The other day on Threads (which I am really enjoying lately), someone was wondering what they should pick as an investment through Fidelity . This person was frazzled by all the investment choices available.
Fortunately, most of the comments were overall in the right place. Talking about starting with the S&P 500 Index or it’s equivalent.
Table of Contents
- What is the S&P 500 Index
- S&P 500 – FXIAX – VOO
- Expense Ratio
- Does the percentage make a difference?
- Expense Ratios at higher investment amounts
- In Closing
- The Simple Path to Wealth: Your road map to financial independence and a rich, free life
What is the S&P 500 Index
According to one of my top sources when researching investment information, the definition is:
The S&P 500 Index or Standard & Poor’s 500 Index is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. The index includes 503 components because three have two share classes listed.
Investopedia
The cool definition is that you can own a part of Tesla, Apple, Microsoft, Amazon, Nvidia, and more, without the potential giant risk associated with owning one stock in any of those as a single choice!
S&P 500 – FXIAX – VOO
The S&P 500 equivalent found at Fidelity goes by the ticker FXIAX – Fidelity 500 Index Fund. For Vanguard you would search VOO – Vanguard S&P 500 ETF as they don’t offer Vanguard’s VFIAX Index Fund (aka Admiral Shares).
Just a note, I am not fully vested with knowledge in the investing world. I am a simple ETF and/or index fund investor. So please, do your own research before jumping in. Check out my resources for a link about The Simple Path to Wealth book for Index Fund investing.
Expense Ratio
Expense ratio is a measure of what it costs to operate an investment, expressed as a percentage of its assets, as a dollar amount, or in basis points. These are costs the investor pays through a reduction in the investment’s rate of return. For a mutual fund, the gross expense ratio is the total annual fund or class operating expenses directly paid by the fund from the fund’s most recent prospectus (before waivers or reimbursements). This ratio also includes Acquired Fund Fees and Expenses, which are expenses indirectly incurred by a fund through its ownership of shares in other investment companies. If the investment option is not a mutual fund, the expense ratio may be calculated using methodologies that differ from those used for mutual funds.
– Fidelity
Expense ratio – how much the investment company serves to make by housing your investments.
Fidelity’s FXAIX expense ratio is 0.015% as of April 2024. Vanguard’s VOO expense ratio bought through Fidelity is 0.30%. This is important to know.
Does the percentage make a difference?
Someone commented that this person should invest in VOO. I chimed back to say, “go for FXAIX, VOO’s equivalent in the market.” And the person responded that they both were of low expense ratios. “True, true!” I said. But I still kind of disagreed with my response.
Because, maybe I am stingy; unwilling to give my hard earned money to a company when they have an option to let my portfolio brew for less? *Shrug*
I would say that I am more “intentional” with my money. Especially because I started slow and late with investing. So, every bit of my hard earned money saved makes a big difference to me.
0.015% vs 0.3%… It doesn’t sound like much. But is it?
VOO in a Fidelity Market: Initial investment $100,000. Annual investment $6,000 for 10yrs. Compound at 8%. Expense ratio 0.3%. Equals $7,151 of hard earned monies.
FXAIX – Fidelity equivalent at Fidelity: Initial investment $100,000. Annual investment $6,000 for 10yrs. Compound at 8%. Expense ratio 3%. Equals $361 hard earned monies.
A $6,790 savings over 10 years.
Does it make a difference to you in how much you’ll pay in management fees to house your portfolio?
However, if you are an older adult, your investment balances are likely higher and/or you are putting more away per year to catch up in retirement savings. As a seasoned lazy, simple index fund investor (never thought I would, “lazy” or “simple” pertain to me…type A energy) my balance and annual contributions are likely larger.
Expense Ratios at higher investment amounts
Here’s what happens to those expense ratios 0.015% vs 0.3% with a higher balance and annual investment amount:
VOO in a Fidelity Market: Initial investment $400,000. Annual investment $30,500 for 10yrs. Compound at 8%. Expense ratio 3%. Equals $29,935.
FXAIX – Fidelity equivalent at Fidelity: Initial investment $400,000. Annual investment $30,500 for 10yrs. Compound at 8%. Expense ratio 3%. Equals $1,513.
A savings of $28,422 in those 10 years. That can fund a nice trip or two retirement style.
In Closing
My take aways:
- VOO or VTI or FXAIX or FSKAX or FSKAX or VTSAX or VFIAZ – are known to be solid ticker choices.
- I couldn’t go wrong investing in any of them as the expense ratios are low.
- Just getting started with investing matters.
- Stay educated along the way.
In time one learns about expense ratios, what each company offers will allow eventually allow for more informed choices to be made. So don’t get stuck in analysis paralysis. Just get started with investing.
And I would add, “don’t sell”! Just hang on to it like its forever. Want to hear my “big oof” story around that? Maybe I will share it one day. But it hurts to think about it.
Book Recommendation
The Simple Path to Wealth: Your road map to financial independence and a rich, free life
From JL Collins
This book grew out of a series of letters to my daughter concerning various things—mostly about money and investing—she was not yet quite ready to hear.
Since money is the single most powerful tool we have for navigating this complex world we’ve created, understanding it is critical.
“But Dad,” she once said, “I know money is important. I just don’t want to spend my life thinking about it.” This was eye-opening…
The simple approach I created for her and present now to you, is not only easy to understand and implement, it is more powerful than any other.