Fidelity now offers 65 iShares ETFs commission-free. Which ones are good for buy-and-hold investors?
What are the best index funds and ETFs if one invests at Fidelity? I have accounts at Fidelity. I will give my choices.
The complete list of the 65 commission-free ETFs is here. I see a handful of good ones. Overall, the list isn’t as good as the 101 commission-free ETFs at TD Ameritrade, which also 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. I 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.
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).
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 least number of equity funds, just two will do at Fidelity: Spartan Total Market Index Fund (ticker FSTVX) for US stocks and Spartan Global ex U.S. Index Fund (FSGDX) for international stocks. 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 5 funds. Only one of them is an iShares ETF.
[Photo credit: Flickr user Adam Fagen]