How to Invest in Index Funds on Fidelity, Easy 3-Step Process

Investing in index funds is an excellent way to start investing. There is so much to learn when you first start that the thought of being able to pick and choose individual stocks can be overwhelming. My favorite investing broker, Fidelity, has so many tools to make your investing journey easier. I want to show you how to invest in index funds on Fidelity, and in an easy 3-step process from beginning to end.

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How to Invest in Index Funds on Fidelity…But FIRST, What is an Index Fund?

So you want to know how to invest in index funds on Fidelity, but you need to start at the basics:
What is an index fund? The simplest answer: a collection of stocks.

Index Funds are also referred to as mutual funds or ETFs(Exchange-Traded Funds).

These collections of stocks are usually grouped based on some similarity or theme.

An example of an index fund is one that matches the S&P 500. You can see how the S&P 500 performs by looking at the ticker symbol SPX but you can’t invest in SPX. Instead, you can invest in funds like SPY or VOO. The stocks chosen to be in this fund will match the S&P 500, weighted by Market Cap. When you purchase this fund, you’ve purchased pieces of the top 500 stocks in the United States.

But what if you don’t want to invest in the top 500 companies? Or want something different? Hold your horses, we’ll get to that in a little bit.

Index Funds are Great for Beginners…and Seasoned Professionals

You might ask yourself, “If I’m just starting, am I going to be investing in index funds forever? Aren’t they just for beginners?”

The brilliance behind index funds is that you CAN invest in them forever. Index funds always have a place in both beginner’s and seasoned investor’s portfolios.

There are countless stories of average investors who become millionaires by simply buying index funds. You can even look at 401(k)s! Most retirement accounts do not allow buying individual stocks. 401(k) programs provide several options for ETFs, Bonds, and Target-Date Funds….and people can retire as millionaires by contributing to these index funds. 401(k)s are an amazing place to build wealth, just read the Pros and Cons of 401(k)s.

Also, some investors have no interest in analyzing stocks, reading reports, or listening to earnings calls. If the S&P 500 returns an average annual return of 8%-10% per year, investors will gladly take those returns in exchange for not spending hours and days reading and researching which individual company to invest in.

One of the best investing strategies; set it and forget it.

Index Funds Provide Diversification

A common term that new investors hear about…but should not be concerned about…is diversification. Diversification is something that investors with larger accounts should worry about if the weighting of their investments becomes unbalanced.

But the beauty behind index funds is that they have built-in diversification.

If you invest in the index fund VOO (Vanguard S&P 500), you are buying stocks from every sector in the stock market. No need to worry about being invested in 100% of info-tech stocks or banking stocks….the diversification is already there by owning 500 companies at once.

AND, if you’re worried that VOO only has United States companies, and that you want to diversify with global companies, well there are other index funds out there that can achieve this!

The index fund, VWO Vanguard Emerging Markets Stock Index Fund, is an index fund that is specific to Emerging Markets. Therefore, you could invest in VOO and VWO, and you’ll see that your portfolio now has exposure to stocks in the United States, Asia, Latin America, etc.

Index Fund Expense Fees, Be on the Lookout!

The last bit I want to address before we go into how to invest in index funds on Fidelity…is that there is a cost for investing in index funds via expense fees or ratios.

Simple explanation; Expense fees exist because you need to pay someone to manage that fund, to determine what is included and excluded.

Keeping this explanation in mind, let’s think about VOO again. VOO mimics the S&P 500. VOO’s expense fee is 0.03%. VERY SMALL. Why is the VOO expense ratio so low? Well, the index is already created, it’s very easy to find what is in the S&P 500. The fund manager already knows what to put in that account. There is little work to do on their end.

Now, a more complicated index fund like FBCG Fidelity Blue Chip Growth ETF has an expense ratio of 0.59%, which is on the higher end. However, those fees are higher because they are re-balancing which stocks are included or excluded. The Annual Turnover Ratio of FBCG is 30%, which means they are adjusting 30% of the stocks contained in the index fund’s portfolio in a given year (VOO which tracks the S&P 500 has an Annual Turnover Ratio of 2% for comparison). The fund managers are probably spending more time reading over annual reports, attending earning calls, or reaching out to executives at companies for more information.

More work = Higher Fees.

Always important to check the fees versus what the index fund will return.

How to Invest In Index Funds on Fidelity – 3 Steps

Now that we have a basic understanding of an index fund, let’s answer how to invest in index funds on Fidelity.

Let’s review this 3-step process. Log into Fidelity and follow along!

Step 1 – What Index Funds are Available on Fidelity?

