If the S&P 500 is part of your investing portfolio, there’s a good chance you own the SPDR S&P 500 ETF  (SPY) , the Vanguard S&P 500 ETF  (VOO) , or the iShares Core S&P 500 ETF  (IVV) . 

They are the three largest U.S.-listed ETFs and collectively account for more than $2.1 trillion of investor money.

Others will opt for the Vanguard Total Stock Market ETF (VTI), which builds off of the S&P 500 and adds about 3,000 more stocks to effectively capture the entire U.S. equity market.

Those funds are all great choices for investing in U.S. stocks. They’re broadly diversified, charge next to nothing to own, and are ideal for core portfolio construction.

They may not necessarily be the best choice for investing in U.S. stocks, however. While the S&P 500 ETFs listed above may seem interchangeable, small differences can make one work better than the other. 

When considering these factors, the best option for investing broadly in U.S. stocks may exist at Fidelity instead.

Look beyond the SPDR S&P 500 ETF, the Vanguard S&P 500 ETF, the iShares Core S&P 500 ETF, and the Vanguard Total Stock Market ETF when choosing your investments.

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Cost is top factor when investing in broad index funds

When investing in funds, there’s really only one thing that people can control. It’s not the total return on their investments. It’s not what sector or theme is in favor at the moment. What they can control is what they pay for their investments. 

In the fund world, that means paying close attention to expense ratios and trading spreads.

VOO, IVV, and VTI are particularly attractive on cost. They all charge 0.03% annually, which translates to just $3 for every $10,000 invested. Plus, they trade millions of shares daily and are highly liquid, so there is almost no trading spread to transact. You’ll find virtually no cheaper way to invest in the U.S. stock market.

But there is a fund out there that goes even cheaper.

Why Fidelity ZERO Total Market Index Fund works better than popular S&P 500 or Total Market ETFs

The Fidelity ZERO Total Market Index Fund FZROX takes a very similar approach to that of VTI. It tracks the Fidelity U.S. Total Investable Market Index, which includes most U.S. stocks (large, mid, and small) that meet minimum market cap and liquidity requirements. 

It currently holds roughly 2,500 stocks, a significantly smaller number than that held by VTI. Most of the stocks culled from FZROX’s portfolio are ones with very small market caps whose performance is largely inconsequential to the return of the fund as a whole.

The most attractive feature of FZROX is its 0% expense ratio. That’s right — Fidelity charges nothing to own the fund, and it comes with no minimum investment.

Since FZROX is a mutual fund, not an ETF, it trades at NAV at the end of every business day. Even the cheapest and most liquid ETFs will likely have at least a one-basis-point bid/ask spread when traded. 

That one basis point probably won’t cause anyone to lose sleep, but the fact that FZROX trades at NAV means there is no explicit bid/ask spread.

Key takeways for FZROX:

• 0% expense ratio
• No trading spread
• No minimum investment requirement

It doesn’t get much simpler or cheaper than that.

FZROX comes with a few caveats

There are a couple of things investors need to know when considering FZROX. Both of them have to do with accessibility.

• FZROX only trades on Fidelity’s platform. Fidelity doesn’t want you to just buy this fund anywhere; it only lets you do it through a Fidelity brokerage account. If you’ve already got one, you’re good to go. If you hold your investments with another brokerage, such as Vanguard, you’d need to open another brokerage account with Fidelity. Is it worth doing that to save a few basis points in expenses? Some may argue it’s not.
• FZROX trades only once a day. One of the reasons ETFs became so popular is that they trade intraday, just like stocks. Mutual funds don’t offer that. They trade only once at the end of the business day. If something happens during the day, you’ll just have to wait to get in or out.

Final thoughts on Fidelity ZERO Total Market Index Fund investment

If you’re a long-term, buy-and-hold investor, it makes sense to try to save yourself from unnecessary fees whenever possible, even if it’s just a few basis points. 

Granted, that may not result in a big change in your account balance, but why not get it if you can? FZROX essentially offers you a free way to invest in the entire U.S. stock market.

If you’re OK with the caveats mentioned above, FZROX should be a better option than any of the big total market ETFs from Vanguard, iShares, or State Street.

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