Index Fund Investing Research

Conducting Research

To research Fidelity’s S&P 500 Index Fund (Ticker: FUSEX), or another provider's, look it up on your brokerage's website (see notes on navigating to Fidelity's investment products below).

The key item I look for in any index fund are the fees or expense ratio.  FUSEX has an expense ratio of 0.09% meaning that this fund will charge 90 cents per year for every $1000 invested in management fees to own this fund.  Also evaluate how well funds track their underlying index over time referred to as tracking error.  Some providers will report this directly but if yours does not you can head over to Google Finance and plot your fund versus its benchmark overtime.  In the example below, Fidelity’s Russell 2000 Index Fund (Ticker: FSSVX) is plotted against the Russell 2000 Index (Ticker: RUT).  You can see FSSVX tracks its benchmark within reasonable error-there’s a pretty steady delta over time.  Note: over long periods the difference will be largely due to the management fee.

Because you want to make sure your portfolio is balanced it’s good to take a look at the composition of the underlying assets of your index fund.  I like to invest in the NASDAQ, because it contains a higher percentage of technology firms than the S&P 500.  However, the Technology firms leading the NASDAQ Google, Facebook, and Apple already make up a high percentage of the S&P 500 so if I bought both thinking I was diversified-I’d be dead wrong.  It’s also important to take a look at the countries you are investing especially for different international funds so check out the “Composition” tab to ensure you’re comfortable with your country exposure.

Though past performance is no guarantee of future returns I like to review historical fund returns under the “Performance and Risk” tab of Fidelity’s fund overview:

Another thing to be conscious of are capital gains if you are buying an index fund in a taxable investment account.  ETFs tend to be more tax efficient than even index mutual funds and so I have more ETF’s in my investment account versus my IRA or 401k.  On the “Fees & Distributions” tab you can see recent capital gains as well as dividend history.

And of course you should download and read the fund’s prospectus available in the upper right hand corner of the Summary tab.

Navigating to Fidelity’s Index Fund Offerings

When I first started using Fidelity I had difficulty navigating to their broad market index ETF’s and mutual funds. For some reason I only focused my attention on their factor and sector ETFs (looking back quite silly I know).  But for those of you who were like me overwhelmed by managing your own portfolio here’s a quick tutorial.  I could just provide hard links but it’s good to navigate around your brokerage's website-there's usually a wealth of useful information.

Index Mutual Funds
  1. Start at the Fidelity Home Page
  2. Click “Investment Products” on their Navigation Bar
  3. Click “Explore our fund offering”
  4. Click “Index” – everything else is some form of actively managed Fidelity fund
  5. Select the Index fund you’re interested in
    • Each is broken up into Investor or Premium Class
    • The class will determine the minimum required investment e.g. $2,500 or $10,000 as well as the fees you will be charged

Index ETF’s
  1. Start at the Fidelity Home Page
  2. Click on “Investment Products” on their Navigation Bar
  3. Click “iShares ETFs” or “ONEQ” if you’re interested in the NASDAQ-all other funds on that page are actively managed.
  4.  Navigate between “Domestic Equity” (US), “International Equity”, “Fixed Income” (Bonds), or “Commodity” Index Funds
  5. Select the Index ETF you’re interested in
    • The nice thing about ETF’s is there is no minimum investment other than the asset’s value or “share” price
    • Also, these can be traded  anytime throughout the trading day (like stocks) where mutual funds can only be purchased at the end of the trading day at its closing price

Note: I do not work for Fidelity nor do I believe they are the only good brokerage firm out there.  There are plenty of other options like Vanguard or TD Ameritrade that can meet your needs.  I selected their platform for this post for explanatory purposes only.


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