The Short Answer
A stock = ownership in one company. A mutual fund = a basket of investments managed by professionals. An index fund = a basket that automatically tracks a market index, with no active management and very low fees. For most long-term investors, index funds are the simplest and most cost-effective choice.
What Is a Stock?
When a company wants to raise money, it sells small pieces of itself to the public. Each piece is called a share, and owning shares makes you a stockholder — a part-owner of that company.
If the company grows and becomes more valuable, your shares are worth more. If it struggles or fails, the value drops — sometimes to zero. Owning a single stock means your investment is entirely tied to that one company's fate.
Example
You buy 1 share of Apple for $200. Apple has a great year and the share price rises to $240. You made $40 — a 20% gain. But if Apple had a bad year and the price dropped to $150, you lost $50. Your entire return depends on Apple alone.
Buying individual stocks requires research, time, and tolerance for concentration risk. Most financial research shows that even professional stock pickers fail to beat the overall market consistently over long periods.
What Is a Mutual Fund?
A mutual fund pools money from thousands of investors and uses that money to buy a collection of stocks, bonds, or other assets. A professional fund manager decides what to buy and sell, attempting to earn better returns than the market.
Mutual funds solve the concentration problem of single stocks — you own a piece of many companies at once. But they come with a cost:
- The fund manager and their team charge an annual fee called an expense ratio — typically 0.50%–1.00% of your balance per year
- On a $50,000 portfolio, a 1.00% fee costs you $500 every year, whether the fund goes up or down
- Research from S&P Global consistently shows that over 15+ years, roughly 85–90% of actively managed funds underperform their benchmark index
The fee math matters
A 1% annual fee may sound small, but on a $100,000 portfolio over 30 years at 7% annual growth, it reduces your final balance by roughly $180,000 compared to a 0.015% index fund. The fee doesn't just take money — it takes the compounding growth on that money too.
What Is an Index Fund?
An index fund is a type of mutual fund (or ETF) that tracks a market index — a pre-defined list of stocks — instead of having a manager pick investments. Common indexes include:
- S&P 500 — the 500 largest U.S. companies
- Total U.S. Stock Market — all publicly traded U.S. companies (~3,900 stocks)
- Total International Market — stocks from countries outside the U.S. (~5,500 stocks)
Because there's no active management, costs are dramatically lower. The two index funds recommended on this site for Fidelity Roth IRA holders have:
FSKAX
Fidelity Total Market Index Fund
Tracks the entire U.S. stock market
0.015% expense ratio
~3,900 companies
FTIHX
Fidelity Total International Index Fund
Tracks international markets
0.06% expense ratio
~5,500 companies
80/20 Split
80% FSKAX + 20% FTIHX gives you exposure to the entire global stock market at near-zero cost. Simple, diversified, set-and-forget.
An index fund doesn't try to beat the market — it is the market. Because of this, it captures the long-term growth of the overall economy rather than betting on individual companies or a manager's ability to pick winners.
Side-by-Side Comparison
| Feature | Stock | Mutual Fund (Active) | Index Fund |
|---|---|---|---|
| What you own | 1 company | Basket of investments | Basket tracking an index |
| Management | You decide | Professional manager | Automatic (no manager) |
| Typical fee | Trading commissions | 0.50%–1.00%/year | 0.015%–0.20%/year |
| Diversification | None — one company | High | High |
| Research needed | High | Low (trust the manager) | Very low |
| Long-term performance | Varies widely | Most underperform index | Matches the market |
| Best for | Active traders | Investors wanting guidance | Long-term, hands-off investors |
What About ETFs?
An ETF (Exchange-Traded Fund) is very similar to an index fund — it also tracks an index and has low fees. The main difference is how you buy it: ETFs trade throughout the day on a stock exchange (like a stock), while index funds are priced once per day after the market closes.
For most Roth IRA investors at Fidelity, this distinction doesn't matter much. FSKAX and FTIHX are mutual-fund-style index funds that you buy at end-of-day prices. Both approaches are valid; the key is keeping costs low and staying invested long-term.
Why This Matters for ITIN Holders Specifically
As an ITIN holder, you likely cannot collect Social Security retirement benefits — meaning your retirement savings are your only income in old age. This makes the compounding effect of low-cost index funds especially important:
- Every dollar saved in fees stays invested and compounds over decades
- A simple two-fund index portfolio requires no ongoing research or management
- Inside a Roth IRA, all growth is tax-free — fees are the only drag on returns
- FSKAX and FTIHX can be transferred to any brokerage if you ever move away from Fidelity
The bottom line for ITIN holders
You don't need to pick stocks or pay a mutual fund manager. Buy FSKAX (80%) + FTIHX (20%) in your Fidelity Roth IRA, contribute $288 biweekly to max out the $7,500 annual limit, and rebalance once a year. That's it.
Frequently Asked Questions
Can I lose all my money in an index fund?
Not all of it — because you own hundreds or thousands of companies, not one. For the entire index to go to zero, every publicly traded company in the U.S. would need to fail simultaneously. During market crashes (2008, 2020), index funds dropped significantly but recovered and went on to reach new highs. The risk is a temporary decline, not permanent loss, if you stay invested.
What's better, FSKAX or VOO?
VOO (Vanguard S&P 500 ETF) tracks the 500 largest U.S. companies with a 0.03% expense ratio. FSKAX tracks the entire U.S. market (~3,900 companies) with a 0.015% expense ratio — slightly lower fee and broader coverage. For long-term Roth IRA investors at Fidelity, FSKAX is the natural choice since you're already at Fidelity and it's cheaper.
How do I buy FSKAX in my Fidelity Roth IRA?
Log in to Fidelity → go to your Roth IRA → click "Trade" → search for FSKAX → enter the dollar amount you want to invest → confirm. Fidelity allows fractional dollar investing, so you can buy exactly $288 worth without needing to calculate share prices.
Should I invest in FSKAX or FZROX?
FZROX has a 0.00% expense ratio vs FSKAX's 0.015% — the difference is about $1.50/year per $10,000 invested. The practical advantage of FSKAX: it can be transferred in-kind to other brokerages. FZROX is Fidelity-only. For most long-term investors the cost difference is negligible, but FSKAX gives you more flexibility.
Can I buy index funds with an ITIN at Fidelity?
Yes. Fidelity accepts ITIN for Roth IRA accounts. Start the application at fidelity.com — a representative calls to verify your identity. Once your account is open and funded, you can buy FSKAX, FTIHX, or any Fidelity fund. See the full Fidelity Roth IRA with ITIN guide for step-by-step instructions.