Three-Fund Portfolios Using Fidelity Index Funds - The Wall Street Physician (2024)

One of the most popular posts on the blog so far has been my article describing how you can build simple index fund portfolios, including my favorite three-fund portfolio, using Vanguard index funds. Using the funds from that article, you can build a diversified portfolio of index funds at very low cost using Vanguard funds.

Unfortunately, many of my readers do not have a Vanguard account. Some may choose to have accounts at their largest competitor, Fidelity. I personally do not have a Vanguard account and have all my investments (except my 529s) at Fidelity.I like their phone customer service, and they have physical branches if I want to deposit checks or talk to a customer service representative in-person. In addition, Vanguard and Fidelity have been recently engaged in a competitive price war over index fund expense ratios. In many cases, Fidelity’s index fund is cheaper than Vanguard’s equivalent offering.

Whatever your reason for choosing Fidelity over Vanguard, I wanted to show you how to build three-fund or other simple index fund portfolios with Fidelity.

One Fund: Start with S&P 500 or Total Stock Market

The simplest portfolio consists of just one index fund. You can choose either an S&P 500 index fund, which consists of large-cap stocks, or a total stock market index fund, which consists of large-cap, mid-cap, and small-cap stocks. You can’t go significantly wrong with either index.

Fidelity’s S&P 500 index fund is FXAIX (ER 0.015%), and their total stock market index fund is FSKAX (ER 0.015%). Fidelity also has a zero expense ratio total stock market index fund(FZROX, ER 0.00%).

If you use ETFs, Fidelity offers the iShares S&P 500 ETFIVV (ER 0.04%), or its total stock market ETF equivalent,ITOT (ER 0.03%), commission-free.

Two Funds: Add U.S. Bonds

Most investors will want some exposure to U.S. bonds because a 100% stock portfolio has a lot of volatility. At Fidelity, the index fund of choice to get broad U.S. bond exposure is FXNAX (ER 0.025%). If you use ETFs, the commission-free iShares ETF is AGG (ER 0.05%).

Three Funds: Add International Stocks

The third component of the classic three-fund portfolio is international stocks. You have four great international stock index fund options at Fidelity.

The first option isFidelity International Index Fund (FSPSX, ER 0.035%). This index fund gives broad exposure to foreign stocks in developed markets, such as Europe and Japan. It does not give exposure to emerging markets, like Russia or China. It also has minimal exposure to mid-cap and small-cap stocks.

The second option isFidelity Global ex U.S. Index Fund (FSGGX, ER 0.055%). This index fund gives exposure to both foreign developed markets and emerging markets. Emerging markets can provide additional diversification, but they are typically more volatile than foreign developed markets. It also has minimal exposure to mid-cap and small-cap stocks.

The third option isFidelity Total International Index Fund (FTIHX, ER 0.06%). This index fund gives the broadest exposure to the international stock markets, as it includes foreign developed markets and emerging markets as well as large-cap, mid-cap, and small-cap exposure.

The fourth and newest option is the Fidelity ZERO International Index Fund (FZILX, ER 0.00%). It gives exposure to large-cap and mid-cap foreign developed and emerging markets.

I personally prefer FZILXover the others because of its zero expense ratio, but many people like FTIHX because of its inclusion of small-cap international stocks.

If you like ETFs, the commission-free iShares ETF for international stocks is IEFA (ER 0.07%). This ETF tracks foreign developed markets and does not invest in emerging markets. IXUS (ER 0.09%) invests in both foreign-developed and emerging markets stocks.

Four Funds: Add International Bonds

Fidelity currently does not have an international bond index fund. To get exposure to international bonds at Fidelity, you should use the IAGG (ER 0.09%), an iShares ETF that is commission-free at Fidelity.

Five Funds: Add REITs

If you want to add a fifth fund, my preference is to add a real estate index fund. At Fidelity, the best option is the Fidelity Real Estate Index Fund (FSRNX, ER 0.07%). If you use ETFs, the commission-free Fidelity ETF is FREL (ER 0.08%).

Summary

Remember that you should use ETFs instead of index funds in a Fidelity taxable account because of the more favorable tax treatment of ETFs. In tax-deferred accounts, you can use either index funds or ETFs, and my preference is to use index funds.

What do you think? Do you prefer Fidelity over Vanguard? Do you own any of the Fidelity index funds or ETFs listed in this article?