Roth IRA Fund Options From Fidelity

Investing News

FMR LLC, which does business as Fidelity, provides a range of financial services, including investment management, brokerage, financial planning, and wealth management services. The company, which was founded as Fidelity Management & Research in 1946, serves individual and institutional clients globally. Fidelity has about $11.1 trillion in assets under administration (AUA), $4.2 trillion over which the company has discretionary control, as of Sept. 30, 2021. The company’s family of funds includes hundreds of mutual funds and exchange-traded funds (ETFs).

Fidelity, as part of its activities, is a full-service broker that earns commissions for providing investment management, research, and analysis services to clients. The company also offers discount brokerage services, including commission-free trading for online U.S. stock, ETF, and option trades.

Investors in the U.S. have access to several tax-advantaged saving plans, including 401(k)s, individual retirement accounts (IRAs), and Roth IRAs. The main difference between a Roth IRA and a traditional IRA is that the former is funded with after-tax dollars, meaning that contributions are not tax-deductible as they are with the latter. But unlike a traditional IRA where withdrawn funds are taxed, a Roth IRA allows investors to withdraw funds tax free.

Key Takeaways

  • Fidelity was founded in 1946, has hundreds of its own mutual funds and ETFs available, and has about $11.1 trillion of assets under administration.
  • When making a retirement account, a broad stock fund and broad bond fund provide a good foundation, either as the sole foundation for investing or to build upon with more complex investments.
  • Roth IRAs allow investors to avoid paying taxes on investment returns by investing after-tax income now.
  • The Fidelity Total Market Index Fund (FSKAX) and the Fidelity U.S. Bond Index Fund (FXNAX) are two options to consider when looking for Roth IRA investments from Fidelity.

Below, we take a closer look at one of Fidelity’s broad-based stock funds and one of its broad-based bond funds. Data is as of March 1, 2022 except holdings data which is as of January 1, 2022.

  • Expense Ratio: 0.015%
  • Assets Under Management: $1.3 billion
  • 1-year trailing total return: 7.5%
  • 12-Month Trailing (TTM) Yield: 1.25%
  • Inception Date: Nov. 5, 1997

FSKAX is a mutual fund that seeks to replicate the performance of a broad range of U.S. stocks, as represented by its index, the Dow Jones U.S. Total Stock Market Index. The fund, which invests at least 80% of its assets in common stocks included in the index, is managed by Deane Gyllenhaal, Louis Bottari, Peter Matthew, Robert Regan, and Payal Gupta. Their tenures on the fund range from 2.6 to 13.1 years. The fund’s 3,964 holdings include both value and growth stocks of large-cap companies based in the U.S.

A broad-based equity fund like FSKAX carries a certain degree of risk, but it also provides investors with fairly strong growth opportunities. For many investors, this mutual fund may act as the foundation of a well-diversified investment portfolio. However, for those with very low risk tolerance or who are approaching retirement, a more income-oriented portfolio may be a better option.

  • Expense Ratio: 0.025%
  • Assets Under Management: $57.7 billion
  • 1-year trailing total return: -2.0%
  • 12-Month Trailing (TTM) Yield: 1.86%
  • Inception Date: March 8, 1990

FXNAX is a mutual fund that seeks to track the performance of the Bloomberg Barclays U.S. Aggregate Bond Index, which is comprised of U.S. investment grade bonds and other debt securities. The fund, which invests at least 80% of its assets in the securities included in the index, is managed by Brandon C. Bettencourt and Richard Munclinger. Their tenure on the fund ranges from 1.3 to 7.7 years. Of the fund’s 8,317 holdings, 39.5% are U.S. Treasurys, 26.7% are pass-through mortgage-backed securities (MBS), 25.2% are corporate bonds, and the remaining holdings include government-related, domestic and international debt securities, commercial MBS, and asset backed securities (ABS). Essentially all of the fund’s holdings are rated investment grade with a BBB rating or higher.

A broad-based bond or fixed-income fund like FXNAX is generally less risky than an equity fund. However, bond funds don’t provide the same growth potential as equity funds, which means generally lower returns. They can be useful investment tools both for risk-average investors and as part of a portfolio diversification strategy. Consistent with modern portfolio theory, risk-averse investors will find that investing in a bond fund like FXNAX in combination with a broad-based equity fund provides a degree of diversification that maximizes the returns of the investor’s portfolio while minimizing its risks.

Is Fidelity a good Roth IRA?

Fidelity provides investors with a broad range of low-cost investment options to choose from for their Roth IRA. Investors have the option to have their accounts managed by professionals at Fidelity or manage their own investments. Fidelity offers investors access to more than 10,000 mutual funds from both the company’s family of funds and other fund companies. The company also offers online trading of ETFs, U.S. stocks, and options with zero commission fees.

Does Fidelity Roth IRA have fees?

There is no cost to opening a Fidelity Roth IRA and no annual fee. However, a $50 fee may apply to close out an account. The investments held in the account may be subject to other fees, such as management, low balance, and short-term trading fees. Also, online U.S. stock, ETF, and option trades are commission-free.

How much money do you have to have to open a Fidelity Roth IRA?

There is no minimum investment required to open either a Fidelity retail Roth IRA or a professionally-managed Fidelity Go Roth IRA. However, an investor needs to have an account balance of at least $10 in a Fidelity Go Roth IRA in order for Fidelity to invest money according to the investor’s chosen investment strategy. In order to be eligible for a Fidelity Personalized Planning & Advice Roth IRA, an investor must invest and maintain a minimum of $25,000 in aggregate across all such accounts.

The Bottom Line

A Roth IRA, including the kind offered by Fidelity, gives investors certain tax advantages, just like 401(k)s and traditional IRAs. Roth IRAs are unique in that they are funded with after-tax dollars and are not taxed when the funds are withdrawn at a later date. Thus, the returns generated from investing in a Roth IRA are tax-free. After opening a Roth IRA, the types of investments chosen will depend on the individual investor’s risk tolerance and the amount of time and energy the investor wants to put into researching various investment options. For those with not much time or energy, it’s not unreasonable to go with just a few large and diversified funds, allocating some portion of funds to a broad-based stock fund and another portion to a broad-based bond fund. But large, diversified funds such as these may also act as a solid foundation for investors who do have extra time and energy to analyze and evaluate other, perhaps risker, investment options, such as bets on individual companies, or investments in niche corners of the markets such as small-cap stocks.

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