The first step in investing in index funds on Fidelity is finding which ones are available and where to find them.

Where do we start? ETF Screener.

Just like using a Stock Screener to pick individual companies based on certain metrics, Fidelity also offers an ETF Screener.

Once you log into Fidelity’s website, under the “News & Research” drop-down menu, you’ll see an “ETFs” section.

Next, you’ll be directed to a page that looks like this below. There’s a lot of info, so we’ll start from the top down. This header section looks similar to if you were to look at the Markets and Sectors, or if you wanted to investigate individual stocks. But stay on “ETFs”.

Once here, there are several boxes below that are helping to provide information on ETFs: news, screeners, portfolio-builders, market movers, etc. We’ll focus on the Fidelity ETF Screener menu.

How to Find Fidelity ETF Screener

One of the first mini-menus is Fidelity’s ETF Screener.

I won’t go too in-depth right now, we’ll cover in Step 2, but this is the best place to start to find all the available ETFs that Fidelity will trade. If you click on “Launch Screener Tool” it’ll take you to a detailed screener. You need to add one search criterion to see the funds, so click on “ETP Type”.

After selecting that, you’ll see 3,179 ETFs are available. Another search criteria will pop up, “Leveraged / Inverse”, leave it on “Not Leveraged or Inverse”. This list will automatically be sorted by the “Net Assets” column. In short, this will tell you the size of the ETF.

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We’ve found almost all ETFs! But with 3,179 to choose from, where do you begin? On to Step 2!

Step 2 – Choosing an Index Fund, You’ll Need to do a Little Research

Trying to pick one stock, one company, to invest in may seem like a challenge…but it does become easier with index funds.

However, you still need to know what to look for. Let’s do some high-level research!

K.I.S.S – Keep It Simple Stupid, Simple Index Funds Are the Best to Start With

When you start investing, the best way to start is to keep it simple. You’re not going to understand all the terms and metrics that are available on these index screeners. Give yourself time to invest in yourself and learn more.

And what is more simpler than investing in the entire market, or the largest companies in the stock market?

This whole time I’ve been talking about VOO and SPY, and there’s a reason for that. Those funds mimic the S&P 500, and the S&P 500 has a great track record of returning 8%-10% annually over a very long period of time. Even with the occasional recessions and dips in the market, there has never been a 20-year span where the S&P 500 has had negative returns.

There’s no surprise that VOO and SPY were on the top of that screener list.

Different Types of Index Funds – Get Some Variety!

Keeping it simple with a broad market index fund is great and all…but sometimes it’s a little boring. (But also there’s nothing wrong with boring investing!!!)

Index funds come in all shapes and sizes. And Fidelity does a great job helping you slice and dice index funds. When you get to that main screener page, it’ll offer different ways of selecting index funds. Fidelity has their own, iShares from Blackrock, and more! Depending on what type of investor you plan to be (which is VERY hard at the beginning) you might want to invest in small-cap companies via Market Cap. Or you want to index in the Information Technology sector.

Fidelity also offers some “fun” ETFs based on themes, Thematic ETFs. They’ll off index funds that: have low volatility, stocks that deal with cloud computing, EV (electric vehicles), clean energy, etc.

Trust me, there’s an index fund out there for you!

You Should Still Do Research on Index Funds

While investing in index funds is great with the ease of it and the amount of variety, you still want to do some research before you click that “buy” button. There are 2 things I always look for when I’m researching index funds: Expense Fees and Top Holdings.

How to Find an Index Fund’s Expense Fees on Fidelity

The downside of investing in index funds is that there are fees associated with investing in them. Nothing in life is free.

So where do we find this information on Fidelity?

Let’s look at Fidelity’s MSCI Information Technology Index ETF (FTEC). There are many places to find expense fees/ratios, but Fidelity makes it nice and easy by putting it in the first box in the “Overview” section. We’ll see that this Info Tech ETF has a Net Expense Ratio of 0.084%, which is pretty low compared to VOO of 0.03%.

If you’re confused about the “Gross” versus “Net” expense ratio, as a beginner, I wouldn’t worry about it too much. In most cases, the Gross and Net are the same.

The Top Holdings in an Index Fund

Another good bit of research when investigating ETFs…is what companies are in the fund. While you don’t need to know 100% of the companies in a fund, looking at the Top 10 is a good place to start.

Again, like the Expense Fees, Fidelity makes it very easy to find the Top 10 Holdings by placing them in the “Overview” section. Looking at the Info-Tech Index ETF (FTEC), you’ll see there are 302 stocks in this fund and the top 10 represent 62% of the entire fund. This shouldn’t be too surprising because Microsoft and Apple are the two biggest companies on the planet, plus the growing AI and chip makers companies like NVIDIA (NVDA).

