﻿Today we are going to talk about the 5 best Fidelity funds to buy & hold forever.
Hi, if you are new to the channel, my name is Tae from Financial Tortoise. Where we learn to
grow our wealth, slow and steady. In order to guide our conversation, I’m going to use the
3-fund portfolio strategy to frame the Fidelity funds I’m going to recommend in this video.
The 3-Fund portfolio is one of the most popular do it yourself investment strategies. And as its name
implies, it is made of three simple funds. Most often an equities fund. An international fund.
And a bond fund. So all the funds I’m going to recommend today will fit into at least one
of these slots. The first Fidelity fund you want to buy and hold forever is Fidelity’s
US Bond Index Fund. FXNAX. It tracks the Bloomberg Barclays U.S. Aggregate Bond Index which is
composed of investment-grade government bonds, corporate bonds and mortgage backed securities.
It holds approximately 8,430 bonds. The top issuers are the US Treasury or issuers of Mortgage
Backed securities like Fannie Mae and Freddie Mac. It has an expense ratio of 0.025%. Which means if
you have $10,000 invested in Fidelity U.S. Bond Index Fund, you are essentially paying $2.50
for Fidelity to manage this fund for you. The fund started in 1990 and since then, its average annual
total returns has been 5.33%. So what are bonds and why do you need them? In the simplest term,
bonds are loans. When you buy bonds, you are essentially loaning money to someone.
In this case to a company or a government agency. And they are a very important addition to a well
constructed investment portfolio because of how different they are from stocks. A good
analogy I like to use to frame stocks versus bonds is this. Think of stocks as your core
wealth building engine. Without it, you aren’t really going anywhere. And bonds are like your
breaks. Without it, you could drive yourself off the road. When you have bonds in your portfolio,
it helps to smooth out your investment ride because though they have lower returns, they have
less volatility. Durings times of market crash, where your stock investments can dip by 20-30%,
your bond investments will hold steady and ensure your ride isn’t so rocky. So in order to help
smooth out your investment ride, you want to start adding them to your portfolio as you get closer
to your retirement age. And if you are invested in Fidelity, consider Fidelity U.S. Bond Index Fund
as your core bond holding in your portfolio. The second Fidelity fund you want to buy and
hold forever is Fidelity Total International Index Fund. FTIHX. The fund tracks the MSCI All
Country World Index excluding the United States. It represents approximately 5,042 international
companies. The top holdings in this fund are made up of companies like Taiwan Semiconductor,
Nestle and ASML holdings. It has an expense ratio of 0.06%. Which means if you have $10,000
invested in FTIHX, you are essentially paying $6.00 for Fidelity to manage this fund for you.
The fund started in 2016 and since then, its average annual total returns has been 5.99%.
What the Fidelity Total International Index Fund will do is provide you exposure to the
international market outside the United States. Exposure to different countries, sectors and even
currencies. And we can look at what happened to the Japanese stock market as a lesson on why we
might want to hold an international fund. At the end of 1989, the Japanese stock market’s
capitalized value was considered the largest in the world. The Nikkei 225 Index, the index
of 225 largest publicly owned companies in Japan, reached an all-time high of close to 40,000. Sadly
22 years later, the Nikkei was under 8,500 and to this day has yet to reach its all time high again.
But sadder is the Japanese investor who failed to invest in international stocks outside Japan.
The US based companies are currently the world leaders in market capitalization and revenue,
but who can confidently say it will stay like that in the future? It would be unfortunate, but the
same thing could happen to the US stock investors. I personally still have strong confidence in the
US economy and US based companies as a whole, but I also have to continuously check my assumptions.
Financial writer Larry Swedroe had a saying. “Never treat the highly likely as certain and the
highly unlikely as impossible.” As you get more comfortable with the international market, you
can start adding them to your portfolio. And the Fidelity Total International Index Fund is a great
option to represent your international holdings. The third Fidelity fund you want to buy and
hold forever is Fidelity Zero Total Market Index Fund, FZROX. The fund tracks Fidelity’s inhouse,
Fidelity U.S. Total Investable Market Index. It represents approximately 2,661 US based companies.
The top holdings in this fund are Apple, Microsoft and Amazon. It has an expense ratio of 0.00%. Yes
you heard me right. $0 dollars to invest in Fidelity Zero Total Market Index Fund. Thus
the zero in its name. The fund started in 2018 and since then, its average annual total returns has
been 11.82%. The Fidelity Zero Total Market Index Fund is a total market index fund, which means it
tracks the Total US stock market. So this would be a great option as your core equities holding
in your 3-fund portfolio. However, there are a couple things I do want to note with this fund.
Especially in comparison to two other equities options I’ll cover here in a bit. One is the
fact that the index it is tracking is Fidelity’s inhouse index, Fidelity U.S. Total Investable
Market Index. This necessary isn’t a bad thing, but there are actually more than 2,661 publicly
traded companies in the United States than what this fund represents. What this fund has done is
exclude really small companies from its index. In a big scheme of things, it doesn’t make much of a
difference in performance since the representation is based on market capitalization. So the excluded
companies would only represent maybe 1%, or even less than that of the total fund.
