What the Fidelity 500 Index Fund is

The Fidelity 500 Index Fund (ticker symbol FXAIX) is a mutual fund that tracks the S&P 500, a list of 500 large U.S. companies. When you own shares in this fund, you own a tiny piece of all 500 companies at once. The fund's job is to move up and down in value at nearly the same rate as the S&P 500 itself — it does not try to beat the market, it tries to match it.

Fidelity is the company that runs the fund. They collect money from investors, buy shares of the 500 companies in the right proportions, and hold them. You pay a small annual fee (called an expense ratio) for Fidelity to do this work. The fund is one of the largest and cheapest ways to own a broad slice of the U.S. stock market.

Key Takeaways

  • The Fidelity 500 Index Fund holds shares in 500 large U.S. companies and moves in line with the S&P 500 index.
  • The annual expense ratio is 0.015%, meaning you pay $1.50 per year for every $10,000 invested — one of the lowest costs in the industry.
  • You can buy this fund through a Fidelity brokerage account, a 401(k) plan, or an IRA, depending on where you have money to invest.
  • The fund pays dividends (usually quarterly) from the companies it owns, which you can reinvest or take as cash.
  • Because it tracks an index rather than trying to beat it, the fund's performance will lag the S&P 500 by roughly the amount of its fee.

How the fund's holdings are weighted

The Fidelity 500 Index Fund does not own an equal slice of each of the 500 companies. Instead, it weights each company by its market capitalization — the total value of all its stock. Apple, Microsoft, and Nvidia, which are worth trillions of dollars, make up a much larger portion of the fund than a smaller company worth tens of billions.

This weighting happens automatically. When you buy a share of the fund, your money goes into the 500 companies in the same proportions as the S&P 500 index itself. If Apple represents 7% of the S&P 500, then 7% of your investment goes to Apple. The fund rebalances periodically to stay in sync with the index as company values change.

The top 10 holdings typically account for roughly 30% of the fund's value, while the remaining 490 companies make up the other 70%. This concentration in large companies is built into how the S&P 500 is constructed, not a choice Fidelity made.

The annual cost and how it affects returns

The Fidelity 500 Index Fund charges an expense ratio of 0.015% per year. This means if you have $10,000 invested, you pay $1.50 annually. If you have $100,000 invested, you pay $15 per year. The fee is deducted automatically from the fund's value each day, so you never write a check — it straightforward reduces the return you see.

This fee is extremely low by industry standards. Many actively managed funds (funds where a manager tries to pick stocks to beat the market) charge 0.5% to 1% or more. Over decades, that difference compounds. A 0.5% fee instead of 0.015% costs you tens of thousands of dollars on a six-figure investment.

Because the fund's only job is to match the S&P 500, not beat it, the fund's return will be slightly lower than the index itself — by roughly the amount of the fee. If the S&P 500 returns 10% in a year, the Fidelity 500 Index Fund might return 9.985%. That tiny gap is the cost of owning the fund.

Where you can hold this fund

You can buy the Fidelity 500 Index Fund in several types of accounts. A regular Fidelity brokerage account lets you buy and sell shares whenever you want, with no contribution limits. You pay capital gains tax when you sell shares at a profit.

Many employer 401(k) plans offer this fund as an investment choice. If your plan includes it, you can direct your contributions into it. Money grows tax-deferred, meaning you do not pay tax on gains until you withdraw in retirement.

You can also hold it in a Roth IRA or traditional IRA through Fidelity. A Roth IRA lets your money grow tax-free and you withdraw tax-free in retirement. A traditional IRA gives you a tax deduction for contributions now, but you pay tax on withdrawals later. IRAs have annual contribution limits that change each year.

Dividends and how they work

The 500 companies in the fund pay dividends — cash payments to shareholders — throughout the year. The fund collects these dividends and distributes them to you, usually quarterly. The dividend yield (the annual dividend divided by the fund's price) varies year to year but typically falls between 1% and 2%.

When the fund pays a dividend, you have two choices. You can reinvest it automatically, buying more shares of the fund with the cash. This is the default at most brokerages and is usually the better choice for long-term investors because it compounds your growth. Or you can take the dividend as cash and spend it or invest it elsewhere.

Dividends are taxable in a regular brokerage account — you owe tax on them in the year they are paid, even if you reinvest them. In a 401(k) or IRA, dividends are not taxed until you withdraw money from the account.

How this fund compares to similar index funds

Several other companies offer S&P 500 index funds with similarly low fees. Vanguard's Vanguard 500 Index Fund (VFIAX) charges 0.04%, slightly higher than Fidelity's 0.015%. Schwab's Schwab U.S. 500 Index Fund (SWXRX) charges 0.03%. The differences are tiny — on a $50,000 investment, the annual fee difference between Fidelity and Vanguard is about $12.50 per year.

All three funds hold the same 500 companies and will perform nearly identically. Your choice between them usually comes down to where you already have an account or which brokerage you prefer to work with. If you have a Fidelity brokerage account or 401(k), the Fidelity 500 Index Fund is convenient. If you use Vanguard or Schwab, their versions are equally good.

The real distinction is between index funds (which track an index) and actively managed funds (which try to beat an index). Index funds almost always cost less and perform better over time, which is why the Fidelity 500 Index Fund is a common choice for long-term investors.

Frequently Asked Questions

What happens if a company in the S&P 500 goes bankrupt?

When a company is removed from the S&P 500, the fund sells its shares and buys shares of the company that replaces it. This happens rarely and the fund handles it automatically. You do not need to do anything.

Can I lose money in this fund?

Yes. If the stock market declines, the value of your shares falls. The S&P 500 has experienced declines of 20% to 50% during recessions and market crashes. However, historically it has recovered and reached new highs within a few years. Long-term investors who stay invested through downturns have recovered their losses and earned gains.

Is this fund better than picking individual stocks?

For most people, yes. Picking individual stocks requires time, research, and skill. Studies show that even professional stock pickers rarely beat the S&P 500 over decades. The Fidelity 500 Index Fund gives you when ready diversification across 500 companies for a tiny fee, which is why financial advisors often recommend it for retirement savings.

How often should I check the fund's value?

If you are investing for retirement, checking once or twice a year is enough. Checking daily or weekly can tempt you to sell during downturns, which locks in losses. The fund is designed for long-term holding, typically 10 years or more.

Can I set up automatic investments in this fund?

Yes. Most brokerages, including Fidelity, let you set up automatic monthly or weekly purchases. This is called dollar-cost averaging and removes the stress of trying to time the market. You invest the same amount on a regular schedule regardless of whether the market is up or down.