4 Simple, Low-Cost Fidelity Investment Portfolios

You might find investing to be difficult. It doesn't have to be.

There are cheap and effective options out there. Fidelity is one of the biggest mutual fund companies in the world that happen to deliver on those qualities.

If you want simple portfolios that help you diversify risk with low expense ratios, Fidelity is worth considering.

You should examine your own investment objectives and risk tolerance before you invest.

In other words:

Articulate what you want out of your investments.

  • Do you want your portfolio to generate income, or do you want to grow its value? Or both?
  • How long of a time horizon do you have to invest?
  • How much risk can you handle?

If you need help with any of these questions, don’t hesitate to contact a financial advisor.

Then, take a look at these various mixes of Fidelity index funds.

We've assembled four sample Fidelity index fund portfolios below.

This review is not funded by Fidelity, but was created due to the firm’s popularity.

This review is not investment advice. Rather, it is a look at possible investment combinations.

Why Fidelity Index Funds?

Here's the deal:

One of the main reasons Fidelity index funds are so popular is due to their low expense ratios.

An expense ratio expresses the annual cost for a shareholder to own a mutual fund.

Expense ratios incorporate costs like the fund manager’s salary. Administrative and operating expenses are also factored into the expense ratio.

The cost of the expense ratio is taken out of client assets.

For example, if a fund earns a 10 percent profit and it has an expense ratio of 1.0%, shareholders only earn nine percent.

All other things being equal, the lower the expense ratio, the higher the investor return.

Over long periods of time, even small differences in expense ratios can make a big difference.

Fidelity offers many index funds with very low expense ratios.

In fact, in August 2018, Fidelity launched two index funds with expense ratios of zero. This was unprecedented in the mutual fund industry.

Fidelity is a good place to start for investors due to its funds' low costs. The company also offers a wide array of funds.

Four Sample Fidelity Index Fund Portfolios

There are many, many types of portfolios you can construct with the available options.

We created four sample portfolios that you can use as a starting point for your own research.

The portfolios are divided into conservative, moderate and aggressive risk tolerances.

A final, specialty portfolio is also included.

Conservative Fidelity Index Fund Portfolio

  • 30% Fidelity U.S. Bond Index Fund (FBIDX)
  • 25% Fidelity Inflation-Protected Bond Index Fund (FSIQX)
  • 30% Fidelity Short-Term Bond Index Fund (FNSJX)
  • 15% Fidelity 500 Index Fund (FUSEX)

This portfolio is more aggressive than investing in money market funds or CDs.

But, this blend of funds can work for investors who are looking to get exposure to growth assets. The overall risk profile remains conservative.

The portfolio focuses on bonds, which show less volatility than stocks. They still generally produce higher returns than cash over time.

Inflation-protected bonds comprise one-quarter of the portfolio.

The U.S. government issues these bonds. They perform well in rising inflationary periods.

The U.S. stock market takes up 15 percent of the portfolio.

This exposure is not large enough to cause great harm to the portfolio in a market selloff. But, it can help provide higher returns over the long run.

Diversifying assets among stocks and bonds can also help reduce portfolio risk.

Moderate Fidelity Index Fund Portfolio

  • 20% Fidelity U.S. Bond Index Fund (FBIDX)
  • 15% Fidelity Inflation-Protected Bond Index Fund (FSIQX)
  • 15% Fidelity Short-Term Bond Index Fund (FNSJX)
  • 20% Fidelity 500 Index Fund (FUSEX)
  • 10% Fidelity ZERO International Index Fund (FZILX)
  • 10% Fidelity NASDAQ Composite Index Fund (FNCMX)
  • 10% Fidelity Small Cap Index Fund (FSSPX)

This Fidelity portfolio increases exposure to U.S. and global stock markets.

The portfolio has a 50/50 balance between stocks and bonds.

Higher stock exposure should increase the portfolio’s volatility. But, it can also enhance returns over time.

Adding international stock exposure helps to diversify the portfolio. So does the addition of specific U.S. market sectors.

The NASDAQ Composite index, for example, does not trade in exact correlation with the S&P 500 index.

Half of the portfolio still remains in bonds, both to dampen volatility and to reduce risk.

This portfolio would be more appropriate for a longer-term investor.

