, while FNILX follows Fidelity’s own large cap index at zero cost and can only be held at Fidelity.

Should I own FXAIX and FSKAX together? Owning both means significant overlap, because the S&P 500 companies make up most of a total market fund. Many investors choose one or the other, then diversify with international stocks or bonds.

Can I move FZROX to another broker? No. Fidelity ZERO funds can only be held at Fidelity, so you would need to sell them first, which can create a tax bill in a taxable account.

Are Fidelity index funds ETFs? No. FXAIX, FNILX, FZROX and FSKAX are mutual funds, which trade once a day at the closing price rather than throughout the day.

Understanding Your Investments Is Open to Everyone

You do not need to work in finance to understand what you own. Every concept in this guide, from expense ratios to portability and tax efficiency, can be learned, and knowing it puts you in control of your own decisions.

FRC’s programmes and memberships are open to everyone. Start with ETF Investing for Beginners if you are new, and move on to ETF Investing Strategies when you are ready to manage a full portfolio.

FRC’s Professional Membership adds structured learning, verified progress and a growing set of tools for investors who want to keep building their knowledge. The FRC dictionary, with explainer videos on the rules behind US investing, is free for everyone.

Your Next Step

FXAIX, FNILX, FZROX and FSKAX are all low-cost, broad index funds, and none of them is a bad choice in itself. The right one depends on how much of the market you want, whether you will stay with Fidelity, and which account you are investing through.

Answer the two questions, avoid the portability and overlap traps, check the fund pages yourself, and invest with a plan rather than a ticker you heard about online. Then carry on with FRC’s complete step-by-step guide to investing in ETFs to build the rest of your portfolio.