In this world of Index funds, we often hear the name of Vanguard as being the leader. Many other brokerages have come up with some great index funds besides Vanguard. These companies are like Charles Schwab or Fidelity. Fidelity and Vanguard are in great competition over who has the best index funds. So here is a look at some of the best Fidelity index funds out there.
Each company has its twist, and many of these brokerage companies come head to head in the mutual fund and index fund industry. You are making wise choices in step 1 to creating an effective portfolio. Before we start, let's get a brief overview of index funds and why you should choose the ones from Fidelity.
May you choose Vanguard, Schwab, or Fidelity, you cannot go wrong with choosing one of these brokerage companies. Vanguard index funds are some of the oldest and most well-known, but let's look at the competition in Fidelity's index funds.
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What is an Index Fund?
An index fund is a type of mutual fund that follows a particular index. The index could be the S&P 500 index, and the fund will mirror this index with its holdings. The way index funds work with investing is that they use passive methods to help their fund holders match the market.
Most active fund managers fail to beat the overall market, and the index fund allows ordinary people to create wealth through passive investing without costing an arm and a leg. The index fund is usually low-cost. Make sure to look at the expense ratio when choosing a fund.
Vanguard is the first brokerage company to create an index fund, and its index funds have some of the lowest expense ratios. VTSAX and VFIAX both have expense ratios of 0.04%, which is $4 for every $10,000 invested. If you want to go with a cheaper way, you could choose an ETF (Exchange Traded Funds) of these index funds. VOO and VTI are both ETFs of VFIAX and VTSAX. Their expense ratio is 0.03%.
Why Choose Fidelity Index Funds?
Fidelity and Vanguard fight over domination of the mutual fund sector. They are both leading mutual fund providers.
Fidelity has been trying to win over many more clients through lower prices. They introduced Zero Fee Funds in 2018 to bring more people over. These Fidelity Zero Fee Funds have a 0% and $0 to get started.
Not only is Fidelity making moves with lower fees they are also making a move in technology. Vanguard has an outdated site and app, and Fidelity is bringing in better technology on that front; plus, Fidelity has a better customer service experience than Vanguard.
Lower Minimums Required to Invest
Another great thing about Fidelity index funds is investing with a low amount of money. You can start investing in index funds with just $10 or $1. Fidelity has no minimum investment. Vanguard has a minimum of $3,000 to start investing.
Starting with a low minimum can help you start investing sooner. The sooner you start investing, the sooner that compound interest can affect your money and grow it.
Expense Ratios Are Low
With Fidelity, you will have lower expense ratios. Many of their index funds have lower expense ratios than most of their competitors. Some of these expense ratios are below 0.02%. That means significant savings when you are investing money over the long term.
Low costs matter, and providing a great quality product at a lower cost can help your clients do well as they grow wealth.
I am not trying to bash Vanguard. They are one of my favorite providers of index funds, but they are not perfect, and they could invest some money into better technology.
What are the Best Fidelity Index Funds?
These are some of the best Fidelity index funds out there. They will cover bonds, the total market, real estate, and the S&P 500.
Fidelity S&P 500 Index Fund (FXIAX)
The Fidelity S&P 500 index fund is one of the cheapest options for a low-cost, diversified fund that mirrors the S&P 500. FXIAX is one of the best Fidelity index funds with excellent exposure to large-cap stocks that have a low expense ratio. The expense ratio is 0.015%, which will cost you $1.50 for every $10,000 you have invested into the fund.
Investing into the S&P 500 through this fund is an effective way to have exposure to large-cap companies with a lower risk. The S&P 500 represents around 80% of the U.S. total stock market, and by owning a fund that mirrors it, you will therefore own a piece of some of the best companies in the U.S.
Fidelity Total Market Index Fund (FSKAX)
If you want more diversification in your portfolio, try out Fidelity's Total Market Index Fund (FSKAX). FSKAX tracks the Dow Jones U.S. Total Stock Market Index.
It is considered one of the best Fidelity index funds out there. With its low cost of 0.015% expense ratio, you can have exposure to the entire U.S. stock market, exposing you to large and small-cap funds.
It has averaged around 16% in growth in the last ten years. Not every year will have tremendous growth like the bull market has given us these past ten years, but you can see that your money will continue to grow over time. FSKAX is often compared to VTSAX as one of the best index funds.
