“Analysis paralysis” is a real issue for many beginner investors trying to create a portfolio. You’re constantly being bombarded by slick marketing, headlines with pundits arguing for a particular asset class or investment, and also daily market noise from the ups and downs of major indexes.
If you want to cut through the noise and focus on hard, objective facts, fund managers like Fidelity have their own in-house screeners to present the data to you transparently. However, it takes some know-how to determine which metrics to prioritize.
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Suppose you’re a buy-and-hold investor who just opened a Fidelity brokerage account. You’re instantly presented with a list of thousands of mutual funds, 323 of which are Fidelity-branded. Out of these 323, how do you pick the right ones?
A good place to start is by setting the “management approach” screener to “index” only. While actively managed funds may try to beat their benchmarks, the reality is that most of them don’t.
According to the S&P Indices Versus Active (SPIVA) report, over the past 15 years through Dec. 31, 2023, approximately 88% of all U.S. large-cap funds underperformed the S&P 500. Similar results are seen in other segments like small-cap funds, value funds, growth funds, bond funds and international 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.
Once you isolate the index funds, you’re left with 60 options. An easy way to prioritize for deeper research is to sort them in ascending order by expense ratios, so you look at the cheapest ones first.
Why? Past performance doesn’t predict future performance, but expense ratios are a constant, universal drag. This is a predictable headwind to future returns that can be easily minimized.
“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.”
Once you’ve done this, it’s just a matter of picking the right combination of funds tailored to your time horizon and risk tolerance — for instance, a U.S. stock fund, an international stock fund and a bond fund generally work to provide maximum diversification.
Here are seven of the best Fidelity mutual funds to buy and hold today:
| Mutual Fund | Expense ratio |
| Fidelity Zero Total Market Index Fund (ticker:FZROX) | 0% |
| Fidelity Zero International Index Fund (FZILX) | 0% |
| Fidelity 500 Index Fund (FXAIX) | 0.015% |
| Fidelity Mid Cap Index Fund (FSMDX) | 0.025% |
| Fidelity Small Cap Index Fund (FSSNX) | 0.025% |
| Fidelity Large Cap Growth Index Fund (FSPGX) | 0.035% |
| Fidelity Large Cap Value Index Fund (FLCOX) | 0.035% |
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 you don’t mind sticking to the firm’s brokerage platform and fund lineup, your all-in expense could be quite low compared to the average investor, thanks to options like FZROX.
This fund tracks the proprietary Fidelity U.S. Total Investable Market Index, which holds more than 2,600 market-cap-weighted domestic stocks across all 11 sectors and both value and growth styles. As part of the Fidelity “Zero” fund lineup, FZROX features a true 0% expense ratio without any waivers or fine print. It’s also very tax efficient, with a 2% annual turnover rate, and has no minimum investment requirement.
Fidelity Zero International Index Fund (FZILX)
Diversifying internationally doesn’t have to be expensive. If you want to access foreign stocks as part of a buy-and-hold strategy, FZILX gets it done for a 0% expense ratio. This fund tracks the proprietary Fidelity Global ex U.S. Index, spanning over market-cap-weighted 2,275 equities from both developed and emerging-market countries. Thanks to its passive indexing methodology, turnover is kept low at 5%.
Investors can therefore create a virtually free global stock portfolio by mixing FZROX and FZILX in different proportions. For example, if you wanted to mimic the composition of the MSCI World Index, a blend of 70% FZROX and 30% FZILX would come close. Or, if you wanted to simply split the difference and be agnostic as to which outperforms, going 50/50 FZROX/FZILX could work as well.
Fidelity 500 Index Fund (FXAIX)
“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. Outside of the Fidelity Zero funds, a great example is FXAIX, which is one of the older S&P 500 index funds with an inception date of Feb. 17, 1998. Today, you can buy this fund for a 0.015% expense ratio.
