The 6 Best Fidelity Mutual Funds to Buy and Hold

When you're a buy-and-hold investor, there are a few key factors you always look for: low fund turnover, comprehensive geographical and sector diversification, and a fund managed by a reputable firm.

But above all, you must pay close attention to fees in the form of fund expense ratios. To illustrate this, let's examine two competing S&P 500 index funds: the Fidelity 500 Index Fund (ticker: FXAIX) and the Rydex S&P 500 Class H (RYSPX).

From January 2012 to April 2024, the latter would have compounded an initial $10,000 investment at an annualized rate of 12.2%, growing to $41,239 with dividends reinvested. At first glance, that seems pretty good, right?

However, if you had chosen FXAIX, which tracks the same index, your investment would have compounded at a higher annual rate of 14.1%. The final balance? An impressive $50,662.

This discrepancy would have been even more significant over longer periods or with larger initial investments or regular contributions. The primary reason for this difference is the expense ratios charged by the funds.

RYSPX has a notably high expense ratio of 1.61%, which translates to annual fees of $161 on a $10,000 investment. In contrast, FXAIX charges a minimal 0.015%, or just $1.50 on the same investment amount. This means RYSPX is charging about 107 times more than FXAIX for identical exposure to the S&P 500.

The clear takeaway here is the profound impact that high expense ratios can have on your investments. Therefore, choosing a leading fund manager like Fidelity, known for its extensive lineup of low-cost index mutual funds, can significantly enhance your returns as a buy-and-hold investor.

"Savvy investors understand the importance of keeping your costs low and your options open, and Fidelity funds have become popular because they offer just that," says Andrew Latham, a certified financial planner and director of content at SuperMoney.com. "With no sales loads, low fees and no minimum investment requirements, it's easier to start investing without breaking the bank."

Here are six of the best Fidelity mutual funds to buy and hold today, all with net expense ratios of 0.07% or lower:

Fidelity 500 Index Fund (FXAIX)

"Personally, I like Fidelity mutual funds because they offer a variety of investment options, have low fees and are backed by a reputable company with a long history of success in the industry," Latham says. The aforementioned FXAIX embodies these attributes, with a 0.015% expense ratio, a track record dating back to 1988, no transaction fees and no minimum required investment.

This fund has also been a consistent top performer, having returned an annualized 10.7% since inception. Morningstar gives it a five-star rating in the "large blend" fund category, meaning that historically, FXAIX has outperformed the majority of its peers on a risk-adjusted basis. Thanks to its passive indexing approach, the fund also has a very low 2% turnover rate, making it tax efficient.

Fidelity Total Market Index Fund (FSKAX)

"While it truly depends on each individual investor's specific goals and objectives, I typically advocate for the 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. Another popular index fund offered by Fidelity is FSKAX.

The top holdings in this market-cap-weighted fund are similar to the ones found in FXAIX. However, FSKAX's benchmark, the Dow Jones U.S. Total Stock Market Index, is broader. Compared to the S&P 500, it features thousands more mid- and small-cap stocks as well. FSKAX also charges a low 0.015% expense ratio, has a minimal 2% annual turnover rate and does not require a minimum investment amount.

Fidelity Zero Extended Market Index Fund (FZIPX)

"Fidelity introduced zero-expense-ratio index mutual funds and also offered zero-minimum-investment mutual funds, no minimums to open an account and no-account fees for retail brokerage accounts," Moss says. These funds use proprietary indexes developed in-house by Fidelity to eliminate expense ratios entirely. A great example is FZIPX, which tracks the Fidelity U.S. Extended Investable Market Index.

This fund excludes the largest 500 U.S.-listed companies and opts to focus on the next 2,500 largest mid- and small-cap stocks. Essentially, it's designed to be a complement to a large-cap blend fund like FXAIX. By using FZIPX, investors can slice and dice their desired mid- and small-cap allocation accordingly. As noted, FZIPX charges a 0% expense ratio and has no minimum required investment.

Fidelity Zero International Index Fund (FZILX)

Gaining international diversification doesn't have to be expensive. Instead of converting U.S. dollars or buying American depositary receipts (ADRs), a zero-cost international index fund like FZILX can be an affordable and accessible alternative. This fund aims to replicate the composition of the Fidelity Global ex U.S. Index, which features over 2,200 holdings from international markets.

FZILX's holdings can be further split into two categories: developed and emerging markets. The former sits at around 75% of the fund's portfolio, and features stocks from countries like Japan, Canada, France, Switzerland, Germany, the U.K. and more. The latter accounts for a 25% weight and includes countries like China, India, Brazil, Taiwan and more. FZILX also charges a 0% expense ratio.

Fidelity U.S. Bond Index Fund (FXNAX)

Most buy-and-hold investors may have a long time horizon, but not all will have a high risk tolerance. For some, the prospect of high volatility may be psychologically unpleasant and make them more prone to panic-selling. These investors may opt to dampen volatility by including an allocation to bond funds, which tend to favor capital preservation and income over sheer growth potential.

While not risk-free, a bond fund like FXNAX is rated by Fidelity to be "lower" on the risk spectrum compared to equity funds. This fund has been around since 1990 and currently holds over 9,400 Treasurys, mortgage-backed securities and investment-grade corporate bonds of various maturities. For a low 0.025% expense ratio, investors in FXNAX can currently earn a competitive 4.7% 30-day SEC yield.

Fidelity Municipal Bond Index Fund (FMBIX)

As with expense ratios, the taxes incurred on your investments can also eat into long-term returns. For example, income from bond funds like FXNAX tends to be less tax efficient compared to capital gains or qualified dividends. For high-income-bracket investors not using a tax-advantaged account like a 401(k) or Roth IRA, taxes can become a significant source of drag. But there are ways to mitigate this.

For instance, buy-and-hold investors can replace an aggregate bond fund like FXNAX with a municipal bond fund like FMBIX. On the face of it, this fund pays a lower 3.6% 30-day SEC yield. But because its distributions are exempt from federal income tax, the actual tax-equivalent yield of FXNAX is much higher at 6%. It is also fairly affordable, with a 0.07% expense ratio.