Fidelity U.S. Bond Index Fund (FXNAX)
Not every fund is going to achieve what has been seen in past performances. Over time, there are many crashes and corrections so having a bit of some diversification helps along those bumpy days. As we get older, a good bond fund will help out.
Fidelity U.S. Bond Index Fund (FXNAX) is another excellent Fidelity index fund that can help make your portfolio whole. It holds about 40% of its money in U.S. Treasury bonds, which is about 20% more than most of its competitors. You can worry less with knowing that over 71% of the bonds in this fund are rated AAA.
If you want to be more conservative with your asset allocation, you can add FXNAX to the mix. These bonds will provide more safety in the downturns of the market.
Fidelity Zero Total Market Index Fund (FZROX)
In 2018, Fidelity came out with their Zero Fee Funds. These Fidelity index funds would have a 0% expense ratio, and one of the best is FZROX. FZROX and VTSAX are two index funds that are often compared to each other. FZROX being a Zero fee fund will give you a lot of diversification with no fee.
A lot of people like this fund because of the zero fees. It does not take a lot to get started with this fund. The diversification is much lower than VTSAX with about 2400 companies instead of the 4000 companies that VTSAX holds in its funds.
If you are looking for an excellent total stock market fund and want low costs, look no further than the Fidelity Zero Total Market Index Fund. It will get you started investing right away and cost you $0.
Fidelity Nasdaq Composite Index Fund (FNCMX)
If you are looking for a good fund with some tech allocation, then look no further than the Fidelity Nasdaq Composite Index Fund or FNCMX. FNCMX gives you a good index fund with a more significant concentration of tech stocks.
As ETFs like QQQ or VGT continue to rise in popularity, so do other index funds that track tech. Apple, Microsoft, and Amazon are some of the largest companies in the world by market cap, so you could either get these in a fund like FSKAX or FZROX, or you could invest in a more tech concentrated fund like FNCMX.
FNCMX has averaged over 17% in returns in the last ten years. That is an excellent value for investing in this fund.
The expense ratio is a bit higher than QQQ and VGT with an expense ratio of 0.35%. That could be a deterrent for many people because you can find it cheaper. Take a look at this Fidelity index fund or choose another tech index fund or ETF.
Fidelity Zero Large Cap Index Fund (FNILX)
If you want to invest in the S&P 500 but do not want to pay any expense ratio, you should go with Fidelity's Zero Large Cap Index Fund (FNILX). It is FXIAX, but without the name of the S&P 500. The fund holds the S&P 500 large-cap companies and offers it to their investors at a low cost of $0.
To me, these Fidelity Zero funds are winners. They bring about ease to investing in the market with a $0 fee and a 0% expense ratio.
FNILX has averaged 18.37% over the last three years. FXIAX (the S&P 500 Fund) has averaged 18.23% over that same period. They show that fewer fees mean more growth to your fund and more money.
Fidelity International Index Fund (FSPSX)
The Fidelity International Index Fund (FSPSX) is the last one on this list. Having a portfolio that is well-diversified portfolio helps with downturns. A good three-fund portfolio with U.S. Stocks, International Stocks, and bonds makes life simpler.
FSPSX is not as diversified as the Vanguard VGTSX, but it hosts most of the world's big and medium cap companies. It has an expense ratio of 0.035% and about 839 companies that make up the funds' holdings.
It is a fund that helps to bring more diversification to your portfolio. In the last ten years, it has averaged 6.32%. Companies like Toyota, Samsung, and Nestle are part of this fund.
Index investing is a great way to create a portfolio of passively managed funds to create a compelling portfolio. It has helped many people make extraordinary wealth. Jack Bogle, the creator of the Vanguard Group, wanted to help ordinary people cut costs through savings on management fees. He created index fund investing for this reason.
Fidelity and many other companies are continuing to create and innovate with technology. There will be greater competition and better products for clients as this happens. Fidelity index funds are some of the best on the market. They want to continue to bring more people in to invest and open up accounts like an IRA, Roth IRA, or taxable account.
As we look at these funds, know that the low costs help win in the end. Passive management of funds will beat most active managers most of the time.
So what are you waiting for? Take a look at these Fidelity index funds and decide if this is the place to start investing.
I’m Steve. I’m an English Teacher, traveler, and an avid outdoorsman. If you’d like to comment, ask a question, or simply say hi, leave me a message here, on Twitter (@thefrugalexpat1). Many of my posts have been written to help those in their journey to financial independence. I am on my journey, and as I learn more I hope to share more. And as always, thanks for reading The Frugal Expat.