If you’re a buy-and-hold investor, Fidelity’s fund screening tools can help alleviate analysis paralysis by simplifying the process of sifting through 317 different funds.
You might be tempted to filter by the top performing Fidelity funds over the past decade to bank on their continued success. This method may seem intuitive, but as the adage goes, “past performance is not indicative of future results.”
Another common approach is to look at funds with the largest assets under management (AUM), operating under the assumption that if many investors are pouring money into these funds, they must be doing something right.
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Yet, this can lead to “herding,” a concept from behavioral finance that describes how investors often follow the crowd blindly into popular funds, which can inflate valuations and diminish future returns.
Perhaps the most reliable method for long-term investors is to select funds based on their expense ratios. Since fees are a consistent drag on net returns year after year, choosing funds with the lowest fees is a straightforward way to reduce a well-known risk factor, ensuring that more of your investment goes toward compounding growth rather than costs.
“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.”
Here are seven of the best Fidelity mutual funds to buy and hold today:
| Fund | Expense ratio |
| Fidelity 500 Index Fund (ticker: FXAIX) | 0.015% |
| Fidelity Total Market Index Fund (FSKAX) | 0.015% |
| Fidelity Zero Large Cap Index Fund (FNILX) | 0% |
| Fidelity Zero Total Market Index Fund (FZROX) | 0% |
| Fidelity Magellan Fund (FMAGX) | 0.47% |
| Fidelity Blue Chip Growth Fund (FBGRX) | 0.47% |
| Fidelity Contrafund (FCNTX) | 0.39% |
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. Among the cheapest index funds in Fidelity’s lineup is FXAIX.
For a very low 0.015% expense ratio, FXAIX provides exposure to the well-known S&P 500 index. To put it in perspective, an investor holding $10,000 worth of FXAIX can expect to incur just $1.50 in fund fees annually. This fund is also one of Fidelity’s longest tenured offerings, with an inception date of Feb. 17, 1988. Since its launch, FXAIX has delivered an 11.04% annualized return.
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 example, investors looking for a low-cost alternative to FXAIX can use FSKAX, which also charges a 0.015% expense ratio but tracks the Dow Jones U.S. Total Stock Market Index.
Unlike FXAIX, FSKAX’s benchmark encompasses more than just 500 large-cap stocks. Currently, it holds over 3,800 market-cap-weighted domestic companies, with greater representation among small and mid-cap stocks found outside the S&P 500 index. If your goal is to passively invest in the aggregate U.S. stock market in a low-cost manner, few mutual funds will do the job better than FSKAX.
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. These funds come from the “Fidelity Zero” lineup and charge a 0% expense ratio, making them virtually free to invest in, especially if you factor in the lack of minimum required investments.
The Fidelity Zero alternative to FXAIX is FNILX, which tracks just over 500 large-cap U.S. stocks via the proprietary Fidelity U.S. Large Cap Index. Because it is still market-cap weighted, the overall composition of FNILX remains fairly similar to FXAIX. To offset costs, FNILX is able to lend securities to generate income, which helps the fund achieve its 0% expense ratio.
Fidelity Zero Total Market Index Fund (FZROX)
If FNILX is the Fidelity Zero equivalent of FXAIX, FZROX fulfills a similar role for FSKAX. This fund tracks the Fidelity U.S. Total Investable Market Index, which like the Dow Jones U.S. Total Stock Market Index provides broad exposure to market-cap-weighted large-, mid- and small-cap domestic companies. As with FNILX, FZROX is able to lend securities to generate income, which helps offset costs.
The broad, passive nature of FZROX results in significant advantages for investors, and chief among them is tax efficiency. With a very low 2% portfolio turnover rate, this fund has not historically made large capital gains distributions. As a result, FZROX can be a decent holding for investors who are out of contribution room in their tax-advantaged accounts like a Roth IRA or 401(k).
Fidelity Magellan Fund (FMAGX)
If you’re looking to potentially outperform an index fund, then a Fidelity actively managed mutual fund like FMAGX might be enticing. Under the leadership of legendary investor Peter Lynch, FMAGX achieved an annualized 29% return from 1977 to 1990. During this time, Lynch diversified heavily into thousands of stocks and pioneered the “buy what you know” and “growth at a reasonable price” strategies.
However, in subsequent years FMAGX underperformed, with criticisms of “closet indexing,” implying that it was merely mimicking its benchmark. However, the fund might be on the cusp of a revival. First, expense ratios were cut to 0.47%. Second, Sammy Simnegar began managing the fund in 2019 and since then, FMAGX has returned 16.1% annualized, narrowly beating the S&P 500’s 16% return.
Fidelity Blue Chip Growth Fund (FBGRX)
Another star actively managed Fidelity fund to keep on your watchlist is FBGRX. This fund targets blue-chip stocks, which Fidelity defines as “well known, well established and well capitalized.” However, FBGRX also screens holdings for growth characteristics, such as faster-than-average earnings growth and high return on equity. As with FMAGX, expense ratios were reduced to 0.47% in recent years.
The focus on growth stocks causes FBGRX to be dominated by technology, consumer discretionary and communication sector stocks. Top holdings include most of the “Magnificent Seven” stocks, like Nvidia Corp. (NVDA), Apple Inc. (AAPL), Microsoft Corp. (MSFT), Alphabet Inc. (GOOGL) and Meta Platforms Inc. (META). FBGRX has outperformed the S&P 500 over the past three-, five- and 10-year periods.
Fidelity Contrafund (FCNTX)
A staple in many 401(k) plans, FCNTX is another actively managed Fidelity fund that has a history of outperforming its index. Originally intended to embody a contrarian investing style, FCNTX gradually morphed into a large-cap growth fund. Under the management of William Danoff, this fund consistently beat the S&P 500 index over the trailing one-, three-, five- and 10-year periods.
However, prospective FCNTX investors should be aware of manager-specific risk. While Danoff has successfully steered the fund for over three decades, FCNTX does not have a co-manager, which raises concerns about the continuity of its management style. Should Danoff depart, there’s no guarantee that his successor will possess the same level of skill in stock selection.
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The 7 Best Fidelity Mutual Funds to Buy and Hold originally appeared on usnews.com
Update 10/10/24: This story was previously published at an earlier date and has been updated with new information.
