Mutual funds, does it really matter which one you pick?

It does, but there are really only 2 equity Mutual funds you should ever bother buying, the S&P 500 index or the Total Stock Market Index(TSM). This page is comparing between the two of them. All the other stock market mutual funds or ETF's are probably not worth buying for 99% of us.

FXAIX is a mutual fund that buys into ever company on the S&P 500, which is a list by Standard And Poors of what basically amounts to the top 500 leading companies in the USA.

As of March 31, 2020:

It has 213 Billion dollars invested in 500 companies.

FSKAX is a "Total Stock Market" fund, so it invests in basically every publicly traded company in the USA.. well almost all of them.

It has 43 billion dollars invested in 3,438 companies.

After you get past company #500, we are holding so little percentage of the fund we have to go out 3 decimal places.. The last 1,500 companies on the list are maybe a rounding error, if you squint.

So I contend it doesn't matter if you invest in FXAIX or FSKAX they are all super cheap/free and anything past company 1,000 doesn't really matter at all, and the companies from 500 -> 1,000 in FSKAX barely matter. And if you go look at the past returns, they are 98% identical.

The only thing that matters is your cost to invest in the fund. 0.015% is practically free, and FZROX IS free.

Buying the S&P 500 or Total Stock Market(TSM) is the easiest good investment one could make. Buy it, keep buying it, and hold it until you have to sell it(hopefully never). That may change, since nobody knows the future, but not very likely. And if it changed in any meaningful way, there is likely a lot bigger problems one has to deal with (like the collapse of the USA as a government).

There are 2 notable differences between a TSM and the S&P 500:

What does this 98% correlation mean, it means that if you and your buddy both invested $10k 27 years ago, you in the S&P 500 and your buddy in the Total Stock Market(FSKAX), one of you would have had an extra $1,000. That's right, $1,000 difference over 27 years. Hence, it doesn't matter in the slightest which one you buy. Which one wins? totally depends on the time frame, sometimes the TSM wins and sometimes the S&P 500 wins, but they don't win by enough to matter.

Does that 15% matter? No (see 98% correlation), There are occasions where small-cap and mid-cap outperform the S&P 500, they are not common. So which one should you buy? Whichever one happens to be cheaper where you are buying it, otherwise I'd recommend the TSM, because it isn't created by 10 random people in a room.

The upside for the S&P 500 is that's what you hear about on the news, it's what people inherently know about "investing" as it goes up and down and it's not your fault if you picked badly, It's not your fault it's doing poorly today, this month, this year, etc. It's the Market's fault. So don't sell it when it's down, that's how you go broke investing.

Mutual Funds discussed:

* The S&P 500 index funds are FXAIX and FNILX(not technically the S&P500, but it's 0% ER and 99% identical) * The Total Stock Market funds are FSKAX and FZROX.

The first(FXAIX/FSKAX) are transferable outside of Fidelity and are not free(0.015% at time of writing), the 2nd(FNILX/FZROX) are free(0.0% ER) but are not transferable outside of Fidelity, so I'd recommend only buying them in your tax-advantaged accounts(Roth, 401k, IRA, etc) Otherwise there is no other difference.

Just for fun, the stocks you absolutely do not want to buy, ever, since even the Total Stock Market Funds won't buy you:

Further reading: