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With over 70 years of experience in managing investor’s money and over $2.1 trillion mutual funds assets under management, Fidelity plays a pivotal role in helping individuals access investment opportunities in domestic and international money market funds. Fidelity bonds are a great way of managing volatility as they will reduce risk in times such as a recession or during market panics.
What Is a Fidelity Bond?
Fidelity Investments commonly referred to as Fidelity is a financial services company based in Boston, Massachusetts. Fidelity is among the top global asset management companies in the world, known for its specialty in no-load actively managed mutual funds. They also offer Individual Retirement Accounts (IRAs), and 401(k) retirement plans. Fidelity funds cover all mutual fund asset classes, from domestic to specialized sectors.
3 Categories of Fidelity Funds
Fidelity offers a wide variety of high-quality mutual funds to invest in, and you can divide them into the following 3 categories to understand them easily.
They are: Best Balanced Funds, Best Index Funds, and Actively-Managed Funds.
1. Fidelity Actively-Managed Funds
These are funds that allow a portfolio manager the discretion to buy and sell investors stocks. This category of Fidelity Funds is actively managed to help in managing a relative index.
2. Best Index Funds
This category includes the cheapest index funds that are available in the market. There are more than 30 index funds in this category among which the Fidelity 500 Index Fund (FXAIX) and is one of the best.
3. Balanced Funds
These are a type of Fidelity Funds that invest in a balance of cash, bonds, and stocks, hence the name “balanced”. Funds in this category are a smart investment option for investors looking to invest in only one fund or those who are looking for a solid investment as a foundation for their investing.
10 Best Fidelity Low-Risk Funds for Retirees
1. Fidelity OTC Portfolio (FOCPX)
Fidelity OTC Portfolio is a mutual fund that seeks capital appreciation. Investing in FOCPX involves putting over 80% of assets into securities that principally traded in the OTC (over the counter) or Nasdaq composite market.
OTC markets have many small and medium-sized companies, a factor which indicates that these markets have an opportunity for growth. This explains why the returns from investments in FOCPX are relatively high. However, FOCPX also gets a low-risk investment rating of above-average because OTC markets have lesser regulation and transparency.
While FOCPX is a high performer to investors, the fund is not as diversified compared to other index funds. The top 10 holdings in FOCPX amount to over 45% of the whole portfolio and 38% of the whole fund is in the technology sector. The fund is also relatively expensive at a 0.8% expense ratio, which can impact long-term returns.
2. Fidelity BlueChip Growth Fund (FBGRX)
Blue-chip companies with a high potential for growth are a hard find for investors. The Fidelity BlueChip Growth Fund (FBGRX) targets the large S&P 500 companies such as Dow Jones and others.
The management uses these criteria to offer only companies that indicate a growth potential that is above-average. FBGRX heavily inclines in information technology, which makes up 38% of the whole portfolio, and 25% of the portfolio is consumer discretionary. The expense ratio is also high standing at 0.8% and the ten-year average annual returns stand at 18.76%
3. Fidelity Nasdaq Composite Index Fund (FNCMX)
Unlike FOCPX that aims to beat the Nasdaq Composite Index, FNCMX is one of the best retirement funds that just aims to track the index performance.
Although regarded as a pricey fund due to the 0.3% expense ratio, FNCMX is comparatively affordable for investors looking to invest in Nasdaq. Out of more than 3,000 stocks in the benchmark index, the fund holds 2,089 stocks.
Due to its passivity, the fund cannot take advantage of active bets through paring back sector exposure as FOCPX now does.
The fund is therefore 41% more inclined toward technology, with its top 10 holdings making up 45% of the portfolio. The FNCMX trades names such as Microsoft, Apple, Amazon, Facebook, and Alphabet.
4. Fidelity Contrafund (FCNTX)
FCNTX is a fund that invests in companies that are considered to be undervalued, compared to their growth or revenue prospects.
FCNTX is the largest fund under active management, which has suffered a drop in rankings from no. 95 to no. 209. Despite the drop in rank, and a score of 5.3 out of 10, the Morning Star still sees the value in this fund- hence its silver rating due to its effective approach and successful track record. The fund has a net expense ratio of 0.85% and 15.57% 10-year average annual returns.
5. Fidelity 500 Index Fund (FXAIX)
The FXAIX is offered in more than half of all Fidelity Fund’s 401(k) plans on the Fidelity platform.
