- In this video, I'm gonna go through
the five best Fidelity funds
to buy and hold forever.
Now you're going to notice
that all of the Fidelity zero index funds
are missing from this top five,
because they aren't really
what they appear to be on the surface.
Later in the video,
I'll send you to another video I made
uncovering their dirty little secret.
First up is the Fidelity 500 Index Fund, FXIAX.
There's only a few funds
that I would consider foundational fund
that most people should hold.
And if you prefer Fidelity funds,
then this would be one of them.
FXAIX tracks the S&P 500,
which is made up of the 500 largest U.S. stocks,
based on market cap.
All a market cap is
is the total number of outstanding shares
multiplied by the price of the stock.
These 500 stocks represent about 80%
of the U.S. market cap.
So these companies are what really moves
the price of the overall stock market.
To put it into perspective,
there's about 4,300 publicly traded U.S. stocks.
That means once we remove the largest 500,
the remaining 3,800 only account
for 20% of the total U.S. market cap.
Everyone loves to talk about the upside potential,
and we'll cover that in just a minute.
But I personally like to call out
the downsides as well,
because what you do during those times
will have the biggest impact
on your future returns.
Because the Fidelity 500 Fund
has only been around since 2011,
we'll be looking at the S&P 500 drawdowns
to get a larger sample size.
The largest drawdown started in 2007,
due to the financial crisis.
This fund would've seen a 51% drawdown,
which means that if you had $1 million invested,
then at one point, it would've been down to $490,000.
This portion of your portfolio
would've taken about three and a half years to recover.
The next largest drawdown was in 2000,
where it had a drawdown of 45%,
and took a little over four years to recover.
The third largest drawdown was in 2020,
due to the health crisis,
where that drawdown was 20%,
and took four months to recover.
A four-month recovery period is comical,
so do not expect that happening in the future,
because they're not very common.
Although past returns are irrelevant,
because we are investing for the future,
they're always good to be aware of.
After taxes and sales,
FXAIX has had a one-year return of 9.5%,
three-year return of 15%,
five-year return of 13%,
and 10-year return of 12%.
This is one of the lowest-cost S&P 500 index funds,
coming in at an expense ration of .015% per year.
For everyone $1,000 invested,
you're only paying 15 cents per year.
These are everything with investing,
because they eat into your returns,
so keeping these as low as possible
is extremely important.
If you look at the sector breakdown,
28% of this fund is held in technology,
followed by financial services,
healthcare, and consumer cyclical.
While some might say that it's overweight in technology,
that's only because those companies are so dominant.
This is the nice thing about a fund
that tracks an index.
There's no opinions about what should
or shouldn't be added,
because the market and size of the business
determines that for you.
If the businesses in one sector
start to shrink in size,
then this fund will reflect that
and replace those stocks with what should be there.
The top 10 holdings are made up of a ton of companies
most of you recognize:
Apple, Microsoft, Amazon, and Alphabet.
These 10 make up about 30%
of the total Fidelity 500 portfolio,
which is perfectly fine
because they're all solid companies.
And when they eventually shrink in size,
they'll automatically fall down this list
and be replaced with the next best company.
The Fidelity 500 Index is for anyone
who is looking to match the performance
of those largest U.S. companies.
Because they make up 80% of the total U.S. market cap,
they're what really moves the market.
This index fund has a nice mix of large cap stocks
that are at the upper limit between value and growth,
with a leaning more towards growth stocks.
This is good if you're looking to invest
for portfolio growth
with the safety that comes along
with those larger, more stable companies.
If we take a look at the stock weighting,
39% are large cap growth,
26% are large cap blend,
and 19% are large cap value.
The downside of this fund
is that you're missing out on those mid
and smaller-cap stocks.
While it's not a huge downside,
it's still something to be aware of.
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If you're someone who wants to take advantage
of those 500 stocks,
plus the additional thousands of stocks
traded on the stock market,
then you'd want to think about investing
in the Fidelity Total Market Index Fund, FSKAX.