Aggressive Fidelity Index Fund Portfolio

  • 10% Fidelity U.S. Bond Index Fund (FBIDX)
  • 20% Fidelity 500 Index Fund (FUSEX)
  • 20% Fidelity ZERO International Index Fund (FZILX)
  • 20% Fidelity NASDAQ Composite Index Fund (FNCMX)
  • 20% Fidelity Small Cap Index Fund (FSSPX)
  • 10% Fidelity Emerging Markets Index Fund (FPEMX)

This aggressive Fidelity index fund portfolio is most suitable for high-risk investors.

It aims to maximize total returns with less regard for short-term volatility.

In other words, a portfolio like this may drop 10%, 20% or even more over the short-term.

But, long-term returns, like those for a decade or more, could prove superior.

Bond exposure has dropped but remains for diversification purposes.

Stock market exposure has been increased to the more volatile sectors of the market.

The portfolio has a greater international allocation, including exposure to the emerging markets.

Emerging markets are countries such as India, Indonesia or the Philippines. These countries are still emerging economically on a global scale.

Emerging markets can offer high returns but are also traditionally very volatile. Thus, they are best suited to an aggressive portfolio.

Fidelity Ultimate Diversification Index Fund Portfolio

  • 10% Fidelity U.S. Bond Index Fund (FBIDX)
  • 10% Fidelity Inflation-Protected Bond Index Fund (FSIQX)
  • 10% Fidelity 500 Index Fund (FUSEX)
  • 10% Fidelity NASDAQ Composite Index Fund (FNCMX)
  • 10% Fidelity Small Cap Index Fund (FSSPX)
  • 10% Fidelity ZERO International Index Fund (FZILX)
  • 10% Fidelity Real Estate Index Fund (FRXIX)
  • 10% Fidelity International Sustainability Index Fund (FNIYX)
  • 10% Fidelity Global ex-US Index Fund (FSGUX)
  • 10% Fidelity Emerging Markets Index Fund (FPEMX)

This portfolio diversifies investments as much as possible without becoming too cumbersome.

Besides stocks and bonds, this portfolio incorporates real estate holdings.

It also carries an allocation to the International Sustainability Index Fund. That fund is an “ESG” fund.

ESG stands for environmental, social and governance investments. ESG investments support companies with positive environmental records, for example.

Emerging markets also make an appearance in this portfolio.

Taken as a whole, this portfolio provides investors with exposure to many aspects of the global investment market.

The diversification should dampen the volatility of any one market segment.

Target Date Funds

A target date fund is a one-stop shopping type of mutual fund.

As the name implies, target date funds have dates attached to them. When that date is reached, the portfolio liquidates and pays out to investors.

Target date funds are designed so that they are more aggressive when there is a long time until maturity.

As the maturity date approaches, the portfolio shifts and becomes more conservative.

Fidelity has a wide range of target date funds that it dubs “Freedom Funds.”

Each Freedom Fund changes its allocation periodically as it approaches maturity.

For example, as of 6/30/2018, Fidelity’s 2040 Freedom Fund had an allocation of 63.43% domestic equities, 26.58% international equities and 9.97% bonds, with the remaining 0.02% allocated across short-term and other investments.

Fidelity’s 2025 Freedom Fund, however, had a different, more conservative allocation. As of 6/30/2018, that fund allocated 44.53% to domestic equities, 30.82% to bonds, 18.65% to international equities and 6% to short-term investments and other assets.

Target date funds can serve the needs of investors who don’t want to worry about constantly reallocating or adjusting their investment portfolios.

These funds still carry low expense ratios.

The 2025 Freedom Fund, for example, charges investors just 0.13% per year.

Conclusion

The truth is:

There is no such thing as a “one-size-fits-all” portfolio.

Even if you are an aggressive investor, for example, the sample portfolio shown here might not be for you.

Firms like Fidelity offer an extensive lineup of low-cost index funds. You can use these funds to construct the exact portfolio for your investment needs.

Use these models as a starting point for doing your own research.

Understand the risk and reward characteristics of all investment classes. This includes everything from stocks and bonds to real estate and emerging markets.

Pay close attention to costs.

A fund with a high expense ratio can drag down your investment returns. Over time, the difference can be significant.

Above all, make sure to choose investments that are in line with your own personal investment objectives and risk tolerance.

Related Articles

The Investor's Guide to Opening a Roth IRA
Contributing to Roth IRA for Children: The Benefits of Starting Early
How to Invest in U.S. Series I Savings Bonds
Understanding Buy and Hold Investment Strategy
How & Where to Buy Your First Investment Stock
Can Kids Invest and Start Saving for Retirement?

Ask a Question