Aleksei Dmitry Melnik 
Research shows that 3 out of every 8 investors want to invest in the S&P 500. Overall, investing in the S&P 500 can be a smart move for investors looking to enter the US stock market.
Two popular S&P 500 index funds are the Vanguard 500 Index Fund (VFIAX) and the Fidelity 500 Index Fund. While both funds track the performance of the S&P 500 index, there are important differences between them that investors should consider when making investment decisions. We’ll take a look at the S&P 500 and VFIAX and FXAIX, their pros and cons, key differences and how to choose between them. If you are ready, let’s get started…
What Are VFIAX And FXAIX?
The S&P 500 is a benchmark index that tracks the performance of 500 large-capitalization US stocks. It is widely used as a barometer for the overall health of the US equity market. VFIAX and FXAIX are index funds that aim to track the performance of the S&P 500 index. With the prominence of social media and the spread of different investment options, it would not be wrong to state that we have started to hear its name more frequently recently.
What is VFIAX?
VFIAX stands out as an index fund that allows investors to invest in the S&P 500 index. Some of the advantages of investing in VFIAX are as follows: A low expense ratio of 0.04%, which is lower than the average expense ratio of similar funds, and a wide diversification among the 500 largest US companies.
VFIAX also has a strong focus on large-cap stocks that can potentially provide investors with stable returns. For these reasons, it would not be wrong to state that it is frequently preferred.
What Are The Cons of VFIAX?
Since it only focuses on the S&P 500, it can also be extremely difficult to gain exposure to smaller companies or international markets that may perform well. Also, VFIAX’s performance is affected by changes in interest rates or economic conditions that affect the overall stock market.
What is FXAIX?
FXAIX is an index fund designed for investors to invest in the S&P 500 index. The low expense ratio of 0.015%, which is even lower than VFIAX’s expense ratio, and the wide diversification among the 500 largest companies in the US make this index fund a very popular choice for investment purposes. FXAIX also has a strong focus on large-cap stocks that can potentially provide investors with stable returns.
What Are The Cons of FXAIX?
Firstly, the fact that it only focuses on the S&P 500 is also considered to be its biggest con. This can make it difficult to highlight smaller companies or international markets that may perform well. Also, FXAIX’s performance may be affected by changes in interest rates or economic conditions affecting the overall stock market.
VFIAX vs FXAIX
There are several important differences to consider when comparing VFIAX and FXAIX. One of the biggest differences is the expense ratios. While both funds have low expense ratios, FXAIX has a lower expense ratio than VFIAX. This can make a difference in the long run, especially for investors who want to hold their investments for a long time.
Another key difference between VFIAX and FXAIX is their holdings. Although both funds try to track the S&P 500 index, they may have slightly different holdings due to their tracking methods. Also, VFIAX is offered by Vanguard while FXAIX is offered by Fidelity, so investors may prefer one fund company over the other based on personal preference or experience.
The performance of VFIAX and FXAIX may also differ slightly due to their different investment objectives and holdings. For example, over the last five years (as of September 2021), VFIAX has slightly outperformed FXAIX with an annualized return of 16.26% compared to FXAIX’s annualized return of 16.22%. However, this performance may vary depending on market conditions and other factors.
If You Have to Choose Between VFIAX and FXAIX
When deciding between VFIAX and FXAIX, investors should consider several factors. First, investors should assess their investment objectives and risk tolerance to determine which fund better suits their needs. For example, investors seeking broad diversification in the S&P 500 may prefer VFIAX, while those seeking a lower expense ratio may prefer FXAIX.
Investors should also consider the fees and expenses associated with each fund. While both VFIAX and FXAIX have low expense ratios, investors should also consider other costs such as trading fees, taxes and other expenses associated with owning the fund.
In general, investors should consider their overall portfolio diversification when choosing between VFIAX and FXAIX. While both funds can provide exposure to the S&P 500, investors may also consider adding other asset types to their portfolios, such as bonds, international equities or real estate, to further diversify and potentially reduce risk.
What Is The General Summary About VFIAX and FXAIX?
Choosing between VFIAX and FXAIX can depend on several factors, including an investor’s investment objectives, risk tolerance and overall portfolio diversification. While both funds offer exposure to the S&P 500, different investment objectives, holdings and expense ratios may influence an investor’s decision.
By understanding the pros and cons of each fund and assessing their individual needs, investors can make informed decisions when choosing between VFIAX and FXAIX and potentially enhance their investment portfolios with S&P 500 funds.
