5 Best Fidelity Index Funds To Buy and Hold Forever
Jason 0 Comments Retire Wealthy Retirement Planning
– In this video, I'm gonna go through the five best Fidelity funds to buy and hold forever. Now you're going to notice that all of the Fidelity zero index funds are missing from this top five, because they aren't really what they appear to be on the surface. Later in the video, I'll send you to another video I made uncovering their dirty little secret. First up is the Fidelity
500 Index Fund, FXIAX. There's only a few funds that I would consider foundational fund that most people should hold.
And if you prefer Fidelity funds, then this would be one of them. FXAIX tracks the S&P 500, which is made up of the
500 largest U.S. stocks, based on market cap. All a market cap is is the total number of outstanding shares multiplied by the price of the stock. These 500 stocks represent about 80% of the U.S. market cap. So these companies are what really moves the price of the overall stock market. To put it into perspective, there's about 4,300
publicly traded U.S. stocks. That means once we remove the largest 500, the remaining 3,800 only account for 20% of the total U.S. market cap. Everyone loves to talk
about the upside potential, and we'll cover that in just a minute. But I personally like to call out the downsides as well, because what you do during those times will have the biggest impact on your future returns.
Because the Fidelity 500 Fund has only been around since 2011, we'll be looking at the S&P 500 drawdowns to get a larger sample size. The largest drawdown started in 2007, due to the financial crisis. This fund would've seen a 51% drawdown, which means that if you
had $1 million invested, then at one point, it would've
been down to $490,000. This portion of your portfolio would've taken about three
and a half years to recover. The next largest drawdown was in 2000, where it had a drawdown of 45%, and took a little over
four years to recover. The third largest drawdown was in 2020, due to the health crisis, where that drawdown was 20%, and took four months to recover. A four-month recovery period is comical, so do not expect that
happening in the future, because they're not very common. Although past returns are irrelevant, because we are investing for the future, they're always good to be aware of. After taxes and sales, FXAIX has had a one-year return of 9.5%, three-year return of 15%, five-year return of 13%, and 10-year return of 12%. This is one of the lowest-cost
S&P 500 index funds, coming in at an expense
ration of .015% per year.
For everyone $1,000 invested, you're only paying 15 cents per year. These are everything with investing, because they eat into your returns, so keeping these as low as possible is extremely important. If you look at the sector breakdown, 28% of this fund is held in technology, followed by financial services, healthcare, and consumer cyclical. While some might say that
it's overweight in technology, that's only because those
companies are so dominant. This is the nice thing about a fund that tracks an index. There's no opinions about what should or shouldn't be added, because the market and
size of the business determines that for you. If the businesses in one sector start to shrink in size, then this fund will reflect that and replace those stocks
with what should be there.
The top 10 holdings are made
up of a ton of companies most of you recognize: Apple, Microsoft, Amazon, and Alphabet. These 10 make up about 30% of the total Fidelity 500 portfolio, which is perfectly fine because they're all solid companies. And when they eventually shrink in size, they'll automatically fall down this list and be replaced with
the next best company. The Fidelity 500 Index is for anyone who is looking to match the performance of those largest U.S. companies. Because they make up 80% of
the total U.S. market cap, they're what really moves the market. This index fund has a nice
mix of large cap stocks that are at the upper limit
between value and growth, with a leaning more towards growth stocks. This is good if you're looking to invest for portfolio growth with the safety that comes along with those larger, more stable companies. If we take a look at the stock weighting, 39% are large cap growth, 26% are large cap blend, and 19% are large cap value.
The downside of this fund is that you're missing out on those mid and smaller-cap stocks. While it's not a huge downside, it's still something to be aware of. If you are enjoying this video so far, then help support my dog
Mali and this channel by hitting that thumbs up button. If you're someone who
wants to take advantage of those 500 stocks, plus the additional thousands of stocks traded on the stock market, then you'd want to think about investing in the Fidelity Total
Market Index Fund, FSKAX.
