FSKAX vs VTSAX [Fidelity Total Stock Market vs Vanguard]
Investing in the stock market can be easy and require little attention. Through index funds, you can reduce risks and invest with few limitations. This can also be done cheaply, as some of these funds charge marginal or no fees. These are often called low-cost investment funds.
Now you know why those mutual funds are such popular choices among investors. As we continue diving into low-cost index funds, we’ll match up two of the best: FSKAX vs. VTSAX.
We will briefly go over some definitions to clarify and compare how these two work. Then, you will learn about the strategies they use and all the special characteristics you should know about.
Read on, and you’ll see how to use these excellent tools to move your money wisely and what their fees are.
What Are Index Funds?
Index funds are mutual funds that invest in many stocks from different companies. They start by using a benchmark index to decide which securities to buy. These indexes intend to reflect the state of the equity market and are not tied to one particular company.
This strategy became popular to smooth out fluctuations that are normal to have in specific stocks. As these funds accumulate a broad selection of securities, they should see improvements as the market in general grows. This means that if the market does poorly, index funds will probably give bad results.
Something worth considering too is that these funds will not see great growth in short periods. For that reason, stocks and more specialized funds can give better results and often do.
What Is Special About Low-Cost Index Funds?
Investing through a broker usually involves fees that assure them a profit regardless of whether the client wins or loses. However, some funds are low-cost and may even have an expense ratio of 0%.
How is this possible? The main reason is the companies behind them have a lot of other funds and financial services going on. This reduces costs as many resources can be shared with these special funds.
Of course, a part of the expenses can’t be avoided and must be covered by the broker. To pay for that, these companies have a few strategies. They lend securities to short-sellers, earn interest from idle cash they hold, and use portfolio margin.
Other funds often do this but divide part of those profits among shareholders. So it’s best to have all the numbers in mind when choosing an investment fund. There are no guarantees that low-cost funds will give you better returns than regular ones with so many variables involved.
Are Index Funds Risky?
Investing in the equity market always comes with risks. Low-cost funds are no exception. Markets go up and down and eventually face crashes that can lead to big losses.
In general, it is best to diversify and avoid putting in money that you may need back fast. Having enough economic freedom improves your chances by letting you sit through bad times and let your assets recover.
Besides the general issues the market can face, there’s another way for these funds to fail. The indexes they follow are often very good, and brokers include many considerations when deciding which assets to buy. However, they can’t perfectly predict the future and may unintendedly drift away from the index in a counterproductive way.
So, in short, there are risks involved, of course. These risks are not very different from the ones other funds involve and are even less worrying to some extent. Investing in any asset that fluctuates a lot in value will surely bring about some dangers. It’s important to remember your money is not insured when spent in this way.
What Are FSKAX and VTSAX?
Enough about the general picture of low-cost funds. Now you are informed enough to meet some of the most popular funds and see how they work. In this case, we will compare FSKAX vs. VTSAX, so let’s see who runs them and how they do it.
Before investing money, you have to know who will handle it, and brokers are no exception. In this case, it is an easy thing to do, as Fidelity and Vanguard are some of the biggest.
Both have a long trajectory in this business and handle billions of dollars from clients. A large degree of transparency is needed for this kind of operation, and both of these companies provide much information.
The Fidelity Total Market Index Fund, also known as FSKAX, is a large blend fund started in 1997. It is based on the Dow Jones U.S. Total Stock Market index and totals over 3,800 different holdings.
Nearly 80% of common stocks listed in the Dow Jones are included in FSKAX. FSKAX invests in small and large stocks, a successful strategy for several years.
This fund has an overall 4-star rating by Morningstar, positioning it among some of the best large blend funds. Morningstar rates funds over 3 years old, including a variety of factors. It is possibly the most respected business doing so.
Fidelity Investments is a financial services company and one of the most popular brokers. It is known for running several free mutual funds, which only big and efficient businesses can do.
This company was founded in 1946, so you know it has been through all sorts of events. In the first half of 2020, it reached $8.1 trillion in assets under management, and it probably kept growing. It serves over 32 million investors with many different products. For example, it received over $80 billion into retirement accounts from January to July 2020.
Fidelity has a well-done web platform and an app that gives users almost the same functions. It is very simple to use for buying and selling securities and several other services.
One of the most popular funds managed by Vanguard is Vanguard Total Stock Market Index Fund Admiral Shares. VTSAX, for short, has been working since 1992 and now has total assets of around $1.3 trillion.
It offers a stable investment and has grown a lot in popularity, becoming one of the better-known mutual funds. Having some of the lowest management fees and providing great returns helped it climb its way there.
Morningstar places a 4-star rating on this fund, ranking it among the best of its kind.
The Vanguard Group is one of the largest equity and fixed income managers. It started operating in 1975 in Pennsylvania and has run the well-known Vanguard Total Stock Market Index Fund since 1992.
This company owns over 250 different funds, many investment styles to choose from.
Having broad investment options, Vanguard offers mutual funds, IRAs, ETFs, 401(k) plans, and more. Serving millions of investors and consistently remaining among the top fund managers for several years,
Vanguard has grown a reputation. In combination with a large structure with many big funds, it is one of the few companies that can produce a fund like VTSAX.
What Strategies Do These Funds Employ?
One of the first things we should learn about when investing in mutual funds is what strategy they use. This is determined by the company that created it and can favor broader or narrow, more specialized investments.
You already know FSKAX and VTSAX cover a broad range of securities, meaning they diversify a lot in their investments. Now we will show you some details, to see how each one attempts to get the best results.
