Best Fidelity Mutual Funds to Buy for Retirement Nest Egg
Fidelity is one of the largest brokerages in the United States partially because they manage many employer 401(k) plans and individual investment and retirement accounts. As a discount brokerage with a wide assortment of investment products, low trading fees, and a loyal customer base, Fidelity is often regarded as one of the best brokerages for a reason.
Whether you want to invest in low-cost index funds or actively managed funds, Fidelity has 290 mutual funds to trade. As you won’t need to trade all of these funds, we have put together a short list of the best Fidelity mutual funds to make the selection process easier.
You might consider adding some of these mutual funds to your portfolio to maximize your earning potential through low fees and sound investing strategies.
Fidelity 500 Index Fund (FUSEX)
The Fidelity 500 Index Fund (FUSEX) seeks to match the performance of the S&P 500 and holds positions in 508 stocks.
The three largest holdings are Apple, Microsoft, and Amazon. These are the most common holdings for many of the S&P 500 index funds although there are slight variations regarding how these companies compare to the total size of the fund.
This fund has performed really well over the last five years with a 15.32% average rate of return. In dollars, a $10,000 initial investment with FUSEX is worth approximately $20,391, and the S&P 500 index is worth $20,479 for the most recent five-year period. It is extremely hard for actively managed funds that try to outperform the S&P 500 to match this level of performance.
If you are relatively risk-averse but still want to earn a relatively high return, the Fidelity 500 Index Fund has an average level of historic risk with an above average historic return rate.
Fidelity Total Market Index (FSTMX)
When you still want to invest in the largest companies but also want to capture the momentum of smaller-sized companies too, you might consider the Fidelity Total Market Index Fund (FSTMX).
The Fidelity Total Market Index holds positions in 3,377 companies. Its top 10 holdings will look very similar to the Fidelity 500 Index Fund, this index fund’s investment strategy is designed to capture the momentum of the overall market, not just the 500 largest companies.
The 5-year average return is only 0.20% below the Fidelity S&P 500 Index Fund (FUSEX), which means the returns are nearly identical in dollar amounts. You might consider choosing the Total Market Index instead of the S&P 500 fund as the added diversification can reduce the volatility that can affect the S&P 500 more than the broad market.
Fidelity Mid Cap Enhanced Index Fund (FMEIX)
In times of economic expansion, smaller sized companies can outperform larger companies. This is because they have smaller balance sheets and have more flexibility to adjust to market conditions. To capture these potential market upsides, you might consider the Fidelity Mid Cap Enhanced Index Fund (FMEIX).
The Fidelity Mid Cap Enhanced Index Fund invests in companies with a market capitalization of $2 billion to $10 billion. There are currently 287 holdings and the fund has an 87% turnover ratio which means it is constantly trading stocks to maintain the best investments.
Unfortunately, the high turnover ratio also contributes to the relatively high fund expense ratio of 0.59%.
The top three holdings for FMEIX are NVidia, PPL Corporation, and Weyerhaeuser which is a mixture of technology, consumer discretionary, and industrial stocks.
FMEIX has an overall 5-star Morningstar rating and only has a 4-star rating for its average three-year return.
In general, this is a good fund to consider if you want to increase your portfolio exposure to slightly smaller companies that are primarily considered undervalued with a reasonable risk level and above average performance for the fund category.
Fidelity International Growth Fund (FIGFX)
U.S.-domestic stocks have outperformed international stocks as a whole since the Great Recession, but, there are still a few good international funds to choose from.
The Fidelity International Growth Fund (FIGFX) focuses on large cap international stocks that are growth-oriented while still being able to maintain a below average risk level by investing in American, European, Australian, and Japanese countries.
When looking at the 5-year return history of FIGFX, it underperformed the MSCI index in 2012 and 2013, but, has outperformed the index since 2014. If you had invested in the fund at its inception date in 2007, your $10,000 investment would be worth $14,355.
In other words, a 43% cumulative return which is pretty respectable for international mutual funds and reflects its 4-star Morningstar rating.
