Fidelity Index Funds

How To Buy Fidelity Index Funds: A Beginner’s Guide

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Are you looking to embark on your journey into investing with Fidelity? You may have heard of index funds and their potential benefits but aren’t sure where to start. Index funds are a type of mutual fund or exchange-traded fund (ETF) that aims to replicate the performance of a specific market index, such as the S&P 500. In this comprehensive guide, we’ll unravel the mysteries of Fidelity index funds, offering beginner investors a roadmap to navigate the complexities of the financial market.

What are index funds?

Index funds are investments of stocks or bonds that mimic the composition and performance of a market index. Unlike actively managed funds, which rely on fund managers to select individual stocks, index funds track the composition of their underlying index. This passive approach often results in lower fees and broader diversification, making index funds attractive to many investors.

A typical market index you hear about in the news is the S&P 500, a list of 500 large U.S. companies developed by Standard and Poor. Another is the Dow Jones Index, a stock market index of 30 prominent U.S. stocks.

Index funds for small companies, real estate stocks, and many others exist. What makes an index fund unique is that it is passively managed. This means if I’m the Fidelity 500 index fund manager, I’m not trying to analyze each stock and pick ones that I think will outperform. That’s what an actively managed mutual fund does. If I were the Fidelity 500 index fund manager, which mimics the S&P 500, I would buy the 500 stocks that comprise the S&P 500.

 

Why choose index funds?

Around 90% of stock mutual funds underperform index funds while charging higher fees. Why would you pay more for getting less? You might wonder if picking individual stocks or having someone actively manage your funds is better. You may have heard of someone becoming rich doing that. You could look at mutual funds in your 401(k) and see some performing well. So wouldn’t those be a good investment choice?

These are anecdotes. A 1 year or 3-year performance doesn’t tell you that much. A smarter approach would be to look at a robust data set over the long term across many types of investments. Let’s look at the data over the last 10 to 15 years as of December 31, 2023. What does the data tell us?

  • 87% of small-cap stock funds underperformed their benchmark index.
  • 88% of U.S. large-cap core funds underperformed their benchmark index.
  • 92% of European stock funds underperformed their benchmark index.
  • 91% of emerging market stock funds underperformed their benchmark index.

This superiority of index funds does not apply only to stocks. It also applies to bonds.

  • 91% of mortgage-backed bond funds underperformed their benchmark index over 15 years.
  • 98% of high-yield bond funds underperformed their benchmark index over 15 years.

S & P publishes these comparison studies yearly, and the results are pretty consistent. 

So why choose index funds? Because investing in index funds will likely give you better returns than trying to pick winning stocks or winning mutual funds. I’ll let you in on a little secret. About a third of mutual funds (which hire managers to pick “winning” stocks) have become so large that they mimic an index fund while charging 1% in fees. Unsurprisingly, they will underperform an index fund, whose fees are a small fraction of that.

This leads me to the second reason you may want to choose index funds: Index funds have very low fees. In 2022, the average expense ratio or fees of actively managed stock mutual funds was 0.59%, compared to 0.05% for the average index stock mutual fund. You’re paying a tenth in fees, meaning you get to keep more money than going to Wall Street.

 

What are fidelity index funds?

Fidelity index funds are investment vehicles that aim to replicate the performance of a chosen index, such as the S&P 500, by investing in the same securities. These funds are structured to mirror the returns of the selected index, offering investors a convenient avenue to access a broad market or specific sector. Fidelity, a reputable financial institution, provides a variety of index funds tailored to different indices, accommodating diverse investment preferences and risk appetites.

What are the advantages of Fidelity index funds?

We will start by saying we are not affiliated with Fidelity and do not receive compensation from them. We are sharing our independent analysis with you. We recommend Fidelity Index investing over other brokerage companies for two main reasons.

1. Fidelity index fund expense ratios or fees are among the lowest.  It’s even lower than Vanguard index funds, which spearheaded index investing in 1976. Let’s look at the list of Fidelity index funds and do a side-by-side comparison with Vanguard index funds.

Fidelity index fund vs Vanguard index fund

As you can see, all 24 of these Fidelity index funds have lower fees or expense ratios compared to  Vanguard index funds. Fidelity has gone even further and one-upped everyone by introducing four Fidelity zero-fee index funds.

Fidelity index funds

ZERO fees. That’s hard to beat.

2. No minimums to open an account: There are no minimums to open an account with Fidelity. In contrast, most Vanguard index funds require $3,000.