Before we get too deep into it, I'll have to admit that I
am biased towards this fund and any other total U.S.
stock market index fund, so keep that in mind while I'm going through
this one specifically. FSKAX does exactly what the name says, invests in the total U.S. stock market. That means your money is invested among pretty much every
U.S.-based stock out there. At this point, it's made up of a little over 4,000 companies, and growing every year as more businesses go public. Since it holds that many stocks, your money is diversified among large-, mid, and small cap companies. When you invest in an
index fund like this, you're betting on the future
of the U.S. as a whole. I know there's a lot of
tinfoil hat people out there who are all doom and gloom
about the future of America. But as long as the businesses
behind these stocks are continuing to innovative,
make money, and grow, there's nothing to worry about. There are naturally going
to be a ton of losers among these 4,000 stocks, so that's why it can beneficial to place bets across the board by investing in this type of fund.
After taxes on distributions
and sale of fund shares, it's had a one-year return of 7%, three-year return of 14%, five-year return of 12%, and a 10-year return of almost 12%. This index fund is extremely low cost, coming in at an expense
ratio of .015% per year. That means for every $1,000 invested, you're only paying 15 cents per year. Looking at the sector breakdown of the Total Market Index Fund, technology is once again dominating at 27% of this fund. The rest of the breakdown is pretty similar to
the Fidelity 500 Fund, with healthcare at 13%, consumer discretionary at close to 12%, and financials at close to 12% as well. Within the top 10 of the Fidelity Total Market Index Fund, we see a ton of names that we recognize, the exact same companies
within this top 10 are in the top 10 of the
Fidelity 500 Fund as well.
The only difference is how much money is allocated to each company. With the Fidelity 500 Fund, 29% was in the top 10. Within the Fidelity
Total Market Index Fund, there's only about 25%
allocated to those top 10. A lot of this has to do with the fact that FSKAX has over 4,000 companies to spread your money across, while the 500 fund only
has to spread your money across, of course, 500 companies. The Fidelity Total Market Index Fund is for the person who wants this ability that comes with investing in
those biggest 500 companies while still gaining exposure
to those up-and-coming, mid, and small cap stocks as well. As you can see, this index fund is considered a blend between
value and growth stocks, with a tilt more towards growth.
While most of the weighting
is in the large cap area, we see that about 18% is in mid caps, and 9% is in small cap stocks. Just like the Fidelity 500 Index Fund, the Total Market Fund is one
of the foundational funds that should be a part
of everyone's portfolio in some form. I personally don't think it makes sense to hold both of them at the same time, because there is some portfolio overlap. Once you have your U.S.
investments covered, the next best fund is the Fidelity Total
International Index Fund, FTIHX. And this fund is currently made up of over 5,000 stocks.
The Fidelity Total
International Index Fund is just like the Total U.S. Index Fund, except the International fund holds stocks that exist
outside of the United States. This fund seeks to
provide investment results that match the total return of foreign developed and
emerging stock markets. FTIHX specifically tracks the MSCI All Country World Index ex U.S., which covers about 85% of global equities outside of the United States. By investing in FTIHX, your money is diversified among different countries, regions, sectors, and even currencies. Since this fund has only
been around since 2016, I looked at the drawdowns from a global ex U.S. stock portfolio. The largest drawdown started in 2007, of course, due to the financial crisis, and ended up down 58%. It took a little over
eight years to recovery. The next largest drawdown started in 2000 due to the dot com crash, where it dropped by 47%, and it took about two and
a half years to recover. The third largest drawdown was in 1990, where it saw a max drawdown of 31%, and took three years and
four months to recover. One-year returns are negative 1%, three-year returns are 6%, and five-year returns are 5%.
