Top 3 Best Fidelity Mutual Funds for Bear Market

Best fidelity mutual funds for bear market

The coronavirus pandemic hurt the world not only physically but also economically. During these times, investors may find investing too risky and scary. An answer to this apprehension is investments in mutual funds for bear markets.

There is a bear market when a market experiences prolonged price declines. It usually happens when securities prices fall 20% or more from recent highs or widespread pessimism and negative investor sentiment. 

While bear markets are typically identified with the decline in an overall market or index, a decline of 20% or more over a sustained period of time on the individual securities or commodities can also make the market in a bear market.

What Causes Bear Markets

Generally, hiring, wage growth, inflation, and interest rates are monitored as economic signals that may affect the economy’s slowing.  

In particular, low employment, low disposable income, weak productivity, and a drop in business profits manifest a weak or slowing economy. 

In the COVID-19 pandemic case, there are some different indicators like widespread closures, spikes in unemployment claims, and social distancing measures that caused the market’s slowing.

During this time, many investors fear losses of their investment. However, there are different ways where an investor may protect its investment. In this article, you will learn the best actions you may take to keep your funds intact.

3 Fidelity Mutual Funds for Bear Market

During a bear market, investing in mutual funds is advisable to help manage the risks. These bear market mutual funds are funds comprising an entire stock index. The advantage of mutual funds is that they have a diverse portfolio. While the market is in bear, not all stocks are affected the same way.

This article shares with you three best Fidelity Mutual Funds that you may want to consider. Investing in any of the three mutual funds during bear markets may help you reduce the risk of losses. The top three mutual funds of Fidelity Investments are Fidelity Balanced, Fidelity Contrafund, and Fidelity Focused Stock. Now more than ever, it is important to choose these Fidelity Mutual Funds.

1. Fidelity Balanced

  • Total Return During 2018 Downturn:
  • Expense Ratio: 0.52%
  • Assets Under Management: $41,202.55 ($M)
  • Benchmark Index: S&P 500
  • Inception Date:  November 6, 1986
  • Fund Adviser/Distributor: Fidelity Investments

The fund’s strategy is to invest approximately 60% of its assets in stocks and other equity securities and the remainder in bonds and other debt securities when its outlook is neutral. The fund likewise invests at least 25% of total assets in fixed-income senior securities. This includes debt securities and preferred stock. 

2. Fidelity Contrafund

  • Total Return During 2018 Downturn:
  • Expense Ratio: 0.77%
  • Assets Under Management:$136,386.45 ($M)
  • Benchmark Index: S&P 500
  • Inception Date: May 17, 1967
  • Fund Adviser/Distributor: Fidelity Investments

Fidelity Contrafund is to invest in companies whose value FMR believes is not fully recognized by the public. The fund is investing in either growth stocks or value stocks, or both. It primarily invests in common stocks.

3. Fidelity Focused Stock

  • Total Return During 2018 Downturn:
  • Expense Ratio:  0.88%
  • Assets Under Management: $3,573.44 ($M)
  • Benchmark Index: S&P 500
  • Inception Date: November 12, 1996
  • Fund Adviser/Distributor: Fidelity Investments

The fund normally invests at least 80% of its assets in stocks. Like Fidelity Contrafund, the fund invests in either “growth” stocks or “value” stocks or both and primarily in common stocks. If you seek the potential for long-term share-price appreciation, you can consider investing in this fund. However, you must be willing to accept the generally greater price volatility associated with growth-oriented stocks.

How to Invest During a Bear Market

Besides knowing the best Fidelity Mutual Funds, we also provide you with some practical tips in protecting your investments during bear markets. There are four other ways to help mitigate the impact of a bear market. These are dollar-cost averaging, diversity of your holdings, knowledge of stocks that perform well during the recession, and focus on the long term.

1. Do dollar-cost averaging

Dollar-cost averaging is a strategy in the stock market wherein you continuously invest money over time and in roughly equal amounts. This is a more prudent approach during a bear market. This strategy aims to ensure that you don’t pour all your money into the stock at its high.

For example, there’s a slump of 25% in the stock price. A usual $100 a share is now $75 a share. You may be tempted to buy more of this stock and take advantage of the lower price. However, given how volatile the market is, this value may not still be the bottom of the share, and it may tumble 50% or more from its high.

