Best Fidelity 401K Funds For Your Retirement Plan

Fidelity 401(k) plans are renowned for their managers' stock-picking prowess, and the company holds an annual contest for its portfolio managers. While Fidelity offers a wide range of funds, selecting the best one is no easy task. The company runs about 575 funds catering to everyone from retail investors to members of 401(k) plans.

Fidelity's best funds for 401(k) retirement savers include the Fidelity Balanced Fund, the Fidelity Blue Chip Growth Fund, the Fidelity Contrafund, and the Fidelity Freedom Target-Date Series. The Fidelity Freedom 2030 fund, for example, holds 64% of its assets in stocks and 35% in bonds.

When choosing a 401(k) fund, it's important to consider your financial goals and risk tolerance. Some investors might prefer a single fund option, such as a target date or target allocation fund, while others might want to choose their own investment mix from the menu of options provided by their employer.

- Fidelity ZERO Large Cap Index Fund (FNILX)

- Fidelity Mid Cap Index Fund (FSMDX)

- Fidelity U.S. Sustainability Index Fund (FITLX)

- Fidelity Contrafund (FCNTX)

- Fidelity ZERO International Index Fund (FZILX)

- Fidelity Strategic Income Fund (FADMX)

- Nasdaq Composite Index Fund (FNCMX)

- Fidelity Conservative Income Bond Fund (FCNVX)

- Fidelity Balanced Fund (FBALX)

- Fidelity Total Bond Fund (FTBFX)

Target date funds

Fidelity Freedom Funds are a good example of target date funds. They are designed to help investors save for retirement without the guesswork. Each fund invests in a mix of different types of assets, offering growth potential while reducing risk. Fidelity's investment team gradually shifts and regularly rebalances the asset mix of each fund, providing a hassle-free way to invest.

Here's how it works: you choose the fund that matches your anticipated retirement year. The "target date" of a target date fund is the year you expect to retire. Then, you start investing for your future. As you get closer to retirement, the fund becomes more conservative, reducing its equity exposure and increasing investments in bonds and short-term funds.

For example, the Fidelity Freedom 2040 Fund is designed for people expecting to retire within a few years of 2040. It is currently allocated with approximately 90% stocks, with the remainder in bonds and cash. As the target date approaches, the fund will gradually shift to a more conservative allocation.

Target allocation funds

For example, the Fidelity Asset Manager 20% fund maintains an equity allocation of around 20%, while the Fidelity Asset Manager 85% fund maintains an equity allocation of about 85%. Choosing the right fund depends on your risk tolerance, time horizon, and investment goals. If you are less comfortable with risk or have a shorter time horizon, a fund with lower equity exposure may be more suitable. On the other hand, if you are more comfortable with risk or have a longer time horizon, a fund with higher equity exposure may be a better option.

Fidelity's target allocation funds are actively managed and rebalanced to their target allocation on a quarterly basis. The funds combine Fidelity's expertise in asset allocation and security selection, offering investors a diversified portfolio that is aligned with their risk tolerance. These funds are a good choice for investors who want a single-fund solution for their retirement savings and don't want to worry about actively managing their portfolio.

Fidelity's Freedom Target-Date Series, which includes funds with target retirement dates from 2020 to 2050, are also worth considering. These funds are designed for investors who want an expert to handle their retirement savings, and they have consistently performed well, ranking in the top quartile of their respective peer groups in most calendar years. The funds hold a mix of stocks and bonds, with the stock allocation decreasing and the bond allocation increasing as the target retirement date approaches.

Managed accounts

Fidelity offers a range of managed account options, from digital investment management to working directly with a Fidelity advisor. With digital investment management, you can choose an investment strategy online and then use Fidelity's planning resources to get clear next steps and track your progress. This option includes automatic rebalancing to keep your strategy on track. There is no minimum amount required to open a digital account, but you will need at least $10 in your account for Fidelity to invest according to your chosen strategy.

Fidelity also offers managed accounts with access to coaching. This option provides professional, affordable money management, with a minimum investment of $5,000. You will also have access to coaching once your balance reaches $25,000.

