Best Index Funds and ETFs at Fidelity

Fidelity Investments

What are the best index funds and ETFs if one invests at Fidelity? I have accounts at Fidelity. I will give my choices.

Fidelity Freedom Index Funds

These all-in-one funds package other Fidelity index funds. You just pick one based on your target year and risk tolerance. They are convenient, low cost, broadly diversified, and automatically rebalanced. Unless you want to manage your own mix, these are great choices. Read more in Fidelity Freedom Index Funds: Hidden Gems For Your IRA, Solo 401k, or Brokerage Window.

Mix Your Own

Fidelity offers 65 commission-free iShares ETFs. Overall, the list isn’t as good as the 101 commission-free ETFs at TD Ameritrade, which include 32 Vanguard ETFs. However, when you combine the iShares ETFs with Fidelity’s Spartan index funds, you can come up with a pretty good portfolio when you mix and match and pay $8 a trade to get Vanguard ETFs when necessary.

US Broad Market

Fidelity already has an open-end fund Spartan Total Market Index Fund (FSTVX) with an expense ratio at only 0.07%. The minimum investment for the Advantage class is only $10k. This fund will work just fine. You don’t need to use an ETF.

US Small Cap

If I want to overweight US small cap or small cap value, Fidelity offers iShares S&P 600 ETF (IJR) and iShares S&P 600 Value ETF (IJS) commission-free. I like these better than ones based on the Russell indices. For large purchases I would pay $8 a trade and get Vanguard’s small cap or small cap value ETF (VB or VBR).

International Broad Market

iShares Core MSCI Total International Stock ETF (IXUS) is on the commission-free list. IXUS includes emerging markets and international small caps. It’s a well-rounded fund, except it’s too new. Asset size and trading volumes are very low. Fidelity’s open-end fund Spartan Global ex U.S. Index Fund (FSGDX) includes both developed and emerging markets but it does not include international small caps.

For a large one-time purchase, I would pay $8 and get Vanguard Total International Stock ETF (VXUS). For smaller regular purchases, I would buy the open-end fund FSGDX.

Emerging Markets

The broad market funds above already include emerging markets. If I want to overweight emerging markets, Fidelity offers iShares Core MSCI Emerging Markets ETF (IEMG) commission-free. This new emerging markets ETF includes small caps. It’s more diversified than the Vanguard Emerging Markets ETF (VWO) and Fidelity’s open-end fund Spartan Emerging Markets Index Fund (FPMAX). IEMG is a good choice here.

International Small Cap

The iShares MSCI EAFE Small-Cap Index ETF (SCZ) on the commission-free list doesn’t cover Canada or emerging markets. If I want to overweight international small cap, I would pay $8 and buy Vanguard FTSE All-World ex-US Small-Cap ETF (VSS).

Fixed Income

I don’t like fixed income ETFs. Fidelity offers Spartan U.S. Bond Index Fund and Spartan Inflation-Protected Bond Index Fund, both at a very low cost. For fixed income outside Fidelity I would just buy I Bonds, CDs, and Vanguard muni funds.

***

For broad diversification with the easiest way to manage, just one Fidelity Freedom Index Fund will do. If I’m doing my own mix, I would start with three funds at Fidelity:

  1. Spartan Total Market Index Fund (ticker FSTVX) for US stocks
  2. Spartan Global ex U.S. Index Fund (FSGDX) for international stocks.
  3. Spartan U.S. Bond Index Fund (FSITX) for US bonds

Replace FSGDX with Vanguard Total International Stock ETF (VXUS) for including international small caps. If I want to spice it up a little more with higher risk, I would add VBR for more US small cap value, IEMG for more emerging markets, and VSS for more international small caps. That’s maximum of 4 funds plus 2 ETFs.

[Photo credit: Flickr user Adam Fagen]

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Comments

  1. Dan says

    Useful list. I would add Fidelity’s new-ish Spartan TIPS fund: https://fundresearch.fidelity.com/mutual-funds/summary/316146125

    For a minimum investment of only $10k, you can get TIPS at an ER of 0.10%, compared to Vanguard’s VAIPX fund which requires $50k to get Admiral shares at 0.11%.

    In the case, Fidelity’s offering is an index fund while Vanguard’s is not, but their duration and composition are very very similar.

  2. SH says

    What is the catch? It is hard to believe that this is done out the goodness from the resident bleeding hearts in Wall Street.

  3. Dan says

    @SH, I think BlackRock and Fidelity rightly fear losing market share to investors who focus on passive indexing approaches. Charles Schwab and TD Ameritrade–and of course Vanguard–currently have better low-cost offerings in this area, so BlackRock and Fidelity are teaming up to compete.

    In the short run, all these brokerages chasing the low-cost investors’ business is good for the investors, but I’m not sure about the long run. In the long run, they won’t make as much money as they expect because–surprise!–investors are going for a low-cost approach and don’t want to trade often.

    The managers of all these index funds could raise the ERs and effectively lock in many long-term investors who don’t want to pay capital gains to move their money elsewhere. For this reason, I won’t hold anything other than Vanguard funds in my taxable accounts, because I consider the interests of the investors to be misaligned with the interests of the fund managers for all other fund families.

  4. Harry says

    Investors are more cost conscious. Instead of selling them load funds, their advisors can put together a portfolio of ETFs and still charge the investors 1-2% for that effort. Advisors get to preserve their revenue. ETF providers get new revenues from the retail investors. Brokerage firms get compensated from ETF providers. They can also upsell the customers other things. Load funds lose. Customers win.

  5. Edmund says

    Good post, Harry. I read your blog frequently and really enjoy it.

    I invest at Fidelity as well, and have one correction and one question for you. IJS is not new on the list – it’s been there as part of the 30 commission free ETFs, I have been buying it myself.

    The question is what would you buy for fixed income in Fidelity TIRA account? I have been buying BND for large purchases, and AGG for small ones. Would you continue with this strategy, or would you buy FBIDX (total bond index fund) instead?

  6. Edmund says

    Thanks for your suggestion, Harry. I run 80/20 stock/bond index fund portfolio in accumulation phase. It’s all in TIRA or 401k, both at Fidelity. I have no other accounts. What do I buy for my fixed income portion of a portfolio, if not total bond fund?

  7. Harry says

    Not much you can do in the 401k but you can transfer part of the IRA out to a bank or credit union to buy CDs. Same yield as a bond fund but with no credit risk and no interest rate risk.

  8. Richard says

    Wish I started indexing in 2000, keep adding to it and left it alone versus trying to pick funds that would beat FSTVX, etc. Always keep between 5 and 20% cash on hand for the drops!

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