3 Best Fidelity Index Funds To Supercharge Your Roth IRA

Summary

In this video, the speaker emphasizes the power of long-term, tax-advantaged investing using Roth IRAs and low-cost index funds. They recommend funds like Fidelity's Total Stock Market, Small Cap, Mid Cap, and Large Cap Index Funds for broad, diversified exposure to the US market, along with international options for global diversification. The speaker highlights the importance of growth-focused investments over bonds and real estate for wealth-building, illustrating the potential returns over decades. They also stress the value of low expense ratios and staying informed about the performance of different sectors for optimal portfolio growth.

Takeaways

• 😀 A Roth IRA allows tax-free growth over decades, making it ideal for long-term investing.
• 😀 Contributions to a Roth IRA can be withdrawn anytime without penalties, but the goal is to grow the account for retirement.
• 😀 Focusing on growth-oriented investments rather than bonds, real estate, or income-focused assets is recommended for Roth IRAs.
• 😀 Fidelity Total Stock Market Index Fund (FSKAX) is suggested as a foundation for a portfolio, providing exposure to the entire US economy.
• 😀 Splitting investments into small-cap (FSSNX), mid-cap (FSMDX), and large-cap (FXSIX) funds allows more control and tracking while mirroring total market exposure.
• 😀 Fidelity Large Cap Growth Index Fund (FSPGX) is recommended for aggressive growth, heavily weighted in top tech companies like Apple and Microsoft.
• 😀 Higher growth funds come with higher volatility, but Roth IRA's long-term horizon can absorb market fluctuations.
• 😀 Fidelity Total International Index Fund (FTIHX) provides global diversification outside the US, including developed and emerging markets.
• 😀 Avoid overlapping investments; for example, total US stock market (FSKAX) and S&P 500 (FXSIX) funds have ~90% overlap.
• 😀 Low-cost, diversified index funds are preferred, as high fees can erode long-term returns.
• 😀 Diversification across sectors and geographies helps mitigate risk while maintaining growth potential.
• 😀 Historical performance is informative but does not guarantee future results; long-term strategy and consistency are key.
• 😀 Investors should conduct their own research and make personalized financial decisions before investing.

Q & A

What is the main advantage of investing in a Roth IRA?

The main advantage of a Roth IRA is that investments grow tax-free and withdrawals at retirement are tax-free. Contributions can also be withdrawn at any time without penalties.

Why does the speaker advise against investing in bonds or income-generating assets in a Roth IRA for young investors?

Because young investors have decades before retirement, focusing on growth-oriented investments like index funds maximizes long-term wealth, whereas bonds and income-generating assets typically provide lower growth.

How does investing $7,000 per year at a 7% growth rate compare to a 10% growth rate over 30 years in a Roth IRA?

At 7% annual growth, the portfolio grows to approximately $661,000 by age 60. At 10% growth, it would grow to about $1.1 million, demonstrating the impact of higher returns over a long time horizon.

What is the foundation fund recommended for a Roth IRA portfolio, and why?

The foundation fund is Fidelity's Total Stock Market Index Fund (FSKAX) because it provides broad exposure to the entire U.S. economy with a low expense ratio, making it an easy and diversified choice.

What is the difference between investing in FSKAX versus splitting investments into small, mid, and large-cap Fidelity funds?

FSKAX offers full U.S. market exposure in one fund, while splitting into FSSNX (small-cap), FSMDX (mid-cap), and FX (large-cap) allows investors to control allocations and track performance separately, though it requires more management.

What should investors be aware of when holding both the S&P 500 (FX) and Total Stock Market Index Fund (FSKAX)?

They should be aware that these funds have around 90% overlap in holdings, meaning they contain almost the same investments, which could reduce diversification.

What is the purpose of including Fidelity's Large Cap Growth Index Fund (FSPGX) in a Roth IRA portfolio?

FSPGX serves as the aggressive growth component, focusing on large-cap growth stocks with higher volatility, suitable for long-term investment in a Roth IRA to maximize potential returns.

How does the Fidelity Total International Index Fund (FTIHX) diversify a portfolio?

FTIHX provides exposure to over 5,000 international stocks across developed and emerging markets, reducing reliance on U.S. stocks and increasing global diversification, though it has a higher expense ratio.

Why does the speaker mention reducing international exposure in taxable accounts but still including it in a Roth IRA?

Many U.S. companies already generate significant revenue internationally, reducing the need for international stocks in taxable accounts. However, including international exposure in a Roth IRA can provide global diversification without immediate tax consequences.

What is the general investment philosophy recommended for a Roth IRA in this video?

The philosophy is to focus on strong, low-cost, diversified index funds with long-term growth potential, avoid short-term income-focused investments, and maintain a consistent strategy over decades.

How do expense ratios affect long-term investment performance, and which funds mentioned are the lowest cost?

Lower expense ratios reduce the fees deducted from returns, allowing more of the investment to grow over time. FSKAX and FX have the lowest expense ratios at 0.015%, making them very cost-efficient.

What historical performance trends are highlighted for U.S. versus international index funds?

U.S. index funds like FSKAX, FX, and FSPGX have historically averaged 9–12% annual returns, while international funds like FTIHX have been more volatile with lower historical averages around 6–8%, though future performance is uncertain.