Being one of the best performing and lowest cost retirement funds on Fidelity, the 10-year average annual returns are 13.97%, with a net expense ratio of 0.015%. FXAIX is the lowest-cost mutual fund that tracks the S&P 500.
FXAIX has a gold badge from Morning Star and since it replicates the S&P 500, it’s a great option for index investors and investors looking for exposure.
6. Fidelity Total Market Index Fund (FSKAX)
The Fidelity Total Market Index Fund provides more exposure to the U.S stock market that is broader than S&P funds but for the same price.
FSKAX has nearly 3,500 holdings and goes far beyond the S&P 500 list. FSKAX limits companies on its holdings to those with more than $10 billion market value, making it a large-cap fund.
None of the FSKAX holdings make up more than 5% of the overall portfolio, which prevents overconcentration.
The fund is a great option for exposure to a broad stock market, and at index fund pricing. The 10-year average annual returns are 13.68% and the net expense ratio is 0.015%.
7. Fidelity Worldwide Fund (FWWFX)
FWWFX is the best performing Fidelity fund that goes beyond the US. However, 60% of its portfolio is US companies — meaning that FWWFX is not one of the most exposed worldwide funds.
FWWFX gives you exposure to more than 11 countries and does well in keeping the stock weight below 5%. With a 10-year average annual return of 12.% and a 0.99% net expense ratio, FWWFX is quite on the pricey edge for an index fund. Still, its cost is below the category average and the performance is above average.
8. Fidelity Extended Market Index Fund (FSMAX)
FSMAX is a popular fund in the Fidelity 401(k) plans that provide small-cap and medium-cap exposure, which is in low supply among other top-performing Fidelity funds.
FSMAX is benchmarked to the Dow Jones U.S Completion Total Market Index, and this excludes the S&P 500. This makes SFMAX a complementary investment to S&P500 and other large-cap index funds.
It’s highly diversified with over 3,100 holdings, with the top 10 holdings accounting for only 7% of the portfolio. The fund is also attractive to investors as its net expense ratio has dropped from 0.045% to 0.035%.
The ten-year average annual returns are 12.32% and are considered as an above-average in the U.S mid-cap blend category.
9. Fidelity Puritan Fund (FPURX)
As one of the oldest funds in the market, the FPURX is a relaxed approach to retirement investing. FPURX, which was founded in 1947, invests 40% of its portfolio in debt investments and other fixed-income securities such as bonds. These investments mainly include mortgage pass-through securities and investment-grade credit.
Owing to the relaxed and conservative investment, the returns are also conservative at around 10% ten-year average annual returns. The net expense ratio stands at 0.53% with an above-average risk that falls under the Morning Star’s 50%-70% equity category on allocation.
10. Fidelity Zero Expense Ratio Index Funds
The Fidelity Zero Expense Ratio Index Funds are a line up of zero minimum, zero expense index mutual funds.
They include the Fidelity Zero International Index Funds (FZILX), Fidelity Zero Total Market Index Fund (FZROX), Fidelity Zero Extended Market Index (FZIPX), and the Fidelity Zero Large Cap Index Fund (FNILX).
These are nascent funds debuted in 2018 by Fidelity, and they don’t have a performance track record like other funds included in this list. While they may take a while to be included in the 401(k) plans, they are a great retirement investment option as they have no investment minimum or expense ratio to worry about.
Things You Need to Consider Before Buying Fidelity Bonds
1. Have a well-thought-out investing and trading plan
The best way to start investing in Fidelity bonds is by having a long term plan on how you will invest. For a comprehensive investing plan, here are some of the things you should consider:
- Investing objectives
- Ability to tolerate risk
- Time horizons
These four factors will help you find the types of assets to acquire on your portfolio and the strategy you will employ to accomplish your investment goals. Ensure that your planning also features other unique circumstances that apply to your investing needs. Professional and financial assistance at this stage is important and necessary.
Consider if you want active trading, and how much of your portfolio will you be trading. Professionals advise against the active trading of most of the stocks. However, ensure that you first build a portfolio that is diversified, and which aligns with your risk constraints and investing objectives.
Portfolio diversity means having an asset mix in bonds, stocks, and other investments. Diversification helps in managing your risk.
2. Research Your Ideas Fully and Employ Trading Best Practices
Researching your ideas is important especially if you plan on actively trading part of your portfolio. Here are some of the things to consider when doing your research:
- Finding new ideas– there are plenty of ways to come up with investing ideas. One of the best places to start is with what you already know. Then you can use the knowledge you have to identify the stocks that you can analyze and study to consider if you want to own them.
