We Invested $27,000 In 3 Large-Cap Growth Index Funds For 5 Months. One Stood Out.
Your investment portfolio should include securities from all major asset classes for true diversification, including U.S. large-cap, mid-cap, small-cap, and international equities, among others. How does the index fund investor pick a winning large-cap strategy? This 5-month investing experiment should provide some help.
We conducted a 5-month experiment from July 25, 2019 to December 31, 2019, where we invested (hypothetically) $27,000 in each of 3 large-cap passive funds: an S&P 500 index fund (FXAIX: Fidelity 500 Index Fund), a large-cap growth index fund (FSPGX: Fidelity Large-Cap Growth Index Fund), and a large growth technology ETF (FTEC: Fidelity MSCI Information Technology Index ETF). These are three extremely cheap index funds with low expense ratios (ER): FXAIX, ER 0.02%), FSPGX, ER 0.04%; FTEC, ER 0.08%. The results are shown below.
|Fund Ticker||Purchased NAV
||NAV Appreciation||NAV Appreciation Earnings|
Table 1. This table represents the scenarios mentioned above. We used (hypothetically) $27,000 to purchase the funds at their net asset values (NAVs) on 7/25/19: FXAIX, 257 shares; FSPGX, 1651 shares; FTEC, 409 shares. We used the final NAV after the market closed on 12/31/19. Please note: NAV appreciation = final NAV - purchased NAV; NAV Appreciation Earnings = # shares x NAV appreciation.
|Fund Ticker||Distribution Per Share||Distribution Earnings||Total Earnings (Appreciation + Distribution)||Final Invested Balance|
Table 2. This table shows distribution and earnings for the 3 funds. Distribution Per Share = dividends + short and longterm capital gains. All dividend information is obtained from DividendInvestor; Distribution Earnings = Distribution Per Share x # shares; Total earnings = Distribution Earnings + NAV Appreciation Earnings. These calculations do not take into account any dividend reinvestment, taxes, fees or any expenses charged during this 5-month experiment.
Results analysis and discussion
All three passive funds delivered stellar earnings during this 5-month investing experiment. As table 1 shows,the large growth technology ETF (FTEC) delivered the highest earnings from capital appreciation ($2659.90), followed by the large-cap growth index fund ($1915.60) and then the S&P 500 index fund ($1742.20). The S&P 500 index fund paid more dividends per share, $1.253, than either the technology ETF, $0.376, or the large-cap growth index fund, $0.13, (See table 2). As a large blend fund, a fund that includes both growth and value stocks, FXAIX, like other index funds that track the S&P 500 index, tends to have higher dividend yields compared to large-cap growth funds. Large-cap growth funds typically seek capital appreciation over dividends. At the end of this 5-month experiment, the final invested balances for FTEC, FSPGX, and FXAIX were $29,813.76, $29,262.39, and $29,140.65, respectively.
Passive index investing is becoming a widely used investing strategy for both the newbie investor and even more experienced investors. With this style of investing, investors purchase funds (index funds or exchange-traded funds) that track a representative index, such as the S&P 500. If you are looking for a strong passive fund to meet your portfolio's large-cap needs, either of these 3 funds will suit your investing needs. All three funds are ultra-cheap, as evidenced by their low expense ratios.
If you want to get a piece of the largest 500 companies and relish dividends, the Fidelity 500 Index Fund, FXAIX, may be right for you. Those who prefer capital appreciation over dividends may find FTEC a more suitable option. However, with FTEC, keep in mind that this large growth ETF is tech-heavy and less diversified than the other two index funds. Its two largest holdings, Apple (18.51%) and Microsoft (15.95%), comprise more than 34% of that ETF (as of 1/3/20). Proceed with caution with FTEC.
The bottom line
Which one of these 3 cheap index funds would you use to suit your portfolio's large-cap needs? Let us know in the comment section below. Please share this article. If you are interested in submitting a guest post, please click here. Here are a few other articles you may find useful: 3 simple ways to handle stock market volatility | 4 smart ways to both invest and pay down student debt | A simple portfolio to supercharge your returns | How to invest $50.