But it is something to note. The total market here isn’t quite the total market. A second item to
note with the Fidelity Zero Total Market Index Fund is the fact that you can’t transfer your
shares of FZROX to another firm without selling your holding. And when you sell your holdings,
you have to pay taxes on your capital gains. The Fidelity Zero Total Market Index Fund was designed
with a 0% expense ratio in order to gain more customers. So Fidelity doesn’t want you to move
your money to a different firm and this limitation creates that barrier. Paying 0% is nice. But you
want to understand that free, comes with some strings attached. But if you are planning to stay
with Fidelity for life, Fidelity Zero Total Market Index Fund is a great equities fund to hold.
The fourth Fidelity fund you want to buy and hold forever is Fidelity Total Market Index Fund
FSKAX. The fund tracks the Dow Jones U.S. Total Stock Market Index. It represents approximately
4,009 US based companies. The top holdings in this fund are Apple, Microsoft and Amazon. Essentially
the same as the Fidelity Zero Total Market Index Fund. It has an expense ratio of 0.015%. Which
means if you have $10,000 invested in Fidelity Total Market Index Fund, you are essentially
paying $1.50 for Fidelity to manage this fund for you. The fund started in 1997 and since then, its
average annual total returns has been 8.29%. It is Fidelity’s original total market index fund prior
to the introduction of Fidelity Zero Total Market Index Fund. And Fidelity Total Market Index Fund
does exactly what the name implies. Invest in the total US stock market. Essentially every US based
stock out there. When it comes to investing in the stock market, the key principle you want to abide
by is diversification. Many people tend to think the only way to make money in the market is to
“beat the market.” By either selecting good stocks or good actively managed mutual funds. Unless you
are a professional investor with hundreds of analysts working for you around the clock.
Analysts who are constantly interviewing and researching companies and industries, we can’t
win in the stock picking or fund picking game. The odds are just stacked too high against the
individual investor. So the best strategy to beat wall street, is to just track the market. And at
the lowest cost. And Fidelity Total Market Index Fund is a great fund to hold as your core equities
holding in your portfolio if you want more flexibility from the Fidelity Zero Total Market
Index Fund. The fifth Fidelity fund you want to buy and hold forever is Fidelity 500 Index Fund.
The fund tracks the S&P 500 Index which represents the 500 largest publicly traded companies in the
United States. It represents the 500 publicly traded US based companies. 508 to be exact at
the time of this video. The top holdings in this fund are Apple, Microsoft and Amazon.
Essentially the same as Fidelity Zero Total Market Index Fund and Fidelity Total Market Index Fund.
Not a surprise given the company representation is based on market capitalization and these big
companies represent a good percentage of the market as a whole. It has an expense ratio of
0.015%. Same as Fidelity Total Market Index Fund. So, if you have $10,000 invested in Fidelity 500
Index Fund, you are essentially paying $1.50 for Fidelity to manage this fund for you. This fund
is the oldest of the bunch. It started in 1988 and since then, its average annual total returns
has been 10.66%. When most people talk about "the stock market" they are most often referring to the
Standard & Poor's 500, not the total market index. And the reason is because it is so much older.
It was created in 1926 when it began tracking 90 stocks and in 1957, the list expanded to
500. And for the past century, it has been the go to index to represent the stock market. When you
turn on any financial news, reporters are always discussing how the S&P 500 is up 50 points or
down 100 points. It essentially represents the 500 largest US corporations, weighted by the
value of their market capitalization. Because it’s weighted by market cap,
though there are approximately 4,000 publicly traded companies in the United States total,
these 500 stocks represent about 80 to 85% of the market value of all US stocks. And weight within
the index automatically adjusts based on the changing stock prices. To this day, the S&P 500
remains the standard to which professional mutual fund managers and investment firms compare their
returns against. So if you want your equities holding to match the performance of the largest
US stocks since they are essentially what moves the market, hold Fidelity 500 Index Fund as your
core equities holding. But I do want to say this. Whether you choose the Fidelity 500 Index Fund,
the Fidelity Total Market Index Fund or the Fidelity Zero Total Market Index Fund as
your core equities holding. You really can’t go wrong with any of them. They are all great funds.
You just want to understand exactly what you are buying. That’s it guys. I know I normally advocate
for Vanguard funds, but sometimes you may not be able to choose the investment firm you want
because your employer doesn’t offer it. That was the case for me and therefore most of my 401K is
actually invested with Fidelity. Fidelity is a great investment firm and if you are looking to
invest with them, pick any of the 5 I mentioned here and you can’t go wrong. If you like to learn
more about the 3-fund portfolio and why you might want to consider it as your strategy,
check out my video here. Thank you guys for watching and until next time. All the best.