- Start with the basics– the basic factors of an investment opportunity often give a clue as to the performance of the investment over a period. For example, earnings are a basic indicator of how a stock has and will perform over time. Even with short term fluctuations, how the stocks perform will depend on the company’s ability to generate earnings.
- Understand the technical aspects– Fundamental analysis is helpful in directing whether you buy or sell. Technical analysis shows you “why” you need to buy or sell, and at what price. Technical analysis includes using data to create charts that help you in spotting trends and patterns that will help you with your decision.
3. Plan for a trade
After doing your basic research, fundamental analysis, and identifying an opportunity, the next step will be choosing a strategy.
Whether it’s selling or buying mutual funds, stocks, bonds, ETFs, or considering advanced buying and selling options, a strategy is necessary.
Back screeners and backtesting software will help you find flaws and you can use this to have an idea of the risks that will come with a particular trading strategy or idea. Testing both short term and long term strategies may also be necessary.
Just as there are risks involved in every investment opportunity, all trading strategies have a risk that you should know beforehand.
Entry and exit trading strategies are an important tool in succeeding in all your trades. An entry strategy, for example, can help you handle volatility in case things change in between the time you decide to trade.
An exit strategy can also help you make the right move. Emotions can stand in the way of information-driven, dispassionate decisions. Have a plan for when things go right, and when things go wrong. Know your time horizons and your risk tolerance threshold.
4. Placing a trade
After doing your research and choosing a strategy for your investment option, the next step is to execute the trade.
At this stage, be sure to look for a broker that has the trading capabilities that you need, they use the best execution and offer a trading platform that you are happy using.
When making a trade, consider the type of order that you want to use, and use the bid-ask report, commissions, and fund fees to manage the overall trading costs. Be aware of the various trading characteristics that come with each of the investment options you go for.
Fidelity’s ETF services recommend the following 3 best practices; noting the bid-ask spreads, using limit orders, and avoiding trading near the market opens and closes.
5. Monitor your positions and adjust them as needed
Fidelity recommends that you check your portfolio mix at least once a year, or in times when your financial circumstances change significantly. For short-term trades, monitor your positions more closely, with regards to your time horizons. There is a wide range of monitoring options online and through mobile apps and alerts. Monitoring your investments should be part of your plan.
Here are some things to consider when monitoring your positions:
- Risk and return- Plan for each trade before you make it. The plan should include your required return for holding the investment. Ensure that you know what you own by researching thoroughly. Also, ensure that you monitor how well an investment is aligned with your objectives. Set alerts on factors such as news or analyst rating changes that could affect your investment.
- Portfolio impact- it’s also important for you to assess how a single trade can affect your overall objectives. If you have a desired asset allocation, ensure that you understand how any trading decision will affect your whole portfolio. Make use of online monitoring of your portfolio to help in evaluating your investments.
- Tax situation- With time, the value of your investments change and so do the tax implications. One of the most important tax consequences that investors should know about is the short-term capital gains, that attract higher tax compared to long-term capital gains. There are also strategies to harvest tax, which involves managing your portfolio by offsetting your gains with losses.
Is Buying Fidelity Bonds Right For You?
Fidelity bonds are a great strategy to help you in balancing your portfolio and reducing risks through acquiring equities in your asset mix. Fixed-income assets help in ensuring that your portfolio generates income, and also lowers volatility. Mutual funds also come in handy to enhance portfolio diversification and lower the investor’s risks.
The only downside to buying Fidelity bonds are the risks related to interest, credit, and principal. Bond prices decline when interest rates rise and a drop in interest rates results in an increase in the bond price. In addition, bonds are rated by a third party agency which determines the creditworthiness of an issuer. The credit risk for funds that invest in below-investment-grade quality bonds tends to be higher.
Fidelity bonds are an efficient investing strategy compared to other strategies such as buying individual securities. Bonds funds invest in many types of securities and they allow for the buying and selling, depending on the conditions of the market.
Fidelity bonds can help you in diversifying your portfolio as you can own individual bonds with varying maturities. Fidelity bonds are also managed professionally by analysts who have the experience and technology needed to research and make profitable investment decisions. Their liquidity allows you to trade the shares each day, and you have the convenience of reinvesting your dividends or make an addition to your investments any time.
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