While it’s not totally free, FXAIX gives you exposure to the renowned and strong-performing S&P 500 for what amounts to a $1.50 annual fee for a $10,000 investment. Over the last 10 years, FXAIX has returned an annualized 12.9%, putting it among the top ranks of more than 1,300 rivals in its Morningstar peer category. This has earned the fund a rare five-star Morningstar rating for superior risk-adjusted performance.
[See: 7 Best ETFs to Buy Now.]
Fidelity Mid Cap Index Fund (FSMDX)
All of the previous Fidelity funds were broad market-capitalization-weighted funds. While they may have included hundreds to thousands of stocks, their index methodology meant that the largest companies received proportionately higher weights. As such, they tend to be somewhat top-heavy and subject to the performance of these large caps, with small- and mid-cap stocks relegated to the sidelines.
If you want to focus more on neglected mid-cap stocks, Fidelity offers FSMDX. This fund tracks around 800 holdings represented by the Russell Midcap Index for a low 0.025% expense ratio. However, the turnover rate is slightly higher, at 8%. This is because mid-cap indexes get a lot of newcomers graduating from small-cap indexes, but also see constituents grow and leave for the large-cap indexes.
Fidelity Small Cap Index Fund (FSSNX)
Buy-and-hold investors can also target small-cap stocks via FSSNX. This fund targets the well-known Russell 2000 Index, a broad benchmark of domestic small-cap stocks. It charges a 0.025% expense ratio and has a slightly higher portfolio turnover rate of 9%, largely from constituents graduating to mid-cap indexes as their share prices increase. The fund is also able to lend securities for extra income.
Small-cap stocks haven’t performed well over the last decade, with FSSNX returning an annualized 7.2%. Still, this managed to beat the Russell 2000 Index by 0.2%, largely thanks to the extra income earned by FSSNX from securities lending. Investors holding FSSNX need to have a high risk tolerance to withstand the volatility and patience to hold on to small-cap stocks even if their large-cap counterparts pull ahead.
Fidelity Large Cap Growth Index Fund (FSPGX)
Looking to buy and hold the “Magnificent Seven” stocks of Microsoft Corp. (MSFT), Apple Inc. (AAPL), Nvidia Corp. (NVDA), Amazon.com Inc. (AMZN), Meta Platforms Inc. (META), Alphabet Inc. (GOOG, GOOGL) and Tesla Inc. (TSLA)? The Fidelity fund to watch is FSPGX, which holds all seven of these popular companies in its top holdings by tracking the Russell 1000 Growth Index.
FSPGX is affordable with a 0.035% expense ratio but does have a higher 15% turnover. However, investors need to be wary of concentration risk in two forms. First, the top 10 holdings of FSPGX currently account for 56% of the fund’s portfolio by weight. Second, the fund features a 46% tilt toward the technology sector. As a result, high volatility should be expected.
Fidelity Large Cap Value Index Fund (FLCOX)
Investors looking to avoid high-flying growth stocks with expensive valuations may prefer FLCOX instead. This fund focuses on stocks from more value-oriented sectors like consumer staples, financials, health care and energy. Valuations for this fund tend to be lower, on average, because it tracks the Russell 1000 Value Index. It charges the same 0.035% expense ratio as FSPGX does and has a 27% turnover rate.
FLCOX’s top holdings are a “who’s who” of the old economy. Instead of flashy tech stocks, investors can expect dividend-paying blue-chips like Berkshire Hathaway Inc. (BRK.A, BRK.B), JPMorgan Chase & Co. (JPM), Exxon Mobil Corp. (XOM), Johnson & Johnson (JNJ), Procter & Gamble Co. (PG) and Walmart Inc. (WMT). Over the past five years, shares of FLCOX have returned an annualized 9% with dividends reinvested.
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The 7 Best Fidelity Mutual Funds to Buy and Hold originally appeared on usnews.com
Update 07/16/24: This story was previously published at an earlier date and has been updated with new information.