Since this is a newer fund, we don't have enough data to
get out to the 10-year returns. The expense for this
Total International Fund is one of the lowest in the industry, coming in at .06%. That means for every $1,000 invested, you'll only pay 60 cents per year. The sector breakdown is a lot different when we compare it to
those first two U.S. funds that we looked at. For this international fund, we can see that the
majority of the holdings are in financials at an
almost 19% allocation, followed by industrials, tech, then consumer discretionary. The top 10 holdings only
make up less than 10% of the overall holdings, which is night and day compared to the first two
U.S. funds that we looked at. For those U.S. funds,
if you don't remember, the top 10 made up about
30% of the holdings. I don't see an issue with this, because there's a little more risk when investing in companies outside of the United States. A lot of these companies
you probably recognize, but once we get out of these top 10, you probably don't recognize
a lot of the companies within this index fund.
When we look at region breakdown, about 70% of the money is diversified among European and
emerging market companies. The Fidelity Total International Index is perfect for someone who
wants to get that broad exposure to anything outside of the U.S. As with any stock-based index funds, there are many risks to be aware of. Those can range from political, economical, regulations, currency, and interest rate risk. The good news is that FTIHX is more concentrated in
stocks that are larger, with a blended mix
between value and growth. The Fidelity U.S. Bond Index Fund, FXNAX, is perfect for the conservative
side of your portfolio. At this point, it has about 8,400 holdings from 593 issuers. It tracks the Bloomberg
U.S. Aggregate Bond Index, which holds a mixture of U.S. treasuries, corporate bonds, and
mortgage-backed securities. Max drawdowns for bond index funds look drastically different
from stock-based index funds, which is exactly how things should look.
The largest drawdown
started at the end of 2020, where it was down 7.77%, and it still hasn't recovered. The second largest was in 2013, where it went down 3.87%, and took nine months to recover. The third largest was in 2016, where it was down 3.5%, and it took nine months to recover. For a one-year period, this fund is down 2.74%. Three-year returns are at .87%, five-returns are at 1.08%, and the 10-year return is at 1.21%. The Fidelity Total U.S. Bond Fund is extremely low cost at .025% per year. That means for every $1,000 invested, you're paying 25 cents. This bond index is mainly diversified among three different types of bonds. 39% is in U.S. treasuries, 27% are in mortgage-backed
security pass-through bonds, and 24% are in corporate bonds. If you are someone who is building a three-fund portfolio, then you're going to need a bond fund. Now this is a great index fund to fill the gap in that type of strategy.
Don't sleep on bonds, because they still serve the same purpose as they always have, to reduce volatility
within your portfolio. Now this is especially needed when you are getting closer to retirement. I'll have my three-fund portfolio video linked up down in the
description, above my head, and at the end of this video as well. Real estate has had great
returns over the years, so if you're looking to gain more exposure to that asset class on the
Fidelity investment platform, then the Fidelity Real
Estate Index Fund, FSRNX, is the one that I prefer. Time out real quick, because after reviewing
my notes on this one, I am calling an audible in
the middle of this recording to pull this one off of my top five list.
This fund isn't tracking
the underlying index as well as I thought it was. On top of that, the fund manager is trading the underlying stocks like it's an actively managed fund, which could result in higher trading costs for investors like you. The turnover rate is 53% for this fund. This basically means that
they're buying and selling off 53% of the holdings
within a 12-month period. Compare that to the Vanguard
Real Estate Index ATF, where the turnover is only 7%, and I cannot, with good conscience, recommend the Fidelity
Real Estate Index Fund. If you want a real estate
fund on the Fidelity platform, then go with the Vanguard version, VNQ. Be honest, I don't like any of the other Fidelity funds, either, so I don't have a replacement
for the Real Estate Fund. Don't forget to hit that
thumbs up button before you go. My video on why you should avoid the Fidelity zero fee index funds will be linked to your left and in the description of this video a couple of days after
this one's released.
If you prefer Vanguard funds that you can purchase on the
Fidelity investment platform, then, to your left, I'll also have my top five video on those..