3. Simplicity: Fidelity index funds are designed to be easy to understand, making them an excellent option for beginner investors who prefer a hands-off approach to investing.

4. Diversification: Investing in a Fidelity index fund exposes you to a broad array of securities within a particular market segment or asset class, reducing the risk associated with individual stock selection.

 

What should I consider before purchasing Fidelity Index Funds?

  1. Define your investment objectives

    Before delving into Fidelity index funds, it’s essential to establish your investment goals. Do you want to grow your money, generate dividend income, or preserve your wealth?

    Setting precise investment targets is akin to crafting a financial roadmap to navigate the market’s unpredictable terrain. Each objective—whether aiming for long-term wealth accumulation, ensuring a steady cash flow, or safeguarding principal—warrants a tailored strategy.

    Aligning these goals with the fund’s investment approach can optimize portfolio performance when contemplating Fidelity index funds. For instance, growth-oriented investors may find value in index funds tracking high-growth sectors, while those prioritizing income might seek funds with dividend-yielding securities.

     

  1. Research various fidelity index funds

    Thoroughly research different Fidelity index funds. Choosing the most appropriate Fidelity index fund for your investment requirements involves evaluating risk tolerance, investment horizon, and fund objectives. These factors are pivotal in determining your comfort level with risk and the goals you seek to accomplish with your investments.

     

How to buy Fidelity Index Funds

Step 1: Open a Fidelity account
If you don’t already have one, you’ll need to open a brokerage account with Fidelity to access their index funds. This typically involves completing an online application with your details and investment preferences.

Once your account is established, you can transfer money from your bank by clicking on Transfer.  If you transfer the money between 9:30 am and 4 pm EST, Fidelity will allow you to make a trade, which is the next step.

Step 2: Once you’re logged in, click on Trade at the upper left of the screen.

Fidelity Index Fund
Step 3: A pop-up window will appear. Select the account you’d like to make a trade-in.

Step 4: Choose which Fidelity index fund you would like to buy.

Fidelity Index Funds for Beginners

  • Transaction Type: Choose Mutual Funds.
  • Symbol: Enter the 5-letter symbol of the Fidelity index fund you want to buy.
  • Action: Choose Buy.
  • Amount: Input the amount in $ your’d like to buy.

Click on Preview Order.

Step 5: Review the information. Double-check the symbol and quantity. If accurate, click on Place Order. You have now purchased your Fidelity index fund! 

Step 6: Monitor your investments.
Keep track of your Fidelity index fund investments regularly, reviewing performance and making adjustments as needed to stay on track with your financial goals.

What should I avoid when investing in Fidelity Index Funds?

When getting started, there are three things you may want to avoid:

  1. You might be tempted to just buy in equal amounts across these 24 Fidelity index funds, in the name of diversification. You don’t want to do that. If you do, you won’t have enough exposure to the good types of investments. Additionally, you’ll end up buying Fidelity index funds that aren’t that great based on current market conditions.
  2. You may also be tempted to look at each company’s performance and choose the ones that have performed best in the past 5 or 10 years. That’s backward-looking—like driving while looking in the rearview mirror. Investing should be forward-looking.
  3. Choose the lowest cost & index in that. You may want to avoid doing that as well because you will miss several types of index funds that are also worth investing in.

To create the optimal portfolio of Fidelity index funds, it is best to partner with an independent, credentialed financial advisor. Their expertise lies in understanding the current market conditions and knowing which one of these Fidelity index funds is worth buying. Additionally, they can create a custom Fidelity index fund portfolio based on your goals and risk tolerance.

Individual financial objectives vary significantly from one person to another. Your aspirations are unique, just as your friend’s goals differ. For instance, if you’re 35 and aiming to retire at 55, your Fidelity index fund portfolio will vary significantly from that of a friend focused on investing for a home purchase within three years. Collaborating with a seasoned financial advisor ensures that your investment strategy aligns precisely with your financial goals.

What index funds are available at Fidelity?

Fidelity offers various index funds covering multiple asset classes and investment objectives. These include funds tracking popular market indices such as the S&P 500, NASDAQ, Dow Jones Industrial Average, and Russell 2000, providing investors with exposure to large-cap, mid-cap, and small-cap stocks. Additionally, Fidelity offers index funds focused on specific sectors or themes, such as technology, healthcare, or sustainable investing.

