[Updated in August 2018 after Fidelity lowered fees and removed minimum investments on its index funds.]
What are the best index funds and ETFs for long-term investors using Fidelity? I have more money in Fidelity accounts than in Vanguard accounts. I will give my choices. These are purely my opinion. Fidelity didn’t make me write any of this.
All-In-One: Fidelity Freedom Index Funds
The all-in-one Fidelity Freedom Index 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’d like to manage your own mix, these are great choices. All of them have no minimum investment requirement. You can literally start with just $1 and instantly have a low-cost globally diversified portfolio.
- Fidelity Freedom Index 2005 Fund (FJIFX, 0.14% net expense ratio)
- Fidelity Freedom Index 2010 Fund (FKIFX, 0.14% net expense ratio)
- Fidelity Freedom Index 2015 Fund (FLIFX, 0.14% net expense ratio)
- Fidelity Freedom Index 2020 Fund (FPIFX, 0.14% net expense ratio)
- Fidelity Freedom Index 2025 Fund (FQIFX, 0.14% net expense ratio)
- Fidelity Freedom Index 2030 Fund (FXIFX, 0.14% net expense ratio)
- Fidelity Freedom Index 2035 Fund (FIHFX, 0.14% net expense ratio)
- Fidelity Freedom Index 2040 Fund (FBIFX, 0.14% net expense ratio)
- Fidelity Freedom Index 2045 Fund (FIOFX, 0.14% net expense ratio)
- Fidelity Freedom Index 2050 Fund (FIPFX, 0.14% net expense ratio)
- Fidelity Freedom Index 2055 Fund (FDEWX, 0.14% net expense ratio)
- Fidelity Freedom Index 2060 Fund (FDKLX, 0.14% net expense ratio)
Please note these Fidelity Freedom Index Funds are not the same as the similarly named Fidelity Freedom Funds (without the word “Index” in the names). Read more in Fidelity Freedom Index Funds: Hidden Gems For Your IRA, Solo 401k, or Brokerage Window.
Mix Your Own – Index Funds and/or ETFs
Fidelity offers more than 20 Fidelity-branded index funds. All of them have no minimum investment requirement. Fidelity also offers 240 commission-free iShares ETFs. Whether you prefer mutual funds or ETFs, you can come up a great portfolio with only Fidelity index funds, only iShares ETFs or a mix-and-match between Fidelity index funds and iShares ETFs. If that’s still not enough, buying a Vanguard ETF at Fidelity only costs $5.
US Broad Stock Market
Fidelity has an index fund Fidelity Total Market Index Fund (FSTVX) with an expense ratio of only 0.015%. If you prefer an ETF, there is iShares Core S&P Total U.S. Stock Market ETF (ITOT, expense ratio 0.03%). They are both good choices. If you prefer a fund managed by Vanguard, pay $5 and buy Vanguard Total Stock Market ETF (VTI, expense ratio 0.04%).
International Broad Stock Market
Fidelity’s index fund Fidelity Total International Index Fund (FTIPX, expense ratio 0.06%) is a well-rounded fund. It includes both developed and emerging markets and international small-caps. If you prefer an ETF, the commission-free iShares Core MSCI Total International Stock ETF (IXUS, expense ratio 0.10%) covers the same broad international stock markets. If you prefer a fund managed by Vanguard, pay $5 and buy Vanguard Total International Stock ETF (VXUS, expense ratio 0.11%).
US Fixed Income
Fidelity offers Fidelity U.S. Bond Index Fund (FSITX, expense ratio 0.025%), which tracks the broad U.S. bond market. If you prefer an ETF, there’s iShares Core U.S. Aggregate Bond ETF (AGG, net expense ratio 0.05%).
The above three broad asset classes will cover pretty much everything anyone really needs. If you prefer to add to the broad coverage and overweight in certain areas, you still can.
US Small Cap Stocks
For US small cap stocks or US small cap value stocks, Fidelity offers iShares Core S&P Small-Cap ETF (IJR, expense ratio 0.07%) and iShares S&P Small-Cap 600 Value ETF (IJS, expense ratio 0.25%) commission-free. For large purchases you can also pay $5 a trade and get Vanguard Small-Cap ETF (VB, expense ratio 0.05%) or Vanguard Small-Cap Value ETF (VBR, expense ratio 0.07%).
Fidelity offers Fidelity Real Estate Index Fund (FSRVX, expense ratio 0.07%). iShares Core U.S. REIT ETF (USRT, expense ratio 0.08%) is commission-free.
Fidelity offers Fidelity Emerging Markets Index Fund with a 0.08% expense ratio. If you prefer an ETF, iShares Core MSCI Emerging Markets ETF (IEMG, expense ratio 0.14%) is commission-free. The iShares emerging markets ETF is more diversified because it includes small caps.
International Small Cap Stocks
No great choices from Fidelity index funds or iShares ETFs. If I’d like to overweight international small cap stocks, I would pay $5 and buy Vanguard FTSE All-World ex-US Small-Cap ETF (VSS, expense ratio 0.13%).
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 use these Fidelity funds:
- Fidelity Total Market Index Fund (FSTVX) for US stocks
- Fidelity Total International Index Fund (FTIPX) for international stocks.
- Fidelity U.S. Bond Index Fund (FSITX) and/or Fidelity Inflation-Protected Bond Index Fund (FSIYX) for US bonds
If I’d like to spice it up a little more with a higher risk, I would add some of the supporting players to the 3-4 core index funds, maybe maximum 3 ETFs. Anything more than that would be an overkill.
[Photo credit: Flickr user Adam Fagen]
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