As one of the largest fund issuers — whether they’re mutual, index or exchange traded — Fidelity has something for investors of all stripes. Fortunately, some of the best Fidelity mutual funds are also suitable for retirement accounts, including 401k plans.
A 401k is an employer-sponsored retirement vehicle, meaning your employer makes some contributions to the plan as well. One of the most important benefits of these plans is that employee contributions are derived from pre-tax income, making them an essential part of the retirement planning equation for millions of American workers.
In most cases there are fund-level restrictions in 401k’s. For example, ETFs — for all their growth — haven’t penetrated this market in earnest and many firms, even large ones, only offer 401k participants choices from a limited number of fund issuers.
On that front, the good news is that Fidelity is one of the dominant providers of 401k offerings, and we’ll discuss the following funds:
- Fidelity Puritan Fund (MUTF:FPURX)
- Fidelity ZERO Total Market Index Fund (MUTF:FZROX)
- Fidelity Low-Priced Stock Fund (MUTF:FLPSX)
- Fidelity ZERO Extended Market Index Fund (MUTF:FZIPX)
- Fidelity Strategic Dividend & Income Fund (MUTF:FSDIX)
- Fidelity Multi-Asset Income Fund (MUTF:FMSDX)
- Fidelity Investment Grade Bond Fund (MUTF:FBNDX)
The issuer has a deep bench and with that in mind, let’s examine some of best Fidelity mutual funds for 401k plans:
Fidelity Mutual Funds for Your 401k: Fidelity Puritan Fund (FPURX)
Expense ratio: 0.53% per year, or $53 on a $10,000 investment
The Fidelity Puritan Fund is battle tested dozens of times over as this mutual fund has been around since 1947. What makes FPURX appealing to a wide range of investors, particularly for retirement planners, is that it’s what’s known as a balanced fund, meaning it’s roster isn’t confined to owning just domestic equities.
Rather, FPURX investors get exposure to international equities and fixed income asset as well, the latter of which can substantially reduce risk and volatility in turbulent markets. As of the end of January, about 95% of FPURX was allocated to domestic stocks and bonds with international equities and cash comprising the rest of the fund.
FPURX is appropriate for long-term investors, including those looking to deploy the fund within a 401k, due in part to its growth leaning on the equity side and the fact that the fund’s fixed income allocation tilts toward corporate bonds, including high-yield fare, which have been drubbed in the recent market slide.
Fidelity ZERO Total Market Index Fund (FZROX)
Expense ratio: 0%
Forget 401k’s for a moment because the Fidelity ZERO Total Market Index Fund should be appealing to any investor for a simple reason: it has no expense ratio. Acknowledging the impact fees can have on long-term fund investors, FZROX’s status as essentially free (there are no transaction costs) is highly attractive.
Proving that investors love a good deal, FZROX isn’t yet two years old, but it has nearly $5 billion in assets under management. With FZROX investors don’t get the benefit of the active management Fidelity is famous for because this is an index-based product, but the non-existent fee makes up for that.
FZROX is classified as a large-cap blend fund, meaning it does a good of mixing growth and value exposure. Sector allocations in this Fidelity product are similar to those of the S&P 500.
Fidelity Low-Priced Stock Fund (FLPSX)
Expense ratio: 0.52%
Many investors are attracted to low-priced stocks due to the perception of getting a good deal, but picking the wrong stock with a low price tag can have disastrous consequences, meaning this is a market segment where professional assistance can serve investors well. To be sure, the Fidelity Low-Priced Stock Fund doesn’t specialize in highly speculative, sub-$1 fare. There are some qualifiers with this fund.
FLPSX’s managers typically invest “at least 80% of assets in low-priced stocks (those priced at or below $35 per share or with an earnings yield at or above the median for the Russell 2000 Index), which can lead to investments in small and medium-sized companies,” according to Fidelity.
