7 Best Fidelity Mutual Funds to Buy and Hold | Investing

If you’re investing for the long term, typically defined as a decade or more, it can be tempting to screen mutual funds based solely on trailing annualized returns.

Fidelity’s fund screener makes this process particularly easy. Investors can filter for Fidelity-managed funds and sort the firm’s lineup of 302 in-house mutual funds by 10-year performance.

But those headline returns represent a best-case outcome. They assume an investor bought at the beginning of the period, held continuously, reinvested all distributions perfectly, incurred no tax drag and never deviated from the strategy.

In reality, the biggest obstacle to long-term investing is often not fund selection but investor behavior. Volatility, defined as the day-to-day, week-to-week, month-to-month and year-to-year fluctuations in portfolio value, can make it psychologically difficult to stay invested when markets become turbulent.

For that reason, long-term investors may benefit from screening funds by risk metrics in addition to returns. One of the most commonly used measures is standard deviation, which is expressed as a percentage and estimates how much a fund’s returns have historically varied around their average return. Generally speaking, a higher standard deviation indicates greater volatility.

Looking through Fidelity’s top-performing funds reveals that many also carry some of the highest standard deviations, with several experiencing historical swings of 20% to 30% or more.

However, neither returns nor volatility alone tell the full story. A more comprehensive measure is the Sharpe ratio, which evaluates risk-adjusted performance. The Sharpe ratio is calculated by taking a fund’s excess return above a risk-free rate and dividing it by its standard deviation.

A higher Sharpe ratio is generally preferable because it indicates that a fund generated more return for each unit of risk assumed. In other words, two funds may produce similar returns, but the one with the higher Sharpe ratio did so with a smoother ride for investors.

Here are seven of the best Fidelity mutual funds to buy and hold today:

Fidelity 500 Index Fund (FXAIX)

“While it truly depends on each individual investor’s specific goals and objectives, I typically advocate for index funds in the accumulation phase, as these give great broad-market exposure with lower fees than actively managed funds,” says Wes Moss, managing partner and chief investment strategist at Capital Investment Advisors. For S&P 500 exposure, investors can use FXAIX at a low 0.015% expense ratio.

This Fidelity mutual fund has been around since 1988, with the current share class debuting in 2011. It has no minimum required investment or transaction fees on Fidelity’s brokerage platform. With a low 2% annual turnover rate, FXAIX is also fairly efficient when it comes to minimizing year-end taxable capital gains distributions. The fund has delivered a 10-year annualized total return of 15.6%.

Fidelity Total Market Index Fund (FSKAX)

There is a common misconception that the S&P 500 simply holds the 500 largest U.S. stocks. In reality, the index is more selective. Companies must satisfy requirements related to size, liquidity and earnings consistency, and a committee ultimately determines which stocks are added or removed. Investors who prefer a more comprehensive representation of the U.S. stock market may find FSKAX appealing.

FSKAX tracks the Dow Jones U.S. Total Stock Market Index, a broader benchmark spanning over 3,700 large-, mid- and small-cap U.S. stocks. Because the fund remains market-cap weighted, its largest holdings look very similar to those of FXAIX, though they account for a smaller share of assets overall. FSKAX charges the same 0.015% expense ratio and remains tax-efficient, with a turnover rate of just 2%.

Fidelity International Index Fund (FSPSX)

U.S. stocks have strongly outperformed over the last decade, but that was not always the case. Older investors may remember the 1999 to 2008 period often referred to as the “lost decade,” when U.S. equities delivered stagnant returns after the bursting of the dot-com bubble and the onset of the global financial crisis. During much of this period, international markets generally held up better.

FSPSX tracks the MSCI EAFE Index, which covers developed markets across Europe, Australasia and the Far East. Major country exposures include Japan, the United Kingdom, France, Switzerland, Germany, Australia and the Netherlands. The fund provides broad developed-market diversification outside the U.S. while charging a low 0.035% expense ratio and maintaining a low 4% annual turnover rate.

Fidelity Emerging Markets Index Fund (FPADX)

FSPSX is limited to developed-market countries, which generally refer to nations with mature economies, established financial markets, and relatively stable political and regulatory systems. Excluded from that universe are emerging markets, a group of countries that are earlier in their economic development and often feature faster growth rates, but have higher volatility and political risk.

FPADX provides exposure to this segment by tracking the MSCI Emerging Markets Index for a 0.075% expense ratio. The fund holds a diversified basket of emerging-market stocks, though country exposure is heavily concentrated in Taiwan, China, India and South Korea. As a result, performance is often influenced by developments in Asian technology, manufacturing and consumer markets.

Fidelity Large Cap Value Index Fund (FLCOX)

Growth stocks, which are companies expected to increase their sales and earnings faster than the broader market, have dominated performance over the past decade. However, there is substantial historical evidence suggesting that value stocks should outperform. This idea is rooted in the value factor, which argues that starting valuations are among the most reliable predictors of future returns.

Investors can outsource value investing to a fund such as FLCOX, which tracks the Russell 1000 Value Index. Top holdings include Berkshire Hathaway Inc. (BRK.B), Exxon Mobil Corp. (XOM) and Johnson & Johnson (JNJ). The fund charges a 0.035% expense ratio, though investors should be aware that its 28% turnover rate can increase the likelihood of year-end capital gains distributions.

Fidelity Small Cap Index Fund (FSSNX)

The last decade was dominated by mega-cap companies, particularly the so-called Magnificent Seven, which significantly outperformed smaller businesses. However, the same body of academic research that supports the value factor also identifies a potential small-cap premium over long periods. Smaller companies often receive less analyst coverage and can be less efficiently priced by the market.

Rather than selecting individual small-cap stocks, investors can gain broad exposure through FSSNX. The fund tracks the Russell 2000 Index, a broad small-cap benchmark spanning both growth and value styles. FSSNX remains inexpensive, with a 0.025% expense ratio. Investors should note, however, that the fund’s higher 25% turnover rate may result in lower tax efficiency than broader market index funds.

Fidelity Real Estate Index Fund (FSRNX)

Legendary Fidelity fund manager Peter Lynch once remarked that many long-term investors would be better off buying a home before picking stocks. His reasoning was that people typically spend far more time touring homes and researching neighborhoods than they do researching individual stocks. Homebuyers also benefit from access to low-cost, tax-deductible leverage through mortgages.

Not all investors, however, have homeownership as a goal. For those seeking real estate participation through the stock market, FSRNX can be an appealing option. The fund invests primarily in real estate investment trusts, known as REITs, which own income-producing properties and are known for paying relatively high and steady dividend yields. FSRNX currently charges a 0.07% expense ratio.