Total Market Index Fund Horse Race (2024)

As an investing strategy, I have chosen to go the route of using low-cost, broad based, index funds. This essentially equates to using “total market index funds”. You set them and forget them. But, there is a lot of conflicting information out there on which one is the best. Instead of going one way and feeling uncertain, I decided to get lots of total market index funds and compare them. Then, I just watched the results play out in real time. With real money. Here’s what I found…

I remember reading Seabiscuit back in 2005 or so when I was living in Spain. If I’m not mistaken, the lead trainer was able to look Seabiscuit (then just an unknown and unwanted racing horse that would go on to be one of the best ever) in the eye, see the fire that was there, and know that the horse would be great…

Then, there’s this idea of “looking a gift horse in the mouth,” which is apparently bad practice and rude. Keep that in mind the next time someone gifts you a horse… The idea was that you could look at the horse’s teeth/gums and know how old it was and therefore know how much value it could provide you.

Personally, I’ve never had much luck with premonitions and gut feelings. I think life has bestowed this wisdom upon me after some serious trial and error. We all want to think our gut is right every time, but I just haven’t found it to be true for me…

So, when it came to choosing a total-market index fund, I decided to get many of them and compare them to one another. It’s a horse race of sorts and I have early results I’d like to share. Mind you, the race isn’t over yet, but for me, there is a clear horse (or two?) that are out in front. I have some interesting results that have definitely swayed my thinking. Seeing my results might help sway your decision as well.

First though, I want to explain why I chose to compare total market index funds in the first place…

Why Compare Total Market Index Funds at all?

When I first plunged down the rabbit hole of Financial Independence (FI) and FIRE (Financial Independence Retire Early), I became convinced that investing in low-cost, broad based, index funds was the way to go. This essentially amounts to acquiring “total market index funds.” As a result, I came up with a very simple investing strategy that I outline here.

But, there was another message that I kept hearing throughout my research: “Nobody else can be trusted but Vanguard.”

That was a bummer because I already had Fidelity. At the time, Fidelity had a total market index fund of their own. But, based on what I was hearing, other brokerage companies (other than Vanguard) could not be trusted. Their principle goal, it was said, was to make money for themselves, rather than save money for their investors.

So, naturally I opened a Vanguard account. But just as I did, I cut off my source of income by taking a leave of absence (I burnt out teaching).

In the meantime, Fidelity had come out with a brand new total market index fund with an expense ratio of 0.0%! I was intrigued…

Ultimately, before completely bailing on Fidelity, I decided to do a test. I now had 3 total market index funds at my disposal. Two were in Fidelity and one in Vanguard. Essentially I had 3 horses, and I wanted to see how they would fare against one another.

If Fidelity couldn’t be trusted, then I would see it in the diminishing results compared to Vanguard. Then, I reasoned, if that was the case, I could bail on Fidelity and feel secure in my decision.

I find the results to be informative. First, however, let’s get to know the horses a bit better.

Total Market Index Fund Horses

Like I said before, there were 3 “total market index fund” horses to compare at my disposal. Really though, if I wanted to open accounts at different brokerage companies (like Charles Schwab for example) I could have access to even more of these funds.

But that’s high maintenance, and who needs that? Besides, I figured I’d get the general idea without all of the added difficulty. Looking back, I believe I was correct in this assumption…

Without further ado, here are the horses!

Horse 1 – VTSAX – This is that thoroughbred, tried and true work-horse. It needs no rest. You could race it every day, and you’ll probably place as well! VTSAX is the esteemed Vanguard’s total market index fund. It has an expense ratio of .04% which is higher than the others. But, because it’s Vanguard and we trust it, the slightly higher expense ratio is merely an afterthought.

Horse 2 – FSKAX – This is the horse that is always in the hunt. It always has the 2nd or 3rd best odds to win, but never seems to actually win. However, on paper, it’s metrics make it more favorable than even VTSAX. But metrics don’t win races which is why people might dabble with this horse and throw a few bucks on it, but never bet their life savings on it. Maybe that will all change after this race? It has a lower expense ratio of .015 (less than half of VTSAX). It’s also a total market index fund. But it’s Fidelity and so, according to some, we don’t know if we can trust it to come through for us in the end…

