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Goal

I'm looking for a long term investment vehicle outside of a tax-advantaged account. It's possible I'll be making regular contributions using a dollar-dost averaging strategy. I'd also like to know how to best compare similar investment vehicles in the future.


Comparison

After reading an article comparing FZROX to VTI, I realized there's more to comparison than just fees. Things like Index construction, Fee offsets, Tax efficiency, and Trust should also be taken into consideration. I'm sure there are other factors as well. Here's my cursory comparison.

Structure

FNILX is a mutual fund while VOO is an ETF, although I'm unclear as to just how much of a difference this distinction will make with regards to returns considering both attempt to track the S&P 500 (and thus have a similar construction, or so I assume.)

Fees

Fidelity's huge selling point is that FNILX has 0.00% expense ratio (compared to VOO's 0.03% expense ratio.)

Performance and Tax Efficiency

Looking at the Quarter-End Average Annual Total Returns after taxes on distributions, I was startled at the difference between the two. As seen in the following tables, VOO's return was 3.73% while FNILX's was 4.17%. Am I mistakenly comparing apples to oranges here? If not, what factors might contribute to the large difference, and are they good indicators of future performance difference?

VOO Vanguard Returns

FNILX Fidelity Returns

Trust

Given how new Fidelity's ZERO funds are, a small concern of mine is that Fidelity will eventually raise fees, while Vanguard has been a reputable leader in low-fee funds.

0

I'll answer your Trust question first as that is the easiest. Fidelity would close the ZERO fund series before they raise the expense ratio. Fidelity already offers the same funds with an expense ratio that is not zero - they rolled out the ZERO funds specifically to target investors who want a zero expense fund.

Fees

ETFs typically incur a trading commission when buying or selling them; if your account will pay commissions then that will far exceed the expense ratio consideration unless you're investing $15,000 per trade ($5 commission per trade equals 0.03% at 15k). It looks like your screenshot is from Vanguard so this shouldn't be an issue

Keep in mind that this focus on expense ratios for these 2 products is not really that important. If you have $10k in the VOO you're only paying $3.00 per year so the difference between the 2 investments is minimal in real dollars.

Performance and Tax Efficiency You're looking at the performance data correctly.

Take a look at the turnover for each product. The higher the turnover the more likely there is going to bea tax impact.

You'd need to look at the past 5 years of turnover to see if it's useful for future prediction purposes. If the same portfolio managers have been in place for 5 years and the turnover rates are largely the same each year then that provides insight into how the manager(s) trade and I think it's helpful. The Fidelity fund is new so they don't have embedded unrealized gains so their after tax performance may change over time.

Below is a blurb from Fool.com (which is only useful for very high level info...):

For investors who use taxable accounts, mutual funds of any kind -- even free ones -- are an easy "pass." For reasons that go far beyond the scope of this article, if you have the choice between an ETF or a mutual fund, and both track the same or very similar index, you're almost always better off with the ETF. The reason is that ETFs are often far more tax efficient than mutual funds, meaning ETFs generate fewer taxable capital gains than comparable mutual funds. According to one study, investors who held the 25 largest ETFs in 2015 effectively dodged taxes on nearly $60 billion of gains.

https://www.fool.com/investing/2019/01/06/read-this-before-buying-fidelitys-zero-fee-funds.aspx

https://www.fool.com/investing/2018/08/17/etf-vs-index-mutual-fund-which-ones-better.aspx

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