4 days ago
5 Fidelity Stock Funds For Your 401(k)
Fidelity is the largest 401(k) provider in the U.S. The asset manager oversees $1.4 trillion in 401(k) assets for more than 24 million retirement savers. That means if your employer offers a Fidelity 401(k), you're in good company.
Your 401(k) investing strategy may involve a mix of stock and bond positions—hopefully according to a strategic asset allocation plan. If you don't have allocation targets, see some easy advice here.
Once you set your 401(k) strategy, the next step is choosing which funds will fulfill that strategy. The five funds introduced below can step into your 401(k) portfolio as core stock holdings.
Core stock holdings for a 401(k) should be broad-based in scope and low-cost. Usually, their goal is to capture market-level returns without excessive risk or fees. These screening parameters were used to identify Fidelity funds meeting those qualifications:
Beta is a measure of volatility relative to the overall market. A beta of 1 or less indicates the fund is no more volatile than the market, as measured by an index like the S&P 500. The S&P 500 is a group of large, successful companies that represents about 80% of U.S. stocks in terms of market value.
The following five Fidelity funds have broad market exposure and low expense ratios. A closer review of each fund follows.
These funds have overlapping portfolios, so plan on choosing just one to function as your core 401(k) stock position. If you don't have access to them in your Fidelity 401(k), try swapping in something similar—such as any low-fee S&P 500 fund. You could also ask your fund administrator to include one or two of these low-priced stock funds on your investment menu.
FSPGX by the numbers:
FSPGX tracks the Russell 1000 Growth index, which includes U.S. companies worth more than $10 billion that are positioned to deliver strong capital gains. The index selection factors include:
The fund's portfolio is heavily weighted towards technology companies at 46%. Consumer discretionary companies and communication stocks comprise 15% and 13%, respectively.
FSPGX is appropriate for younger and risk-tolerant investors who are prepared to keep this fund for the long term. In shorter periods, growth portfolios can be volatile, which increases the risk of loss.
FNILX by the numbers:
Fidelity Zero Large Cap Index Fund invests in roughly 500 large-cap domestic companies and offers an unbeatable expense ratio of 0.00%. The fund's portfolio is similar to the S&P 500, so it delivers market-level returns with no dilution from expenses.
FNILX offers more distributed industry exposure, with technology accounting for 30% of the portfolio. Financial and health care are also well represented, at 15% and 11%, respectively.
FNILX is a good pick for S&P 500 investors who'd rather skip the fees. Fees are always a consideration when investing, but they can be particularly problematic within 401(k)s. Depending on your employer and the size of the 401(k), you might have hefty account fees on top of fund-related fees.
Also, investors using FNILX as a core holding should have a timeline of five to 10 years or more. Those with less time can still invest in this fund but should hold it in smaller quantities. Bond funds and cash should take priority for short investing horizons.
FXAIX by the numbers:
FXAIX is a traditional S&P 500 index fund. The portfolio is similar to the zero-fee fund above, but with slightly different weightings. Apple, Microsoft and Nvidia are the top three holdings and each are weighted between 5.6% and 6.75%.
This fund has a Morningstar rating of five stars, meaning it performs in the top 10% among its peer group. That's an accomplishment because there are more than 1,200 funds in Morningstar's "large blend" category. Lipper reports that FXAIX is a top-five performer in S&P 500 index funds for the one-, five- and 10-year periods.
A low-cost S&P 500 index fund like FXAIX is a solid choice for many 401(k) savers. Historically, the S&P 500 has produced average annual returns near 7% after inflation. That beats cash and outpaces many low-risk debt securities, even when interest rates are high.
The caveat is that the index won't increase 7% every year. In some years, the return could be 20% or more. In other years, the return can be negative. The trick is to stay invested since these ups and downs average out to growth over time.
FSKAX by the numbers:
Fidelity Total Market Index fund tracks the aggregate returns of the Dow Jones U.S. Total Stock Market Index. The index includes all U.S. exchange-traded companies, regardless of size.
In other words, FSKAX provides exposure to smaller companies alongside the big ones. The index and fund are market-cap weighted so that larger businesses have greater influence over the group. But small and mid-cap stocks are still present and provide nice diversification.
FSKAX is suitable for investors who want the broadest coverage of U.S. equities or slightly lower concentrations in big tech stocks like Apple, Microsoft and Nvidia.
FNCMX by the numbers:
FNCMX replicates the returns of the Nasdaq Composite Index, which includes more than 3,000 stocks listed on the Nasdaq exchange. The index is heavily concentration in technology.
The fund uses sampling to reproduce index returns, rather than investing in every index constituent. Even so, FNCMX's portfolio includes more than 2,600 positions. The two top holdings, Apple and Microsoft, represent 11% and 10% of the portfolio, respectively.
Technology has driven much of the stock market's growth in recent years, with Nasdaq-listed companies leading the charge. Investors who believe the trend will continue should enjoy owning FNCMX. Historically, the fund's returns are similar to other funds on this list, but that could change if technology continues to reshape the way business is done.
As with any growth-oriented equity fund, FNCMX is best held in a quantity that reflects your risk tolerance and timeline.
These five Fidelity stock funds offer long-term growth potential to build your 401(k) retirement savings. You can hold any one of them alongside smaller positions in money market and bond funds for a simple portfolio that builds wealth over time.