As stated before, FSKAX invests about 80% of its assets in stocks from the Dow Jones, broadening its holdings. Fidelity then does its calculations to distribute the capital of the fund. To do this, it considers capitalization, industry exposures, dividend yield, price/earnings ratio, price/book ratio, and earnings growth. A complex strategy attempts to replicate the returns of the Dow Jones while holding fewer securities.
Having a portfolio turnover of 6% and as low as 2% is good and helps keep costs low. This saves money for the company and the investors, as fewer transactions are needed to keep the fund updated.
FSKAX also lends securities to get revenue and help pay for costs. The top 10 holdings in this fund represent almost 23% of its complete portfolio and include all the big tech companies.
This fund is managed through a passive investment strategy, trying to follow the performance of the Dow Jones. This passive strategy means it is not trying to outperform the index but rather copy its performance. In the end, this strategy can mean lower returns but also lower risks, as market declines should be easier to absorb.
Vanguard’s VTSAX fund is based on the CRSP US Total Market Index. That is an index made by the Center for Research in Security Prices, LLC. This index includes around 4,000 holdings with all sorts of capitalizations. This range of assets covers the U.S. investable equity market almost in full.
With a turnover rate of 8%, VTSAX’s holdings tend to stay in the fund less time than FSKAX’s. This represents more expenses and somewhat diminishing returns. Although 8% is not crazy high, you should watch the turnover rate.
Technology companies issue around 28% of securities owned by VTSAX, so those represent a large part of the fund. Other sectors present include financials, health care, and industrials, representing around a third of owned assets.
The 10 largest holdings included in VTSAX represent almost 25% of total net assets. This results from VTSAX owning lots of small-capitalization assets, totaling over 4,000 different stocks.
What Kind of Fees Do FSKAX and VTSAX Charge?
Now let’s go over one of the strongest points in favor of using these funds: their low fees. As you know, fees are not everything in a volatile stock market. However, they make a difference in the long run and are something to keep in mind.
When comparing FSKAX vs. VTSAX in terms of fees, you will see they run well below the large blend average. This is possible by having huge market caps and being backed up by some of the largest financial companies.
FSKAX will prove itself better in this regard, charging about a third of VTSAX’s fees. While this may sound like a lot, it won’t make a huge difference in your returns at such low rates.
FSKAX has its investors paying no shareholder fees, no 12b-1 fees, and other expenses besides management fees. So, if you invest $10,000, you will be paying around $2 in fees each year. That brings a total of 0.015% in fees! Charges that low will be hardly noticeable when you calculate your final returns.
Fidelity Investments has reached amazing efficiency to offer funds at such low fees. This takes excellent organization and deep knowledge of the financial world, along with a huge supporting structure. The size of the fund also allows for better utilization of idle funds and other resources.
When investing in VTSAX, you will not be charged purchase, redemption, or 12b-1 fees. This is great news and allows for more flexibility in your investments.
Management fees are low, and VTSAX reaches a nice 0.04% expense ratio. This is much lower than similar funds that run at an average of nearly 0.8%.
If you become an investor, it is best to sign up for account access on vanguard.com. There you can select electronic delivery of statements, confirmations, fund reports, and prospectuses. This will help you avoid a $20 annual fee for each account you have.
What Results Did FSKAX and VTSAX Give in the Past?
While strategies and fees are important to consider, we have to see what results say. Always keep in mind, the market is unpredictable, and good past results do not guarantee future equal profits. Funds can do badly, and you can lose money, so invest responsibly!
FSKAX and VTSAX have been profitable enough that fees didn’t matter that much during the last years. Most years would’ve been profitable for shareholders even if they paid as much as other funds charge.
Funds like these are broad in stocks owned, so they tend to behave similarly to market movements. Still, FSKAX vs. VTSAX ends with the first one winning when it comes to returns. While not by a huge margin, it generally did better than its counterpart.
If you had put $10,000 into FSKAX shares in 2012, those could have become over $40,000 up to 2021. That is great growth for your capital in 10 years. Total returns averaged 15.91% during that decade, after taxes on distributions and sale of fund shares. This had FSKAX performing around 1.5% better than the average in its category of large blend funds.
2021 was no exception, with a calendar-year total return of 21.04%. FSKAX missed the Dow Jones by being only 0.02% below in returns. Consider that it still did 1.5% better than the large blend fund category average.
Cumulative returns for the last decade were around 339% for VTSAX. That means you could have tripled an investment through that period. A $10,000 investment would have grown over $2,500 in value in the last year. That is a lot!
VTSAX did almost exactly like the Spliced Total Stock Market Index every year during the last 5 years. The separation between the two in yearly investment returns was never larger than 0.2% in that period. This proves VTSAX’s ability to closely follow the index, one of these funds’ important features.
Conclusion on FSKAX and VTSAX
Both FSKAX and VTSAX follow similar strategies and are run by some of the biggest, most professional businesses in finance. This means their performances tend to be good and similar depending on market movements.
These mutual funds have a $3,000 minimum investment, and while fees are comparable, FSKAX takes the price. When comparing FSKAX vs. VTSAX about their fees, you will see the latter charges nearly three times more. However, fees as low as these hardly make a difference in your earnings, especially when compared to market fluctuations.
FSKAX takes the prize when we consider earnings, as it has outworked VTSAX by a considerable margin during the last decade. This may not guarantee future outcomes, and it makes Fidelity’s option much more tempting.
As you know, the equity market is unpredictable and can lead to unexpected losses. In reality, none of these companies can know the future, but they get decently close. To put a broad range of securities into your portfolio for almost no fees, FSKAX seems like the best option.
If you are not convinced about investing after reading this FSKAX vs. VTSAX guide, worry not! We have reviewed other ETFs and financial instruments you can use to generate wealth. If you are interested, make sure to check out our investing section!
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