Warren Buffett once famously remarked: “Our favorite holding period is forever.” True to his word, one of the oldest stocks in Buffett’s portfolio is Coca-Cola Co. (ticker: KO), which he first purchased in 1988and continues to hold today.
However, most investors don’t have the same stock-picking prowess that Buffett possesses. Thus, committing to a long-term hold of a single stock can be risky. An alternative for the average retail investor is a mutual fund, which can offer diversified exposure to not only stocks, but also bonds and even commodities.
For beginners, starting with a reputable, established firm like Fidelity is a great way to begin investing in mutual funds. The firm currently offers a lineup of 324 funds on its brokerage platform, many of which carry low costs and charge no “loads,” or transaction fees.
[Sign up for stock news with our Invested newsletter.]
Here are the seven best Fidelity mutual funds to buy and hold:
|Fidelity Fund||Expense ratio|
|Fidelity ZERO Total Market Index Fund (FZROX)||0%|
|Fidelity ZERO International Index Fund (FZILX)||0%|
|Fidelity 500 Index Fund (FXAIX)||0.015%|
|Fidelity U.S. Bond Index Fund (FXNAX)||0.025%|
|Fidelity Municipal Bond Index Fund (FMBIX)||0.07%|
|Fidelity Balanced Allocation Fund (FRYBX)||0.02%|
|Fidelity Freedom Index 2065 Fund Investor Class (FFIJX)||0.12%|
Fidelity ZERO Total Market Index Fund (FZROX)
Fidelity’s commitment to the interests of retail investors can be seen in its lineup of ZERO index funds, which boast an expense ratio of 0%. Investors who buy and hold one of these funds therefore pay zero fees annually.
This, along with the lack of transaction fees and minimum investment requirements, makes funds like FZROX a great option for cost-conscious beginners. FZROX is particularly suitable for investors wishing to index the broad U.S. stock market.
The fund tracks the proprietary Fidelity U.S. Total Investable Market Index, which has a low turnover rate of 3% and offers similar performance to well-known U.S. indexes like the S&P 500.
Fidelity ZERO International Index Fund (FZILX)
A great pairing for FZROX is FZILX, which tracks the Fidelity Global ex U.S. Index. Like FZROX, FZILX charges no expense ratios and transaction fees, nor does it have any minimum investment requirements.
Unlike FZROX, FZILX tracks international stocks from outside the U.S., including countries like Japan, the U.K., Canada, France, China, Australia and Germany, to name a few. A 60% allocation to FZROX and a 40% allocation to FZILX would result in a stock portfolio that approximates the world’s current market composition.
That being said, investors can slice and dice allocations as they see fit based on their objectives and expectations for U.S. versus ex-U.S. market performance.
Fidelity 500 Index Fund (FXAIX)
The Fidelity ZERO series of funds track proprietary indexes developed by Fidelity, which may not have criteria or holdings that correspond exactly to popular external benchmarks like the S&P 500.
For investors desiring that name-brand recognition, FXAIX could be a compelling alternative. As its name suggests, this fund tracks the famous S&P 500 Index. FXAIX is notable among Fidelity’s lineup for its longevity, having been around since February 1988.
The fund remains popular due to a combination of strong historical performance, a low portfolio turnover rate of 2% and a cheap expense ratio of 0.015%, or $1.50 annually per $10,000 invested. From inception to Feb. 28, 2023, FXAIX has returned an annualized 10.3%.
Fidelity U.S. Bond Index Fund (FXNAX)
A 100% stock portfolio can be too volatile for all but the youngest and most risk-tolerant investors. Even when it comes to a long-term hold, a 100% stock portfolio can suffer deep and prolonged losses during market crashes like what occurred in the 2008 Great Recession.
Therefore, an allocation to high-quality U.S. government Treasury bonds and investment-grade corporate bonds could be a good idea for those trying to lower volatility and drawdowns. For a general-purpose aggregate bond fund, investors can use FXNAX, which tracks the well-known Bloomberg U.S. Aggregate Bond Index. FXNAX charges a 0.025% expense ratio.
[SEE: 10 Best Vanguard ETFs to Buy.]
Fidelity Municipal Bond Index Fund (FMBIX)
Bond funds like FXNAX tend to produce higher yields than stock funds due to the interest income from the underlying bonds. However, this income stream can be less than tax efficient when held outside of a tax-sheltered account like a Roth IRA or 401(k).
An alternative for investors is FMBIX, which tracks the Bloomberg Municipal Bond Index. As its name suggests, FMBIX holds municipal bonds, which are issued by state and local governments to fund public infrastructure and services. Unlike most bonds, the interest from municipal bonds is exempt from federal income tax, making them a better alternative for a taxable account. FMBIX charges a 0.07% expense ratio.
Fidelity Balanced Allocation Fund (FRYBX)
A fairly balanced way to invest long term is to put 50% in stocks and 50% in bonds. During bull markets, the stocks drive strong returns, while the bonds can reduce losses during bear markets.
To implement the 50/50 portfolio, investors could buy a mix of FZROX, FZILX and FXNAX, but an even easier one-ticker alternative is via FRYBX. FRYBX is a “fund of funds” that splits its holdings between four different underlying funds.
The designated asset allocation for FRYBX is currently 35% U.S. stocks, 15% international stocks, 40% U.S. bonds and 10% U.S. short-term bonds. For a 0.02% expense ratio, investors receive an all-in-one, hands-off portfolio managed on their behalf by Fidelity.
Fidelity Freedom Index 2065 Fund Investor Class (FFIJX)
FFIJX is a target-date fund, which allows investors to select the right fund for their retirement needs based on a date. As its name suggests, FFIJX is intended for investors looking to retire at or around the year 2065.
Right now, the fund is roughly 54% U.S. stocks, 36% international stocks and 10% bonds, for a 90/10 stock/bond allocation. This is an aggressive allocation suitable for young investors. However, this allocation will change as the years pass to become more bond heavy, thus making the fund more conservative and less volatile.
This makes FFIJX perfect for hands-off, buy-and-hold investors who want to avoid having to manually adjust their asset allocation. The fund charges a 0.12% expense ratio.
More from U.S. News
15 Best Dividend Stocks to Buy Now
10 of the Best Stocks to Buy for 2023
10 Best Tech Stocks to Buy for 2023
7 of the Best Fidelity Mutual Funds to Buy and Hold originally appeared on usnews.com
Update 03/07/23: This story was published at an earlier date and has been updated with new information.