Should you invest in the Fidelity 500 Index Fund?

“Take intelligent risks, rather than follow the crowd,” advised Edward C. Johnson II who founded Fidelity in 1946. Today, Fidelity is one of the world’s largest asset managers with $3.3 trillion under management.

Fidelity has such a large variety of fund offers that it would be wrong to call the Fidelity 500 Index Fund a ‘flagship.’

But the Fidelity 500 Index fund is one of the most popular investments in the US, because it is cheap to invest in (meaning that management fees are low) and its performance has been stellar.

Says researcher Morningstar: “The Fidelity 500 Index fund is one of the best US large-cap funds available, because it is one of the cheapest funds and tracks the well-constructed S&P 500. It has a high probability of outperforming the large-blend category (meaning funds that represent large parts of the stock market) average over time and earns a high Morningstar rating.”

The large-blend category is one which invests most of its funds in blue-chip stocks, and this keeps the risk ratio to a minimum. The S&P revamps the index regularly; recently Tesla joined the S&P, and that’s not surprising given its very large market capitalisation.

The fund is a favourite of retirement plans in the US, and is indeed among the best-performing funds of its type with a 10-year return of 12.64 per cent as of February 2020. With a net expense ratio of 0.015, the fund is easy to buy into, and the fund has no minimum investment.

Time and patience are required for this type of investment. But the payoff is striking if you can wait.

To illustrate this, let’s say that you had invested $10,000 in a low-cost S&P 500 index fund in 1980. Since January 1, 1980, the S&P 500 index has generated a total annualised rate of return of approximately 11.75 per cent as of this writing.

Assuming an expense ratio of 0.1 per cent on your index fund (you can find even lower costs now), this means that a $10,000 investment would have turned into just over $942,600 as of December 31, 2020.

In other words, your $10,000 investment has become nearly $1m. Why? Because over long periods, the S&P 500 continues to rise, and because time is valuable.