Horse 3 – FZROX – This is the new exciting horse on the block. Everybody has been talking about it for years as it raced in the younger circuits. It has finally come of age and people want to see what it can do. On paper it has the best metrics and in person it is by far the most attractive. Its coat shines and its reassuring eyes sparkle. It effortlessly glides around the track as if the laws of physics do not apply to it. It is, in a word, beautiful. FZROX is Fidelity’s Zero Total Market Index Fund. It has an expense ratio of 0.0%! That means, in theory, Fidelity makes no money off of this fund. In fact, because every fund must cost something to run, Fidelity probably loses money off of FZROX. Such is the price of beauty…

But really, FZROX is known as a loss leader, which I’ll get into next. For now, these are the 3 horses I’ve been racing for the past 10 months. Which one would you choose based on the descriptions/metrics above? Choose now and see how you did later…

Next, we’ll briefly discuss loss leaders before we set the conditions for this high-stakes race.

What’s a Loss Leader?

When I was teaching in Italy, I felt almost obligated to travel. Here I was, living in Europe, where a new culture, with it’s rich history, was merely a stone throw’s away.

The problem was, I didn’t have a lot of disposable income. My job didn’t pay all that well and I was still paying off grad school. I couldn’t exactly afford Europe’s finest hotels and cuisines. Or the air fare…

Luckily, there was a little company called Ryanair. If you’ve been to Europe you’ve probably heard of it. Essentially it was (and probably still is) an incredibly cheap way to fly around Europe. You could routinely fly round trip for under 50 euros. No problem at all.

How Ryanair could afford this, I know not. But business was thriving and I wasn’t going to question very cheap flights.

In addition, they had these promotions whereby you could fly from Italy to Norway (for example) for free. You would have to pay for taxes and that ended up being around 5 Euros. But, there were no hidden fees ,and essentially, if I was able to get one of these promotions, I would pay 10 Euros or so to fly to Norway and back! 10 Euros is probably 12 or 13 dollars. When you think about what you can get for 12 or 13 bucks, I’m sure a round trip to Norway doesn’t come to mind!

But, this was a great example of a loss leader. By having these outrageous promotions, they surely lost money on the people who took advantage of them. BUT, they also increased their traffic by many times, which more than paid for the loss they took for the free flights.

The promotion brought people to their site. Once they were there, however, maybe they decided that they wanted to go somewhere else. “It’s only 50 Euros for that trip to Budapeste? I’ve always wanted to go there,” the hypothetical vacationer probably reasoned. Click, click, booked.

The loss leader brought in tons of extra business!

The same can probably said for Fidelity’s zero fee index funds. Fidelity has four of these funds. They cost nothing to the investor and Fidelity probably loses money on them. However, the loss leaders get the people to open an account. Then, once they are there, Fidelity can begin influencing these people towards some other investments that will make them money.

That’s the logic, the best I can figure. For our purposes however, it gives us a nice shiny new horse to race and I’m eager to tell you how it fared as we compare total market index funds…

One last thing quickly… One more cool thing about Fidelity’s Zero Index Funds (no this is not an affiliate program. It’s just helpful!) is that you don’t need a minimum amount to invest. For some other funds you usually need at least $2,500 or so to get started. Here, you could start with $1 if you wanted. It wouldn’t do you much good but it’s a start that you could do!

Back to the race. Before we fire the starter’s gun, let’s make sure the race is fair, so we can feel secure in the results later…

Race Conditions

If you are going to have a race, and you want the results to stand, the conditions have to be the same. You can’t have one horse race one day on a dry track with perfect conditions and then have a different horse race on a different day where the winds are gusting and the same track is thick with mud. Technically, it would be the same track, but nobody would legitimize those results…

In the same vein, if I wanted to compare total market index funds legitimately, I knew I had to make the conditions the same.

So, for starters, I bought the SAME AMOUNT of each of the 3 funds AND I bought them on the exact SAME DAY.

And, each time I add to them, I follow the same guidelines. I buy them on the same day with the same amount of money.

And Just FYI, Mutual funds are purchased at the end of each day, after the market has closed. Thankfully I didn’t have to think about clicking “buy” at the exact same millisecond to make sure the market was identical.

Then, I just sat back and watched the race knowing the conditions were equal!

Now, the moment you’ve been waiting for! Here are the results of the race!

Race Results!

Knowing that the conditions were equal and that I bought the same amount of each fund on the exact same day, you might expect that the results SHOULD be based on the expense ratios.

After all, they are all total market index funds.

But, even though they are all the same in name, they might vary in how much of each company they purchase.

For example, one fund may be comprised of .25% Microsoft and the other might be .5% Microsoft. Then, if Microsoft has a huge day of swing, those funds could vary slightly in results.