Before we get too deep into it,
I'll have to admit that I am biased towards this fund
and any other total U.S. stock market index fund,
so keep that in mind
while I'm going through this one specifically.
FSKAX does exactly what the name says,
invests in the total U.S. stock market.
That means your money is invested
among pretty much every U.S.-based stock out there.
At this point, it's made up
of a little over 4,000 companies,
and growing every year
as more businesses go public.
Since it holds that many stocks,
your money is diversified among large-,
mid, and small cap companies.
When you invest in an index fund like this,
you're betting on the future of the U.S. as a whole.
I know there's a lot of tinfoil hat people out there
who are all doom and gloom about the future of America.
But as long as the businesses behind these stocks
are continuing to innovative, make money, and grow,
there's nothing to worry about.
There are naturally going to be a ton of losers
among these 4,000 stocks,
so that's why it can beneficial
to place bets across the board
by investing in this type of fund.
After taxes on distributions and sale of fund shares,
it's had a one-year return of 7%,
three-year return of 14%,
five-year return of 12%,
and a 10-year return of almost 12%.
This index fund is extremely low cost,
coming in at an expense ratio of .015% per year.
That means for every $1,000 invested,
you're only paying 15 cents per year.
Looking at the sector breakdown
of the Total Market Index Fund,
technology is once again dominating
at 27% of this fund.
The rest of the breakdown
is pretty similar to the Fidelity 500 Fund,
with healthcare at 13%,
consumer discretionary at close to 12%,
and financials at close to 12% as well.
Within the top 10
of the Fidelity Total Market Index Fund,
we see a ton of names that we recognize,
the exact same companies within this top 10
are in the top 10 of the Fidelity 500 Fund as well.
The only difference is how much money
is allocated to each company.
With the Fidelity 500 Fund,
29% was in the top 10.
Within the Fidelity Total Market Index Fund,
there's only about 25% allocated to those top 10.
A lot of this has to do with the fact
that FSKAX has over 4,000 companies
to spread your money across,
while the 500 fund only has to spread your money
across, of course, 500 companies.
The Fidelity Total Market Index Fund
is for the person who wants this ability
that comes with investing in those biggest 500 companies
while still gaining exposure to those up-and-coming,
mid, and small cap stocks as well.
As you can see, this index fund
is considered a blend between value and growth stocks,
with a tilt more towards growth.
While most of the weighting is in the large cap area,
we see that about 18% is in mid caps,
and 9% is in small cap stocks.
Just like the Fidelity 500 Index Fund,
the Total Market Fund is one of the foundational funds
that should be a part of everyone's portfolio
in some form.
I personally don't think it makes sense
to hold both of them at the same time,
because there is some portfolio overlap.
Once you have your U.S. investments covered,
the next best fund
is the Fidelity Total International Index Fund, FTIHX.
And this fund is currently made up
of over 5,000 stocks.
The Fidelity Total International Index Fund
is just like the Total U.S. Index Fund,
except the International fund
holds stocks that exist outside of the United States.
This fund seeks to provide investment results
that match the total return
of foreign developed and emerging stock markets.
FTIHX specifically tracks
the MSCI All Country World Index ex U.S.,
which covers about 85% of global equities
outside of the United States.
By investing in FTIHX,
your money is diversified
among different countries, regions,
sectors, and even currencies.
Since this fund has only been around since 2016,
I looked at the drawdowns
from a global ex U.S. stock portfolio.
The largest drawdown started in 2007,
of course, due to the financial crisis,
and ended up down 58%.
It took a little over eight years to recovery.
The next largest drawdown started in 2000
due to the dot com crash,
where it dropped by 47%,
and it took about two and a half years to recover.
The third largest drawdown was in 1990,
where it saw a max drawdown of 31%,
and took three years and four months to recover.
One-year returns are negative 1%,
three-year returns are 6%,
and five-year returns are 5%.
Since this is a newer fund,
we don't have enough data to get out to the 10-year returns.
The expense for this Total International Fund
is one of the lowest in the industry,
coming in at .06%.
That means for every $1,000 invested,
you'll only pay 60 cents per year.