Fidelity Index Funds List

Domestic Equity
Fund
Fidelity® 500 Index Fund (FXAIX)
Fidelity® Extended Market Index Fund (FSMAX)
Fidelity® Large Cap Growth Index Fund (FSPGX)
Fidelity® Large Cap Value Index Fund (FLCOX)
Fidelity® Mid Cap Index Fund (FSMDX)
Fidelity® Mid Cap Growth Index Fund (FMDGX)
Fidelity® Mid Cap Value Index Fund (FIMVX)
Fidelity® Small Cap Index Fund (FSSNX)
Fidelity® Small Cap Growth Index Fund (FECGX)
Fidelity® Small Cap Value Index Fund (FISVX)
Fidelity® U.S. Sustainability Index Fund (FITLX)
Fidelity® Total Market Index Fund (FSKAX)
Fidelity® ZERO Total Market Index Fund (FZROX)
Fidelity® ZERO Large Cap Index Fund (FNILX)
Fidelity® ZERO Extended Market Index Fund (FZIPX)
International Equity
Fund
Fidelity® Emerging Markets Index Fund (FPADX)
Fidelity® Global ex-U.S. Index Fund (FSGGX)
Fidelity® International Index Fund (FSPSX)
Fidelity® International Sustainability Index Fund (FNIDX)
Fidelity® Total International Index Fund (FTIHX)
Fidelity® ZERO International Index Fund (FZILX)
Fixed Income
Fund
Fidelity® International Bond Index Fund (FBIIX)
Fidelity® Municipal Bond Index Fund (FMBIX)
Fidelity® Inflation-Protected Bond Index Fund (FIPDX)
Fidelity® Intermediate Treasury Bond Index Fund (FUAMX)
Fidelity® Long-Term Treasury Bond Index Fund (FNBGX)
Fidelity® Short-Term Treasury Bond Index Fund (FUMBX)
Fidelity® US Bond Index Fund (FXNAX)
Fidelity® Short-Term Bond Index Fund (FNSOX)
Fidelity® Sustainability Bond Index Fund (FNDSX)
Specialty
Fund
Fidelity® Real Estate Index Fund (FSRNX)
Fidelity® Nasdaq Composite Index Fund (FNCMX)
Fidelity® Multi-Asset Index Fund (FFNOX)
Source: Fidelity

What is the historical performance of Fidelity Index Funds?

The performance of Fidelity index funds can vary depending on various factors, including market conditions, the specific index being tracked, and the fund’s investment strategy. Generally, Fidelity’s index funds aim to mirror the performance of their respective benchmark indices closely. Over the long term, these funds typically strive to deliver competitive returns consistent with the overall market trends.

However, it’s essential to conduct thorough research and consider factors such as expense ratios, historical performance, and tracking errors when evaluating the performance of Fidelity index funds. Additionally, past performance does not indicate future results, so investors should assess their investment goals and risk tolerance before making investment decisions.

Fidelity provides comprehensive performance data and analysis for each index fund, allowing investors to make informed choices aligned with their financial objectives.

What is a good rate of return on index funds?

The rate of return on index funds can vary depending on market conditions and the specific index being tracked. While indexes, like the S&P 500, may experience fluctuations in the short term, they have historically delivered attractive long-term returns. For example, the S&P 500 has had an average annual return of around 10% over extended periods. It’s important to note that index funds may not generate positive returns yearly, but over the long term, they have shown a consistent track record of delivering favorable average returns.

Stock index funds have a long history of contributing to wealth accumulation, which makes them an attractive option for investors seeking growth in their portfolios. However, it’s essential to consider your individual investment goals, risk tolerance, and time horizon when evaluating the suitability of index funds for your portfolio.

Invest in Fidelity Index Funds in 2024

You’ve taken the first step towards building a solid financial future by learning about Fidelity index funds. With their low costs, broad diversification, and firm performance track record, Fidelity index funds offer beginner investors an excellent opportunity to participate in the market’s growth while minimizing risk. If you want a comprehensive financial plan, including Fidelity index fund recommendations, schedule a free discovery call with our fee-only financial planners today!

Best Financial Planner Washington DC

Alvin Carlos, CFP®, CFA is an investment advisor and fee-only financial planner, in Washington, D.C that works with clients across the country. He has a Master’s degree in International Relations from SAIS-Johns Hopkins. Alvin is a partner of District Capital, a financial planning firm designed to help professionals in their 30s and 40s achieve their financial goals through smart investing, reducing taxes, retirement planning, and maximizing their money. Schedule a free discovery call to learn how we can help elevate your finances.

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District Capital is an independent, fee-only financial planning firm. We help professionals and entrepreneurs in their 30s and 40s elevate their finances and maximize their money. We are based in Washington, D.C and we work with people virtually nationwide.

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