By looking at these Top 10, you get a clear picture of what this index fund is trying to accomplish.

Step 3 – Place Your Order. You’re at the Finish Line!

Step 3, final step. Time to place your order.

Once you’ve determined what index fund you want to invest in, time to hit that “Buy” button.

First, I’m going to admit that I was so intimidated the first time I had to do this. So let me help you explain each part of the buying process.

Now the “Buy” button is everywhere on Fidelity’s website. But since we were just researching our Info Tech ETF, we can purchase right from this page. The “Buy” and “Sell” buttons are right below the header of the ETF. Click on that.

Next, the “Trade” window will pop up. Because you clicked the “Buy” button from that ETFs page, it’ll automatically populate the Symbol. You’ll also need to select which account you’ll be buying the ETF for.

From here, you only need to make 4 decisions.

Action – What you want to do with your Purchase.

This is already pre-populated with “Buy” because you clicked the “Buy” button on the ETFs page. You can leave this alone.

Quantity – How Much You Want to Buy

Quantity – This is where you decide how much you want to buy. It is asking you to put a quantity, which is the number of shares. If you want 1 share, it’ll be at the price shown, $154.92. Another great part about Fidelity is that you’re allowed to buy fractional shares. If you click the symbol next to quantity, you can select the dollar value you want to purchase ($100) and it will calculate how many shares you can purchase. In this case, you would get 0.645 shares for $100.

Order Type – Helps to Determine What Price You’ll Pay

Order Type – This was by far, the most confusing part when placing your first order. With all these options below, which should you choose? As a beginner, all you need to know is “Market” and “Limit”. Market means you’ll place the order ASAP. This means the price you’ll purchase at is based on the “Bid” and “Ask”. For the most part, this is the way to go. Limit means you get to pick the specific share price you’d like to purchase at. Right now, it shows $154.92, but if you want to purchase only at $154.00, you can set that Limit price and will purchase the number of shares when/if the price reaches that amount.

Time in Force – How Long Your Trade Will Stay Active

This option tells you how long the trade will be available.

There are several options to choose from, but there are only two you really need to use when you’re first starting.

The default Time in Force is “Day”. If the trade isn’t enforced on the current day, the trade will be canceled and you’ll have to create a new one the next day.

Now, in the previous selection, Order Type, if you had selected a Market Order, then the Time in Force won’t really matter, because that trade will execute almost immediately. But if you selected a Limit Order, and that stock price never reaches the price you set, if you had selected “Day” for Time in Force, then that trade will be canceled.

However, if you wanted to do a Limit Order of a certain price, but didn’t want the order to be canceled because the day ended, you could select Good til Canceled in the Time in Force. This will leave the trade open until that trade Order Type has been met, or until you cancel the trade.

But for beginners, you don’t need to be fancy with all these options. If on Monday you wanted to buy 1 share, rather than waiting for the price to move up or down a couple of pennies, just execute the trade and be done with it.

Lastly, Place the Order!

Once you’ve selected all these options, the last steps are pretty simple.

Click on “Preview Order”. It will summarize all the previous options you selected, giving you a chance to double-check your work. Always a good idea.

If you need to change something, you can always hit “Edit”. It will take you back to those options to change the quantity, order type, etc.

But if you are happy with your selections, click the “Place Order” button and you’ve just submitted your trade!

You Did It! You Know How to Invest in Index Funds on Fidelity!

If you’ve made it this far, great!!! You now know how to invest in index funds on Fidelity.

When I first started, it was hard to find these funds. I’d go to Social Media and see what the popular index funds that people were talking about. But how did they know what to invest in?

Well not only do you know how to invest in index funds on Fidelity, but you know how to research and find funds that you are interested in!

What’s Next? If you Want to Invest in an S&P 500 Index Fund, Let’s Learn More About the S&P 500!

While learning and exploring how to invest in index funds on Fidelity, we referred to index funds that mimicked the S&P 500 (VOO, SPY, etc.). But what is the S&P 500?

I highly recommend that any beginner, any Level Zero investor, read more about the What is the S&P 500.

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Thanks for reading! I hope this how-to walkthrough has helped you make your first index fund trade. Leave a comment below and let me know!

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Disclaimer

Levelzeroinvestor.com is not a registered investment, legal or tax advisor or a broker/dealer. All investments / financial opinions expressed by Levelzeroinvestor.com are from the personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.