A buy-and-hold investment strategy revolves around three key components: a long time horizon, a high risk tolerance and a focus on capital appreciation.
First, the time horizon — buying and holding typically refers to investing for a period of 10, 20 or even 30 years into the future. You’re not reacting to short-term market fluctuations but aiming to allow the power of compounding to do its work over time.
[Sign up for stock news with our Invested newsletter.]
Next, having a high risk tolerance is crucial. This compounding potential of stocks comes from what’s called the “market risk premium.” Historically, stocks outperform bonds precisely because investors are being compensated for taking on greater risk.
Lastly, your objective should be capital appreciation. This means you shouldn’t be focused on whether your gains come from stock price increases or dividend income — both contribute to total returns. While an income-focused fund might be psychologically alluring, it can lead to poorer long-term returns.
By understanding these principles, you can better structure a buy-and-hold portfolio and pick the right mutual fund with greater clarity.
Here are seven of the best Fidelity mutual funds to buy and hold today:
| Fidelity mutual fund | Expense ratio |
| Fidelity 500 Index Fund (ticker: FXAIX) | 0.015% |
| Fidelity Total Market Index Fund (FSKAX) | 0.015% |
| Fidelity Large Cap Value Index Fund (FLCOX) | 0.035% |
| Fidelity Large Cap Growth Index Fund (FSPGX) | 0.035% |
| Fidelity Zero Large Cap Index Fund (FNILX) | 0% |
| Fidelity Zero Total Market Index Fund (FZROX) | 0% |
| Fidelity Zero Extended Market Index Fund (FZIPX) | 0% |
Fidelity 500 Index Fund (FXAIX)
“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. Fidelity has a long lineup of index funds, with a popular pick being FXAIX.
This Fidelity mutual fund tracks the S&P 500 index and has a track record dating back to 1988. Since inception, FXAIX has delivered a strong 11% annualized return, earning it a five-star Morningstar rating. The fund benefits from a low 0.015% expense ratio and a minimal 2% portfolio turnover rate that makes it both affordable and tax efficient. It also does not have any minimum investment requirements.
Fidelity Total Market Index Fund (FSKAX)
“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 example, a Fidelity fund like FSKAX provides investors with exposure to more than 3,800 U.S. stocks via the Dow Jones U.S. Total Stock Market Index. As with FXAIX, FSKAX charges the same low 0.015% expense ratio, benefits from a 2% turnover thanks to its passive indexing methodology, and does not have any minimum investment requirements. The fund has returned an annualized 12.3% over the last 10 years.
Fidelity Large Cap Value Index Fund (FLCOX)
“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 example, a buy-and-hold investor interested in applying a value investing strategy can buy FLCOX, which offers exposure to potentially undervalued stocks for a minimal 0.035% expense ratio.
This mutual fund tracks the Russell 1000 Value Index, a benchmark of large, blue-chip U.S. stocks exhibiting value characteristics. Top holdings include Warren Buffett’s conglomerate Berkshire Hathaway Inc. (BRK.B, BRK.A), JPMorgan Chase & Co. (JPM), Exxon Mobil Corp. (XOM), UnitedHealth Group Inc. (UNH), Johnson & Johnson (JNJ), Procter & Gamble Co. (PG) and Walmart Inc. (WMT).
Fidelity Large Cap Growth Index Fund (FSPGX)
The opposite of FLCOX is FSPGX, which also charges a 0.035% expense ratio. This Fidelity mutual fund tracks the Russell 1000 Growth Index, which targets large U.S. companies expected to grow their earnings at a faster rate compared to the broad market. Unlike FLCOX, FSPGX is less heavily weighted towards “old economy” value-oriented sectors like energy, consumer staples, financials and industrials.
Instead, FSPGX’s portfolio is dominated by technology sector stocks at a 49% allocation, followed closely by consumer discretionary and communication services at 14% and 12.6%, respectively. This makes the fund more cyclical and volatile. Top holdings in FSPGX include Apple Inc. (AAPL), Microsoft Corp. (MSFT), Nvidia Corp. (NVDA), Amazon.com Inc. (AMZN), Meta Platforms Inc. (META) and Alphabet Inc. (GOOG, GOOGL).
Fidelity Zero Large Cap Index Fund (FNILX)
“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 executed perfectly, a buy-and-hold investor could potentially enjoy a fee-free investment experience by sticking to certain Fidelity mutual funds on the firm’s brokerage platform.
These special no-fee funds are called “Fidelity Zero funds.” To keep costs low, the Fidelity Zero funds use in-house benchmark indexes and also lend securities to offset portfolio management expenses. A popular pick from this lineup is FNILX, which is the Fidelity Zero equivalent to FXAIX. It features a similar portfolio composition and turnover, but undercuts FXAIX’s already low 0.015% expense ratio.
Fidelity Zero Total Market Index Fund (FZROX)
The Fidelity Zero lineup is designed to provide buy-and-hold investors with ultra-low-cost core portfolio building blocks. While investors can use FNILX for their U.S. equity allocation, a more diversified pick would arguably be FZROX. This mutual fund is the Fidelity Zero equivalent to FSKAX. It currently features more than 2,600 holdings, spanning large-, mid- and small-cap stocks, and covers both growth and value styles.
However, FZROX’s top holdings are still on the whole very similar to that of FNILX. This is due to the market-cap-weighting methodology used by both funds. In a market-cap-weighted index, larger companies are given more weight in the portfolio. As a result, even though FZROX holds a wider range of stocks, the large-cap companies dominate its portfolio, leading to a significant overlap with FNILX.
Fidelity Zero Extended Market Index Fund (FZIPX)
If you want to capture the higher risk, but potentially higher returns of mid- and small-cap stocks, a market-cap-weighted Fidelity fund like FZROX isn’t ideal. Instead, consider FZIPX, which tracks the proprietary Fidelity U.S. Extended Investable Market Index. This fund excludes the largest 500 U.S. stocks and focuses instead on the next 2,500 largest, giving it a stronger mid- and small-cap tilt.
To use FZIPX effectively, consider pairing it with FNILX and adjusting the proportions based on your views. For example, a portfolio of 50% FNILX and 50% FZIPX will still resemble the broad U.S. stock market, but with lower concentration in large-caps and a higher weight toward mid- and small-cap stocks. As a Fidelity Zero fund, FZIPX has a 0% expense ratio and also no minimum investment.
More from U.S. News
7 Dividend Stocks to Buy and Hold Forever
10 Best Growth Stocks to Buy for 2024
5 Great Fixed-Income Funds to Buy Now
The 7 Best Fidelity Mutual Funds to Buy and Hold originally appeared on usnews.com
Update 09/12/24: This story was previously published at an earlier date and has been updated with new information.