The sector breakdown is a lot different
when we compare it to those first two U.S. funds
that we looked at.
For this international fund,
we can see that the majority of the holdings
are in financials at an almost 19% allocation,
followed by industrials, tech,
then consumer discretionary.
The top 10 holdings only make up less than 10%
of the overall holdings,
which is night and day
compared to the first two U.S. funds that we looked at.
For those U.S. funds, if you don't remember,
the top 10 made up about 30% of the holdings.
I don't see an issue with this,
because there's a little more risk
when investing in companies
outside of the United States.
A lot of these companies you probably recognize,
but once we get out of these top 10,
you probably don't recognize a lot of the companies
within this index fund.
When we look at region breakdown,
about 70% of the money is diversified
among European and emerging market companies.
The Fidelity Total International Index
is perfect for someone who wants to get that broad exposure
to anything outside of the U.S.
As with any stock-based index funds,
there are many risks to be aware of.
Those can range from political,
economical, regulations, currency,
and interest rate risk.
The good news is that FTIHX
is more concentrated in stocks that are larger,
with a blended mix between value and growth.
The Fidelity U.S. Bond Index Fund, FXNAX,
is perfect for the conservative side of your portfolio.
At this point, it has about 8,400 holdings
from 593 issuers.
It tracks the Bloomberg U.S. Aggregate Bond Index,
which holds a mixture of U.S. treasuries,
corporate bonds, and mortgage-backed securities.
Max drawdowns for bond index funds
look drastically different from stock-based index funds,
which is exactly how things should look.
The largest drawdown started at the end of 2020,
where it was down 7.77%,
and it still hasn't recovered.
The second largest was in 2013,
where it went down 3.87%,
and took nine months to recover.
The third largest was in 2016,
where it was down 3.5%,
and it took nine months to recover.
For a one-year period,
this fund is down 2.74%.
Three-year returns are at .87%,
five-returns are at 1.08%,
and the 10-year return is at 1.21%.
The Fidelity Total U.S. Bond Fund
is extremely low cost at .025% per year.
That means for every $1,000 invested,
you're paying 25 cents.
This bond index is mainly diversified
among three different types of bonds.
39% is in U.S. treasuries,
27% are in mortgage-backed security pass-through bonds,
and 24% are in corporate bonds.
If you are someone who is building
a three-fund portfolio,
then you're going to need a bond fund.
Now this is a great index fund
to fill the gap in that type of strategy.
Don't sleep on bonds,
because they still serve the same purpose
as they always have,
to reduce volatility within your portfolio.
Now this is especially needed
when you are getting closer to retirement.
I'll have my three-fund portfolio video
linked up down in the description, above my head,
and at the end of this video as well.
Real estate has had great returns over the years,
so if you're looking to gain more exposure
to that asset class on the Fidelity investment platform,
then the Fidelity Real Estate Index Fund, FSRNX,
is the one that I prefer.
Time out real quick,
because after reviewing my notes on this one,
I am calling an audible in the middle of this recording
to pull this one off of my top five list.
This fund isn't tracking the underlying index
as well as I thought it was.
On top of that, the fund manager
is trading the underlying stocks
like it's an actively managed fund,
which could result in higher trading costs
for investors like you.
The turnover rate is 53% for this fund.
This basically means that they're buying and selling off
53% of the holdings within a 12-month period.
Compare that to the Vanguard Real Estate Index ATF,
where the turnover is only 7%,
and I cannot, with good conscience,
recommend the Fidelity Real Estate Index Fund.
If you want a real estate fund on the Fidelity platform,
then go with the Vanguard version, VNQ.
Be honest, I don't like any
of the other Fidelity funds, either,
so I don't have a replacement for the Real Estate Fund.
Don't forget to hit that thumbs up button before you go.
My video on why you should avoid
the Fidelity zero fee index funds
will be linked to your left
and in the description of this video
a couple of days after this one's released.
If you prefer Vanguard funds
that you can purchase on the Fidelity investment platform,
then, to your left,
I'll also have my top five video on those.