While the annual fund expense ratio is higher than some international funds at 0.99%, it is still within the bounds of many leading international mutual funds and lower than the international growth category average of 1.25%. You can expect to pay $99 in expenses fee for your first year on a $10,000 investment.
This fund currently holds 99 positions with the top three holdings in Nestle SA, Anheuser-Busch InBev, and the biotech firm CSL Ltd. And the portfolio turnover rate is only 29%.
Fidelity Balanced Fund (FBALX)
If you are nearing retirement or already in retirement and still want and fund that primarily holds stocks, you should consider the Fidelity Balanced Fund (FBALX).
It has a 5-star Morningstar rating for the 1-year, 3-year, and 5-year categories, which makes it one of the best Fidelity mutual funds. For the ten-year period, it has a 4-star rating.
This balanced fund is a little more equity heavy than others in the 60/40 asset allocation category as its portfolio consists of approximately 67% stocks and the remainder in bonds and cash.
The top holdings include positions in Apple and U.S. Treasury notes. Regarding the fund’s bond positions, the three largest positions are for U.S. government, BBB, and A investment grade bonds.
Fidelity Growth Company Fund (FDGRX)
The Fidelity Growth Company Fund (FDGRX) is one of the few actively managed funds to beat the market on a consistent basis. It has an overall five-star rating from Morningstar for the past ten years and invests in large growth companies that have high growth potential. And, it has had the same fund manager, Steve Wymer, since 1997.
One large downside to this fund is that it is closed to new investors. If you currently own this fund or have access to it in your retirement plan, you can continue to make additional investments with no minimum requirement.
At the moment, the top ten holdings for FDGRX are tech-heavy as only three stocks, Adidas, Amazon, and Tesla are not part of the Information Technology sector.
The recent appreciation in tech stocks has definitely helped the fund outperform its benchmark index, the S&P 500. In the last ten year, 2013 is the only year the fund did not outperform the S&P 500.
Fidelity Contrafund Fund (FCTNX)
If you like to “invest against the grain,” you might consider picking up the Fidelity Contrafund (FCTNX). Some investors even consider the Contrafund the “crown jewel” of Fidelity mutual funds.
While this fund has a large cap growth investing strategy, it doesn’t look only at the current share price of potential investments and tries to seek out undervalued stocks.
Long-term, Fidelity Contrafund has outperformed the S&P 500 on a yearly basis 10.1% to 7.7% for the most recent 15-year period ending in 2016. Will Dannoff has been at the helm since 1990, and the fund has consistently had a 5-star or 4-star Morningstar rating.
Like many of the best Fidelity mutual funds, it holds a healthy amount of technology stocks such as Facebook, Apple, and Google. Although, Warren Buffett’s company Berkshire Hathaway is its second largest holding. In total, the fund currently holds 343 stocks at the moment.
Fidelity Intermediate Municipal Income Fund (FLTMX)
To protect against the volatility of stocks, you might also consider picking up a bond fund. The Fidelity Intermediate Municipal Income Fund (FLTMX) is one of Fidelity’s better funds with an annualized 5-year return rate of 2.64%.
Unlike the other funds recommended in this article, it does have the lowest Morningstar rating with only 3-stars through the 10-year period which means its performance is average for it investment category.
It also has a minimum initial investment of $10,000 which can also be a turnoff to investors not ready to make a large investment.
This fund invests completely in U.S. municipal bonds that mature within the next three to ten years. Most of the bonds have an AA, A, or BBB credit rating.
The average rate of return for the most recent five years is 2.35%. Over ten years, it expands to 3.85%. Bonds inherently have less earning potential than stocks, but they generally are a better option than keeping your money in a risky stock as you near retirement or transferring completely to cash with a near zero rate of return.
Fidelity has a wide assortment of mutual funds to trade. As with any brokerage, not all of them are great investment options.
The funds mentioned above are some of the best Fidelity mutual funds that are available in individual and employer-sponsored retirement plans.
Some of these funds, in particular the index funds, can also be good additions to your non-retirement accounts as well to maximize your earnings with minimal fund fees.