If you want a more personalized investment strategy, you can work directly with a Fidelity advisor. This option involves a higher minimum investment, typically $50,000 for Fidelity Wealth Management services. A dedicated advisor will help build a plan around your full financial picture and choose an investment solution to support your goals.

Asset allocation funds

Fidelity offers a range of asset allocation funds to cater to different investment needs. These funds combine domestic and international stocks with varying styles and market capitalisations, investment-grade and high-yield fixed income, and short-term investments. The allocation of stocks in these funds can range from as low as 20% to as high as 85%, allowing you to choose the level of equity exposure that aligns with your risk tolerance, time horizon, and investment goals.

For example, the Fidelity Asset Manager 20% fund is suitable for investors who are averse to risk or have a shorter investment time frame. On the other hand, the Fidelity Asset Manager 85% fund is designed for those who are comfortable with higher risk and have a longer investment horizon.

Fidelity's asset allocation funds benefit from the company's extensive research capabilities and adherence to strategic goals and principles. The funds are regularly rebalanced to maintain the desired asset allocation and risk level, ensuring that your portfolio stays on track.

In addition to the standard asset allocation funds, Fidelity also offers target date funds, which gradually become more conservative as they approach a specific target date, usually the investor's retirement year. These funds are designed to provide modest growth with below-average risk and are a popular choice for retirement savers.

Index funds

Fidelity offers a wide range of index funds, including those that track U.S. stock market indexes of all market caps, international equity markets, emerging markets, and bonds. Fidelity also offers sustainable index funds, which focus on companies with positive environmental, social, and governance performance.

Fidelity Nasdaq Composite Index Fund (FNCMX)

FNCMX is designed to closely track the price and yield of the Nasdaq Composite Index. The fund typically invests at least 80% of its assets in common stocks included in the index, with a heavy focus on technology companies. Over the past 10 years, its average annual return has been more than three percentage points better than the S&P 500.

Fidelity ZERO Large Cap Index Fund (FNILX)

FNILX is part of Fidelity's ZERO mutual funds, which charge no expense ratio. The fund tracks the Fidelity U.S. Large Cap Index and has outperformed its stablemate, the ZERO Total Market Index Fund (FZROX), over the past one, three, and five years. FNILX has a superior "economic moat" rating by Morningstar, indicating that its holdings have the potential to fend off rivals for the next 10 years. Top holdings include Microsoft, Apple, Nvidia, Amazon, Alphabet, Meta, Berkshire Hathaway, and Eli Lilly.

Fidelity Mid Cap Index Fund (FSMDX)

FSMDX is a well-diversified fund with a solid B+ financial health rating from Morningstar. It invests primarily in mid-cap stocks, with some exposure to small and large caps. This fund is a good choice for investors seeking diversification, as smaller companies tend to be more nimble and can outperform over long periods.

Fidelity U.S. Sustainability Index Fund (FITLX)

FITLX is a large-cap ESG index fund that has outperformed its large-cap blend Morningstar category over the past one, three, and five years. The fund's managers bet big on their top ideas, with 45% of its assets invested in its top 10 holdings, including Microsoft, Nvidia, Tesla, Eli Lilly, and Visa.

Fidelity ZERO International Index Fund (FZILX)

FZILX is a no-cost fund that seeks to deliver returns in line with the total return of foreign developed and emerging stock markets. With the U.S. accounting for only 42.5% of the global stock market value, international stocks can offer more bargains and lower price-to-earnings ratios. FZILX holds over 2,200 stocks, including well-known brands such as Novo Nordisk, Samsung Electronics, Toyota, Nestle, AstraZeneca, and Shell.

Fidelity Total Bond Fund (FTBFX)

FTBFX is a core bond fund that has outperformed its Morningstar category averages over the past one, three, five, 10, and 15 years. The fund managers have the flexibility to allocate up to 20% in non-investment-grade bonds, and the fund benefits from an actively managed turnover ratio.

These Fidelity index funds offer a range of options for investors looking to diversify their 401(k) plans, with a focus on low costs and strong performance.

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