This shows how risky and scary a bear market can be. However, the stock market has shown that it will bounce back eventually. Our advice is to change your perspective that you should focus on the potential gains instead of looking at potential losses. In this way, a bear market may serve as a good opportunity to buy stocks at lower prices.

2. Diversify your holdings

Another strategy is to diversify your holdings. This is a valuable move, regardless of the existence of a bear market. To diversify your portfolio, you must invest in a mix of different assets.

All companies in a given stock index such as the S&P 500 generally fall when there is a bear market. However, all companies do not fall in similar amounts. If you have a diverse portfolio, then the fall of the market will have different effects. This helps you minimize the overall loss of your holdings.

Certainly, knowing in advance who the winners and losers during the bear market are not easy. When there is a bear market, chances are investors favor assets. Hence, another “defensive” strategy worth considering is to check if your portfolio contains assets such as dividend-paying stocks and bonds.

  • Dividend-paying stocks– even stocks the pricks do not go up, some investors still want to get paid in the form of dividends. Thus, it will help you if you have dividend-paying stocks.
  • Bonds prices of bonds move in the opposite direction of stock prices, making it an attractive investment during bear markets. In other words, when stock prices are low, prices of bonds are high.

3. Know and invest in the sectors that perform well in recessions

Another strategy in minimizing the impact of recessions is to observe the trend of different sectors’ performances during hard times.  Investing in sectors that perform well in recessions lessens the risk of losses. Hence, good observation of how different sectors behave during bear markets is key.

You have the option of investing in a specific sector through index funds or exchange-traded funds (ETF).  Index funds or ETFs are more diverse because each fund holds shares in many companies. This feature exposes you to companies in particular industries that may likely be more stable during recessions. 

4. Your focus must be on the long-term.

As mentioned earlier, history has proven that the stock market does bounce back. Thus, while the bear market may be burdensome, you may focus on long-term investments. 

Remember that what you endure during the bear market may be overshadowed by bull markets. Likewise, be mindful that money needed for short-term goals, such as those expected to be achieved in less than 5 years, should not be invested in the stock market.

Perhaps, one of the challenges when there is a bear market, is to resist the temptation of selling your investments. Thus, it is also wise and prudent to let fund managers handle your investments.  Financial managers act as vanguards of your investment. This is still true even if the market is in good condition.

How Can I Tell When a Bear Market Is Coming?

From the definition of a bear market, it is clear that it is not easy to determine whether you are entering a bear market. However, investors have some rules of thumb. 

One practical tip is to monitor interest rates. A good clue of an impending bear market is when the Federal Reserve lowers interest rates due to a slowing economy. 

It is important to note that warning indicators of the bear market should not affect your investment strategy. In the case of long-term investments, investors should not bother predicting the market. Rather, they should ensure that their portfolio is funded with money that they will not need for the next five years, and such funds must likewise be well-diversified and aligned with their risk tolerance. This will make them ride out the highs and lows of the market. 

What’s the Difference Between a Bear Market and a Market Correction?

Market corrections are brief and relatively short. The shallow drops in stock prices are between 10% to 20%. Case in point, during the bull market from 2009-2020, there were six market corrections in the S&P 500.

Moreover, market corrections may lead to bear markets, but more often, they do not. In the years 1974-2018, of the 22 market corrections, only 4 turned into bear markets. Those are essentially the differences between a bear market and a market correction.

What’s the Difference Between a Bear Market and a Bull Market?

A bull market is the opposite of a bear market. There is a bull market when prices in the financial market are rising or are expected to rise. The term is mostly used in the stock market, but it can also be applied to trade, such as bonds, real estate, currencies, and commodities. The term bull market only refers to extender periods in which a large portion of security prices are rising. This period may last for months or even years.

Bottom Line

Knowing where to invest helps you maximize your funds, whether during low or high of the market. Regardless of the market climate, you can still get a great investment provided that you invest in the right way and at the right time. 

As mentioned in this article, there are multiple ways that you can do with your funds, depending on the status of the market.

Apart from sharing where to invest, our advice is that that you consult any financial or fund managers to ensure that your fund or income will not be put to waste. 

The value of your financial assets may continue to improve even while the stock market is at its low. Knowing where to put them is always the key.To learn more about mutual funds and the investment world, subscribe to our newsletter.

