Fidelity Investments has no shortage of renowned actively managed mutual funds available to retail investors.
Names you might have heard of or even seen in your 401(k) lineup include Fidelity Blue Chip Growth Fund (ticker: FBGRX), Fidelity Contrafund (FCNTX) or even the famous Fidelity Magellan Fund (FMAGX), once managed by Peter Lynch.
Given their reputation and track records, you might think that buying and holding one of these for the long term is a sound way to beat the market, right? Think again.
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Consider the results of the latest update to the S&P Indices Versus Active (SPIVA) scorecard, which benchmarks various fund categories against their respective index benchmarks. For example, U.S. large-cap funds compete against the S&P 500.
The current results are not favorable toward actively managed funds. Over the past 15 years up to Dec. 31, 2023, approximately 88% of all U.S. large-cap funds underperformed the S&P 500.
There are several reasons for this underperformance. Sure, some of it was due to poor stock picking by their managers. But a lot of it was likely due to high fees.
Active management is expensive — not just in terms of the time and expertise needed to research stock picks, but also the transaction costs generated by high turnover within the fund’s portfolio.
Thankfully, Fidelity’s lineup of 324 in-house mutual funds features a robust selection of low-cost and even no-fee index funds, with net expense ratios as low as 0% in some cases.
“Savvy investors understand the importance of keeping your costs low and your options open, and Fidelity funds have become popular because they offer just that,” says Andrew Latham, a certified financial planner and director of content at SuperMoney.com. “With no sales loads, low fees and no minimum investment requirements, it’s easier to start investing without breaking the bank.”
For a buy-and-hold investor, the lesson is clear: Trying to passively match the market’s average return via low-cost index funds is more likely to set you up for above-average results versus chasing hot funds.
“While it truly depends on each individual investor’s specific goals and objectives, I typically advocate for the index funds in the accumulation phase, as these give great broad market exposure with lower fees than actively managed funds,” says Wes Moss, managing partner and chief investment strategist at Capital Investment Advisors.
Here are six of the best Fidelity mutual funds to buy and hold today:
| Mutual fund | Expense ratio |
| Fidelity 500 Index Fund (FXAIX) | 0.015% |
| Fidelity Total Market Index Fund (FSKAX) | 0.015% |
| Fidelity Zero Total Market Index Fund (FZROX) | 0% |
| Fidelity Global ex U.S. Index Fund (FSGGX) | 0.055% |
| Fidelity Aggressive Growth Allocation Fund (FRAGX) | 0.03% |
| Fidelity Freedom Index 2065 Fund Investor Class (FFIJX) | 0.13% |
Fidelity 500 Index Fund (FXAIX)
The S&P 500’s prowess has helped propel FXAIX to a five-star Morningstar rating, meaning that within its cohort of over 1,200 peers, this fund has historically performed in the top ranks based on risk-adjusted returns. Over the past 10 years, FXAIX has delivered an annualized 12.7% total return (i.e., with distributions reinvested). In comparison, the Morningstar large blend category returned 11.2%.
The success of FXAIX can be largely attributed to its indexing strategy — by passively replicating the S&P 500, the fund is able to keep portfolio turnover very low at just 2%, while charging a minimal 0.015% expense ratio. Coupled with no transaction fees or minimum investment requirement, this fund is very accessible to buy-and-hold investors looking to bet on the long-term growth of the U.S. market.
Fidelity Total Market Index Fund (FSKAX)
“Personally, I like Fidelity mutual funds because they offer a variety of investment options, have low fees and are backed by a reputable company with a long history of success in the industry,” Latham says. For instance, an investor looking to track U.S. stocks can use FXAIX, or they could also opt for a broader holding via FSKAX, which tracks the Dow Jones U.S. Total Stock Market Index.
Unlike FXAIX, FSKAX’s portfolio isn’t restricted to just 500 large-cap stocks. By using a broad market benchmark, it is able to capture over 3,300 more small- and mid-cap stocks. However, its top holdings are virtually identical to those found in FXAIX, as both funds are market-cap-weighted. Investors can expect a low 2% portfolio turnover rate and the same 0.015% expense ratio FXAIX has.
Fidelity Zero Total Market Index Fund (FZROX)
“Fidelity introduced zero-expense-ratio index mutual funds and also offered zero-minimum-investment mutual funds, no minimums to open an account and no account fees for retail brokerage accounts,” Moss says. If maximum cost savings are what you’re looking for, then using one of Fidelity’s proprietary Zero mutual funds on its brokerage platform could be a way to pinch every penny.
A great example is FZROX, which tracks over 2,600 stocks represented by the Fidelity U.S. Total Investable Market Index for a 0% expense ratio. This market-cap-weighted index is similar in composition to the one used by FSKAX. It also features a low 2% portfolio turnover rate and is fairly tax efficient. You can also find different Zero funds for international stocks, large-cap U.S. stocks and mid-cap U.S. stocks.
Fidelity Global ex U.S. Index Fund (FSGGX)
U.S. stocks currently account for 63.8% of the MSCI ACWI (All Country World Index) by market-cap weight. Thus, if your goal is to passively match the global market’s long-term average return, it might be a good idea to include some international stocks. This can include companies from developed markets like Europe and Japan, or even emerging markets like China and India. The Fidelity fund for this is FSGGX.
FSGGX tracks the MSCI ACWI ex USA Index, which represents just over 2,300 foreign stocks. Top holdings in its portfolio you may be familiar with include Taiwan Semiconductor Manufacturing Co. Ltd. (TSM), Nestle SA (NESN.SW), Toyota Motor Corp. (TM) and Shell PLC (SHEL). For a low 0.055% expense ratio, investors can sidestep the need for costly currency conversions or American depositary receipts.
Fidelity Aggressive Growth Allocation Fund (FRAGX)
Investors looking for a more diversified buy-and-hold fund can greatly simplify their portfolio by using an all-in-one solution like FRAGX. This fund-of-funds targets an aggressive, growth-focused strategy by holding 60% in a U.S. market index fund, 25% in an international index fund and 15% in a U.S. bond market index fund. Overall, it features an 85% stock and 15% bond allocation.
The benefit of this fund is the ability to stand as hands-off as possible. Periodically, FRAGX’s management team will rebalance the fund to bring it back to target allocations. For instance, if U.S. stocks have done well, the fund may sell U.S. stocks to bring it back down to 60%, while buying other asset classes at lower prices. All this can be had for a 0.14% gross expense ratio, waived down to just a 0.03% net expense ratio.
Fidelity Freedom Index 2065 Fund Investor Class (FFIJX)
FRAGX’s asset allocation strategy is static. Barring extenuating circumstances, its managers will always periodically rebalance the holdings to an 85% stock and 15% bond allocation. While this allocation may be appropriate for a young, high-risk investor, it may be less suitable as one grows older and the time horizon changes. For this role, a target-date fund like FFIJX is more suitable.
FFIJX is also a fund-of-funds, and it currently holds around 54% in U.S. stocks, 36% in international stocks and 10% in bonds. But unlike FRAGX, FFIJX’s asset allocation is designed to change over time to become more conservative. As time passes, the fund is expected to reduce its stock holdings and increase its bond holdings. By the target retirement date of 2065, FFIJX will be much more conservative.
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The 6 Best Fidelity Mutual Funds to Buy and Hold originally appeared on usnews.com
Update 06/14/24: This story was previously published at an earlier date and has been updated with new information.
