6 Fidelity Index Fund Strategies for the Average Joe (2021)

Investing can feel overwhelming. Jargon like “beta,” “alpha,” and “efficient frontier” can scare off even the most well-intentioned Average Joe. But the truth is, building a solid financial future doesn’t require a Wall Street degree. Index funds, especially those offered by reputable companies like Fidelity, can provide a simple and affordable path to long-term wealth.

This article breaks down six practical strategies using Fidelity index funds that the average person can easily implement in 2021. Remember, this isn’t personalized financial advice. Consult with a qualified professional before making any investment decisions.

Why Fidelity Index Funds?

Fidelity offers a wide range of low-cost index funds that track various market benchmarks, like the S&P 500 or the total stock market. Index funds offer diversification, meaning you’re not putting all your eggs in one basket. They also typically have lower expense ratios compared to actively managed funds, which means more of your investment goes towards growth, not fees.

Here are 6 Strategies for Using Fidelity Index Funds:

1. The Simple S&P 500 Strategy (Total US Stock Market Dominance):

• Fund: Fidelity 500 Index Fund (FXAIX)
• Concept: Invest solely in a fund that tracks the S&P 500, representing the 500 largest publicly traded companies in the US.
• Rationale: Provides broad exposure to the US stock market, historically offering solid long-term returns. Easy to understand and implement.
• Good for: Investors seeking simplicity and strong US market exposure.
• Considerations: Lacks international diversification.

2. The Total Stock Market Approach (Complete US Coverage):

• Fund: Fidelity ZERO Total Market Index Fund (FZROX)
• Concept: Invest in a fund that tracks the performance of the entire US stock market, including small-cap, mid-cap, and large-cap companies.
• Rationale: Offers even broader diversification than the S&P 500, capturing the potential growth of smaller companies.
• Good for: Investors who want maximum US market exposure and believe in the potential of smaller businesses.
• Considerations: Performance might slightly differ from the S&P 500.

3. The International Equity Allocation (Global Diversification):

• Fund: Fidelity ZERO International Index Fund (FZILX)
• Concept: Allocate a portion of your portfolio to an international index fund, providing exposure to companies outside the US.
• Rationale: Reduces risk by diversifying across different economies and currencies. Can potentially boost returns as international markets may outperform the US at times.
• Good for: Investors seeking global diversification and a more balanced portfolio.
• Considerations: Currency risk and potential for underperformance compared to the US market.

4. The Bond Ladder Strategy (Fixed Income Stability):

• Funds: Consider a mix of short-term, intermediate-term, and long-term bond index funds. Fidelity offers several bond index funds, such as Fidelity U.S. Bond Index Fund (FXNAX) or iShares Core U.S. Aggregate Bond ETF (AGG).
• Concept: Invest in a “ladder” of bond funds with varying maturities. As bonds mature, reinvest the proceeds into new bonds at the longer end of the ladder.
• Rationale: Provides a consistent income stream while mitigating interest rate risk. Offers flexibility as bonds mature and can be adjusted to reflect changing market conditions.
• Good for: Investors seeking income, capital preservation, and a hedge against stock market volatility.
• Considerations: Lower potential returns compared to stocks. Requires ongoing management.

5. The Target Date Fund Approach (Hands-Off retirement planning):

• Fund: Fidelity Freedom Index Funds (e.g., Fidelity Freedom Index 2050 Fund (FIPFX) for investors retiring around 2050).
• Concept: Invest in a single fund that automatically adjusts its asset allocation over time, becoming more conservative as your retirement date approaches.
• Rationale: Simplifies retirement planning by providing a diversified portfolio managed by professionals. Suitable for those who prefer a hands-off approach.
• Good for: Investors saving for retirement who want a set-it-and-forget-it solution.
• Considerations: May not perfectly align with individual risk tolerance or investment goals.

6. The Tax-Advantaged Account Strategy (Maximizing Returns):

• Concept: Utilize tax-advantaged accounts like 401(k)s, IRAs, and Roth IRAs to invest in Fidelity index funds.
• Rationale: Reduces your tax burden, allowing your investments to grow faster. Contributions to traditional 401(k)s and IRAs may be tax-deductible, while Roth accounts offer tax-free withdrawals in retirement.
• Good for: All investors, especially those saving for retirement.
• Considerations: Contribution limits and withdrawal rules apply.

Important Considerations for All Strategies:

• Expense Ratios: Always prioritize low-cost index funds to maximize your returns.
• Risk Tolerance: Choose an allocation that aligns with your comfort level and time horizon. Younger investors can typically tolerate more risk.
• Time Horizon: Long-term investing is key to achieving success with index funds.
• Dollar-Cost Averaging: Invest a fixed amount regularly, regardless of market conditions, to reduce the impact of volatility.
• Rebalancing: Periodically rebalance your portfolio to maintain your desired asset allocation.

Conclusion:

Fidelity index funds provide a powerful and accessible tool for the Average Joe to build a diversified and cost-effective investment portfolio. By understanding these six strategies and considering your individual circumstances, you can take control of your financial future and work towards your long-term goals. Remember to do your research, consult with a financial advisor if needed, and stay disciplined with your investment plan. Good luck!

LEARN MORE ABOUT: IRA Accounts

CONVERT IRA TO GOLD: Gold IRA Account

CONVERT IRA TO SILVER: Silver IRA Account

REVEALED: Best Gold Backed IRA