Your Complete Schwab ETF Guide

Exchange Traded Fund

Charles Schwab introduced exchange-traded funds in 2009, offering low expense ratios and setting the trend for commission-free ETF trading. In the time since, it has become the market leader. Schwab has 22 ETFs, relatively fewer than its competitors, making it more manageable.

What Is an ETF?

ETF is a collection of securitized portfolios, an established set of consumer products and services, bonds, and investment elements. Investors may purchase ETF shares and become exposed to a share of the portfolio, thus enabling the investors to diversify their portfolio through a secured and efficient way.

The majority of ETFs track the index of the market (A securities category is called an index). For its production, the index modifies a weighted average of security prices. Investors can characterize the current market by utilizing the said index level. 

If you purchase an index, you are going to have to purchase every single stock on an index by quantity. A small downside of this is that it would add up to a great deal of commission or management fees. On the plus side, this can be cancelled out because ETFs can take advantage of its size to minimize costs and promote the alignment of investors with market returns.

How ETF Provides Accurate Portfolio Allocation

ETFs also provide a system that builds and reimburses unbelievably tax-efficient shares. The ETF enables the professional fund managers to develop an accurate portfolio of the ETF-holdings, the bonds, and other securities (instead of just sending money to the ETF issuer) and making it produce more shares. When a broker/dealer wishes to settle shares of the ETF, the issuer shall exchange for the shares of each individual security in the portfolio. The issuer therefore reduces the required effort on buying and selling, and avoids most income taxes on capital gains.

ETFs are somewhat similar to mutual funds, but as the name suggests, stocks and bonds are exchanged. In contrast, mutual funds are purchased and redeemed by the issuing entity. While ETFs on the other hand are purchased and sold by brokers that complement purchasers’ and sellers’ financial objectives. ETFs can be traded 24/7 while trading with mutual funds ends within the day, following the schedule of market closing.

Two Ways Schwab Categorizes Its Equity ETFs

1. Market-capitalization Schwab ETFs

Market cap ETFs, as their name suggests, are focused on market capitalization to benchmark indices of their portfolio holders. Examples include the U.S. Small Cap Total Stock Market Index for the Schwab 1000 index and Dow Jones. The first seeks to monitor the 1,000 largest traded firms in the US. Last but not least, the goal is to track 1,750 stocks close to the overall market value of the outstanding shareholdings of the firm.

2. Fundamental Index ETFs

Schwab defines ETFs as “cost-for-effective alternatives to active management.” In order to match or exceed a typical benchmark index, active management describes mutual funds which are actively purchased and sold by a portfolio or fund manager. ETFs track various Russell FRI indexes in Schwab’s Fundamental Index. The Russell RAFI index series selects stocks based on a variety of main factors, such as adjusted sales— the profits of the business adjusted for any anomalous products. 

In general market cap ETFs typically offer lower fees and less portfolio adjustments and generate returns in line with the benchmark index they follow. Simple ETF indexes require portfolio requalification on a regular basis, and rules based on the portfolio mean further sales — i.e. portfolio holdings shift. 

Schwab ETFs Market Capitalization 

Schwab includes a variety of easy-to-market ETFs to invest in big, mid and small capital firms traded on the U.S. stock market or in the entire US stock market in general. 

Generally, large corporations with market capitalization of more than 10 trillion dollars are considered. Mid-size firms have a market cap from 1-2 trillion dollars and small businesses valued under 2 trillion dollars. Evidently, market capitalization fluctuates every day so cutbacks are not so restricted.

ETF Name and TickerBenchmark IndexCategoryExpense Ratio
Schwab 1000 Index ETF, SCHKSchwab 1000 IndexLarge cap0.05%
Schwab U.S. Large-Cap ETF, SCHXDow Jones U.S. Large-Cap Total Stock Market IndexLarge cap0.03%
Schwab U.S. Broad Market ETF, SCHBDow Jones U.S. Broad Stock Market IndexLarge cap0.03%
Schwab U.S. Small-Cap ETF, SCHADow Jones U.S. Small-Cap Total Stock Market IndexSmall cap0.05%
Schwab U.S. Mid-Cap ETF, SCHMDow Jones U.S. Mid-Cap Total Stock Market IndexMid-cap0.05%

Investors who only want to invest in U.S. market cap-based stocks would do well with Schwab’s ETFs. They are simple and straightforward, and you can find an issuer with better cost ratios but rather difficult to find. 