But none of that really matters to me. I just want to compare these total market index funds to see which one performs the best.

So, let’s get to it. Below is a table of the results from my little experiment. I plan to come back and update this table from time to time. That way, if the results ever change, you can be in the know.

As you can see, FZROX is in the lead by a length! FSKAX and VTSAX are virtually identical.

And just FYI, I won’t give the exact amount of money I invested for a few reasons, but also because I hope to keep purchasing more, and it will always be changing. But $10,000 of each is in the right neighborhood.

Let’s quickly analyze the results and make sure we are on the same page.

What do the Results Mean?

Basically, my conclusion is that all of these are pretty much the same. Right now it looks like I won’t go wrong with any of these.

But, in fairness, if we are all attracted to winning on the margins with fractions of a percentage point, then there is a compelling case to be made for FZROX.

Mostly however, I was curious whether brokerage companies like Fidelity did have secret, covert tactics to skim money without having to report it in the prospectus report.

For now, at least, the results don’t support this finding. So, if you, like me, already have a Fidelity account, you might not need to scramble to open a Vanguard account, (though I’m still glad I have one).

And remember, I’m NOT a financial expert. I’m just a teacher. This is all just information I am using for my own investing. What you do with your money is completely up to you.

I also want to note that I do NOT get paid a dime by Fidelity, Vanguard or Charles Schwab. They barely know I exist (tears).

Normally, I would put a bow on this one, but looking back on the race track I see a new tornado of dust surging up the line! Hold on folks, this race is not over!

Late Surge from a Fourth Horse!

Unbeknownst to me, a fourth horse has entered the mix! It is absolutely screaming down the track and doesn’t look to be slowing at all. It just passed VTSAX and FSKAX and it’s got FZROX in its sights! This one is going to be a photo finish…

Actually it’s not even close. This 4th Horse just won by a landslide. Let me explain…

It just so happens that on the very day I purchased VTSAX, FSKAX and FZROX I purchased the exact same amount of a 4th fund.

It’s another of Fidelity’s zero expense ratio loss leaders. This one, however, instead of being a total market index fund is a “large cap blend”. Basically, instead of having all publicly traded companies, it only has the biggest companies (Your Apples, Amazons, Microsofts, Facebooks, etc.).

So really it’s very different, and comparing them isn’t fair. It’s also a bit apples to oranges. If the larger companies have trended better than the medium or smaller ones in the past year, then this will do better.

But since I have the data right here, I might as well share it right?

The fund is FNILX. It’s Fidelity’s Zero Large Cap Index Fund. The Expense Ratio is 0.0%.

At the time I am writing this (3/29/22), it is over 2% better than FZROX. This is probably more in line with Warren Buffett’s plan for his money. If you remember from last post, investing basics made very simple, I told you that Warren Buffett planned to invest some of what he left behind (the rest he plans to donate) in S&P 500 index funds when he was gone. Those are the 500 largest companies and are all considered “large cap”.

So, FNILX, which is a “large cap blend” is probably more in line with his plan. And, as I said before, if Warren Buffett gives me investing advice, I take it.

So, for what it’s worth, FNILX is ahead by a few lengths on the other 3 horses. This could change over time and I’ll keep you up to date along the way with this one as well.

Here’s a new table so we can compare the total market index funds alongside FNILX.

Summary of Total Market Index Funds

If, like me, you buy into the idea of investing in low-cost, broad based index funds, like many of the people I follow endorse, then you are probably going to have some total market index funds in your portfolio.

Some people, like JL Collins, only have VTSAX as their investment vehicle.

As I was researching and planning for my quest towards financial independence, the concept that Vanguard was the only trustworthy brokerage company, surfaced from time to time.

I’m not going to refute that. Vanguard has a sterling reputation that is built on a foundation of trust and doing what’s right for its investors.

Nevertheless, based on my results so far, I see no reason to transfer my money from Fidelity to Vanguard. Fidelity’s total market index funds are ever-so-slightly ahead of Vanguard’s (and in the case of FZROX, not insignificantly).

For now, this tells me that no hidden fees (of consequence) are being extracted and I can feel good with Fidelity’s options as well. If this changes, however, I will be sure to let you know!

For now, I feel secure in my decision but I am very open to your feedback as well! Did these results surprise you at all? Is there anything else you think I should consider? Leave a comment below or reach out and contact me any time. Thanks for reading and be well!

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