FLPSX mixes domestic and international equities and is classified as a mid-cap value fund, a factor combination that history says is rewarding for long-term investors. Speaking of getting value, FLSPX is getting torched in the 2020 bear market, shedding almost 36% year-to-date, potentially indicating there’s value to be had in this four-star Morningstar fund.
Fidelity ZERO Extended Market Index Fund (FZIPX)
Expense ratio: 0%
For investors looking to fill in the gaps created by large-cap blend funds, the Fidelity ZERO Extended Market Index Fund is one of the best Fidelity mutual funds to consider and as is the case with the aforementioned FZROX, FZIPX is basically free as it has a 0% and no transaction costs.
However, there is utility beyond the low/non-existent cost structure. Returning to the idea that FZIPX fills in gaps ignored by large-cap funds, this index fund includes a broad universe of mid- and small-cap stocks usually aren’t found in large-cap benchmarks such as the S&P 500. Due to that strategy, FZIPX is a mid-cap blend fund.
One advantage of FZIPX is badly lagging energy ranking as its smallest sector weight. Down almost 40% year-to-date, FZIPX is another example of an attractive Fidelity that has been severely dislocated from recent highs that could morph into a winner for long-term investors when better market conditions return.
Fidelity Strategic Dividend & Income Fund (FSDIX)
Expense ratio: 0.71%
For dividend investors, the Fidelity Strategic Dividend & Income Fund is an interesting option because it’s not solely reliant on dividend equities. Rather, the fund’s managers have the flexibility to mix in other income-generating asset classes, including preferred stock, convertible bonds, real estate investment trusts (REITs) and master limited partnerships (MLPs).
Speaking of management, Adam Kramer has steered this Fidelity fund since 2007 with co-pilot Ford O’Neil coming on board in 2012.
“The strategy’s income consistently ranks in the top quintile of the category,” notes Morningstar. “During Ford O’Neil’s tenure from June 2012 through March 2019, its annualized return of 10.2% was ahead of the 8.5% category average and the 9.5% of the category index.”
Currently, FSDIX is only 53.1% allocated to equities, which is not a disadvantage in this climate and that trait can serve to reduce volatility. Exposure to asset classes, such as preferreds and REITs, that are inversely correlated to interest rates, should help long-term performance.
Fidelity Multi-Asset Income Fund (FMSDX)
Expense ratio: 0.85%
Speaking of Fidelity income-oriented ideas, the Fidelity Multi-Asset Income Fund is another one to consider, particularly for investors whowant a heavy dose of higher-yielding bonds to go along with equities. The aforementioned Kramer and O’Neil have run this fund since 2015 with Ramona Persaud coming on board in 2017.
For investors looking for yield, FMSDX is a sensible option because it has a 30-day SEC yield of 4.82%. That’s largely derived from a 55% weight to investment-grade and junk corporate debt, two assets classes that have been battered in the new bear market. That fixed income allocation is inline with historical norms for FMSDX, which typically devotes 30% to 50% of its weight to equities.
FMSDX’s ability move fluidly in the bond market could prove advantageous at a time when interest rates are low and equities are struggling.
Fidelity Investment Grade Bond Fund (FBNDX)
Expense ratio: 0.45%
At a time when even the investment-grade corporate bond market is under duress, active management via the Fidelity Investment Grade Bond Fund makes a lot of sense. History proves as much as FBNDX has a long track record of outperforming investment-grade corporate bond benchmarks.
With a duration of 5.6 years, FBNDX can hold bonds of medium quality, but it can mitigate risk with substantial allocations to U.S. government debt, which is one reason why this Fidelity mutual fund is weathering some of this year’s bond market volatility. Speaking of volatility reduction, more than a third of FBNDX’s non-government holdings are rated between AAA and BBB, indicating that the fund’s managers are currently emphasizing higher quality fare.
This four-star rated fund has a 30-day SEC yield of 1.78%.
Todd Shriber has been an InvestorPlace contributor since 2014. As of this writing, he did not hold a position in any of the aforementioned securities.