Investment Strategy ETFs

For those investors looking for a certain investment style, Schwab has a limited collection of strategic ETFs. Schwab provides a limit of 3 large-cap stocks/ETFs for investors that seek a very specific kinds of investing tactics:

ETF Name and TickerBenchmark IndexCategoryExpense Ratio
Schwab U.S. Large-Cap Growth ETF, SCHGDow Jones U.S. Large-Cap Growth Total Stock Market IndexLarge growth0.04%
Schwab U.S. Large-Cap Value ETF, SCHVDow Jones U.S. Large-Cap Value Total Stock Market IndexLarge value0.04%
Schwab U.S. Dividend Equity ETF, SCHDDow Jones U.S. Dividend 100 IndexLarge dividend0.07%

In recent years, growth stocks have seen good growth in sales and profits. Since growth stocks relatively cost more than value stocks, investors tend to be enticed by a Schwab ETF because they provide more investing tactics and options. However, such stocks are also more costly than the Value stocks. Value stocks are financial units that represent different companies whose stocks trades at a relative discount to their earnings. In general, value stocks are far matured than growth stocks and have a much slower rate of earnings.

The Dow Jones U.S. Dividend 100 index contains the high-performance dividend payers. The stocks also also represent more mature, slower growing businesses, but their income does not generally discount the stocks. 

If an investor is seeking for a small-cap dividend growth stocks or value stocks, they are likely better off pursuing Schwab ETFs for the reason that Schwab ETFs are extremely straightforward and it keeps the costs very minimal.

Sector ETFs

Surpassing Schwab ETFs for investors seeking to invest in a more particular section of the stock market is another option, specifically in the real estate sector.

ETF Name and TickerBenchmark IndexCategoryExpense Ratio
Schwab U.S. REIT ETF, SCHHDow Jones U.S. Select REIT IndexReal estate0.07%

REIT or a Real Estate Investment Trust is a rare type of enterprise which specialises in real estate assets. They encourage potential investors to gather their investments in a money pool.

For international investors, it may prove to be a more practical option to invest in the Schwab U.S. REIT ETF. In contrast with SPDR Dow Jones REIT ETF (NYSEMKT: RWR), they offer relatively cheaper options with a reduced expense ratio, for the reason that they only charge 0.25% for the expense ratio. This also applies to other ETFs with identical indexes that cost more.

International ETFs

Schwab provides a small number of alternatives for investors looking to dip their toes in international markets:

ETF Name and TickerBenchmark IndexCategoryExpense Ratio
Schwab Emerging Markets Equity ETF, SCHEFTSE Emerging Index Diversified Emerging markets0.13%
Schwab InternationalSmall-Cap Equity ET, SCHCFTSE Developed Small Cap ex-US Liquid IndexSmall-mid-cap blend0.12%
Schwab Emerging Markets Equity ETF, SCHEFTSE Emerging Index Diversifiedemerging markets0.13%

As previously mentioned, Schwabs are extremely straightforward and uncomplicated. To keep things that way, keep in mind that if you are an investor looking to invest in a particular area (country/region) of the globe, it’s almost impossible to get this job done. But with Schwab’s International ETFs, you can do without any challenge.

Fixed-income ETFs

Schwab also issues a number of ways to secure a few government bonds, including a single general bond ETF:

ETF Name and TickerBenchmark IndexCategoryExpense Ratio
Schwab U.S. Aggregate Bond ETF, SCHZBloomberg Barclays U.S. Aggregate Bond IndexIntermediate-term bond0.04%
Schwab Intermediate-Term U.S. Treasury ETF, SCHRBloomberg Barclays U.S. 3-10 Year Treasury Bond IndexIntermediate-term government bond0.06%
Schwab Short-Term U.S. Treasury ETF, SCHOBloomberg Barclays U.S. 1-3 Year Treasury Bond IndexShort-term government bond0.06%
Schwab U.S. TIPS ETF SCHPBloomberg Barclays U.S. Treasury Inflation Protected Securities (TIPS) Index (Series-L)Inflation-protected bond0.05%

Including Treasury Securities, Aggregate Bond ETFs cover government, mortgage-backed, corporate, and some international foreign bonds. These financial market units are available for purchase in America. Since it prides itself in acquiring a wide-ranging index, it grants their international investors an extensive exposure to the US stock market. If you are just starting out in your investment venture, investing in the Schwab Aggregate Bond ETF is a simple and efficient way to achieve a more diverse portfolio.

