Fidelity 500 Index Fund: How It Works
Most investors try to beat the market. The Fidelity 500 Index Fund takes the opposite bet: just own the market.
It is one of the simplest tools in investing. One fund, 500 companies, tiny fee.
Let's break down how it works and why it is so popular. Owning the fund is step one, but the returns come from what you do next, which is buying more of it on a schedule. Our free ABB (Always Be Buying) ebook covers exactly that.
What Is the Fidelity 500 Index Fund?
The Fidelity 500 Index Fund is a mutual fund that tracks the S&P 500. Its ticker is FXAIX.
The S&P 500 is a list of 500 of the largest companies in the U.S. When you buy the fund, you own a small piece of all of them.
- It is an index fund, meaning it copies an index instead of trying to beat it.
- It holds household names across many industries.
- It is designed to move roughly in line with the overall U.S. stock market.
Understanding how stocks work makes this click. Instead of guessing which single company wins, you own a slice of the whole group.
Why Index Funds Like This Work
Index investing sounds too simple to be smart. That simplicity is the point.
Most active funds that try to beat the market fail to do so over long stretches, especially after fees. An index fund sidesteps that game.
- Low fees. Index funds are cheap to run, so more of your money stays invested.
- Diversification. You own 500 companies, so one bad stock barely dents you. That spreading of risk is called diversification.
- Simplicity. No stock picking, no timing the market.
Fees matter more than beginners expect. A fund that quietly charges more each year drags on your returns for decades.
The Fidelity 500 Index Fund vs Other S&P 500 Funds
FXAIX is far from the only fund tracking the S&P 500. Many providers offer nearly identical products.
| Type | What it holds | Key difference |
|---|---|---|
| Fidelity 500 Index Fund (FXAIX) | The S&P 500 | A mutual fund, bought through Fidelity |
| S&P 500 ETFs (like VOO, IVV, SPY) | The same 500 companies | Trade like stocks all day |
Here is the honest truth. These funds all hold the same 500 companies, so the biggest difference is the fee and the format.
That is why choosing the best S&P 500 index fund usually comes down to picking the cheapest, most established option on the platform you already use.
Mutual Fund vs ETF: Which Format?
FXAIX is a mutual fund. Many rivals are ETFs (exchange-traded funds). The difference is mostly about how you buy them.
- A mutual fund like FXAIX trades once a day, after the market closes.
- An ETF trades all day like a normal stock.
For a long-term investor buying and holding, this rarely matters. You are not day trading either way.
Pick the format that fits your account. If you already invest at Fidelity, FXAIX is a natural, no-friction choice.
How to Use It in Your Portfolio
An S&P 500 index fund is a classic core holding. It can be most of a simple portfolio, or the anchor of a bigger one.
- Use it as a foundation, then add other pieces over time.
- Automate regular buys so you invest in good months and bad.
- Reinvest dividends to compound faster.
You do not need a fortune to start. You can begin with a little money and add steadily.
It also fits neatly inside retirement accounts. Holding it in a 401k or Roth lets your gains grow with big tax advantages, especially if you understand tools like a Roth conversion and non-taxable income.
What the Fidelity 500 Index Fund Is Not
An index fund is powerful, but it is not magic. Know its limits.
- It follows the market down too. When the S&P 500 falls, so does the fund.
- It only holds large U.S. companies, not the whole world or small firms.
- It will never beat the market, because it is the market.
That last point is a feature, not a bug. Chasing outperformance is how many investors underperform.
Some investors add other slices for balance, like international funds or steady energy stocks, and they avoid the temptation of lottery tickets like penny stocks. Building this kind of steady base is a core part of financial literacy.
The Bottom Line on the Fidelity 500 Index Fund
The Fidelity 500 Index Fund is a cheap, simple way to own 500 of America's biggest companies in one shot.
Pick a low-cost fund, automate your buys, and let time do the heavy lifting. Money grown this way is just one of the types of wealth worth building. This is education, not advice, and you can lose money investing.
Picking the fund takes an afternoon. Funding it takes decades. Our free Always Be Buying ebook walks through the automatic, keep-buying system that turns a low-cost index fund into a serious pile of money.
For educational purposes only. Not financial advice.