For investors seeking a more particular bond, they have the option to acquire short and intermediate term treasuries, commonly known as TIPS short for Treasury Inflation Protected Securities. However, it is still important to note that TIPS’ value depends on the Consumer Price Index.

Fundamental Index ETFs

In 2013, Fundamental Index ETFs were introduced 4 years later after Schwab launched Schwab ETFs in 2009. The prime purpose of a Fundamental Index ETF is to keep track of the Russell RAFI Index Series

Russell RAFI indexes utilizes 3 basic metrics – adjusted sales, retained cash flow, and dividends plus purchases – to identify stocks that should be included and which ones should be excluded. Adjusted sales are revenue measures with the exception of one-off items or changes in accounting standards. Retained cash flow indicates the amount of cash that the company retains annually. 

There are 2 methods which are used to repay shareholders with excess income. First, is through dividends. Dividends are the sum of money a company pays its shareholders. The second method is through buybacks. Buybacks are the total amount the company pays when purchasing shares of its own.

There are 3 domestic 3 international Fundamental Index ETFs:

ETF Name and TickerBenchmark IndexCategoryExpense Ratio
Schwab Fundamental U.S. Broad Market Index ETF, FNDBRussell RAFI US IndexLarge value0.25%
Schwab Fundamental U.S. Large Company Index ETF, FNDXRussell RAFI US Large Co. IndexLarge value0.25%
Schwab Fundamental International Large Company Index ETF, FNDFRussell RAFI Developed ex US Large Co. IndexLarge value0.25%
Schwab Fundamental U.S. Small Company Index ETF, FNDARussell RAFI US Small Co. IndexSmall blend0.25%
Schwab Fundamental Emerging Markets Large Company Index ETF, FNDERussell RAFI Emerging Markets Large Co. IndexDiversified emerging markets0.39%
Schwab Fundamental International Small Company Index ETF, FNDCRussell RAFI Developed ex US Small Co. Index Small-mid blend0.39%

Fundamental Index ETFs maintain a much expensive expense ratio than their equivalents and their corresponding market caps. Furthermore, increased shareholder tax liabilities is bound to occur when rebalancing and increasing the turnover in portfolios.

The Russell RAFI methodology however, does not guarantee that better returns will be achieved. Over the last five years, the Schwab U.S. Broad Market ETF has surpassed Schwab’s Fundamental U.S. Broad Market Index ETF. On a hopeful prospect, the version of Schwab’s Fundamental Index ETF in small and emerging markets surpassed their equivalents on the ETF capital-based market.

Top 3 Schwab ETFs

1. Schwab Broad Market ETF (NYSEMKT:SCHB)

Introduced in 2009 by the Dow Jones U.S. Broad Stock Market Index.

This allows one to purchase a large amount of stocks with minimal costs. The financial objective is to induce an identical profit in relative to the profit total. This may include both small and large scale enterprises, for the reason that their weights are altered according to their size and amount of shares that can be sold and purchased.

Schwab Broad Market ETFs include the top 3 holdings. You may be familiar with Apple, Microsoft, and ExxonMobil. 

2. Schwab U.S. REIT ETF (NYSEMKT:SCHH)

Schwab’s US REIT ETF, which is made up of 111 separate portfolios, is another example of a diversified portfolio. This classification may be highly unpredictable, but it is still an attractive option because most notably, it is cheap, with an average spending ratio annually of just 0.07 percent.

3. Schwab Large-Cap ETF (NYSEMKT:SCHX)

This type of fund is a unique combination of the S&P 500 Index 250 mid-cap stocks.

This fund follows the Dow Jones U.S. Large-Cap Total Stock Market Index, which contains the 750 largest American trading companies by market. 

The fund has an annual average cost of only 0.03% of assets per year.

How and Where to Buy Schwab ETFs?

As previously mentioned, Schwab ETFs are recognized among the most superior funds because they provide the investors an option to earn more, while paying for less.

Purchasing Schwab ETFs are fairly straightforward and uncomplicated. Simply fund your account, and you’re good to go. Just make sure you input the accurate Ticker and amount. You can do this on Schwab’s official website, or through a commissioned stock manager.

If you seek further assistance in acquiring stocks, you can visit websites like https://investoralist.com that help meet their clients’ financial objectives with minimal costs.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.