Fidelity International is best known for its zero-commission trading and low-cost mutual funds, but few know it also has a strong line of ETFs.
Do you want to know how to buy ETF on Fidelity? We checked it out and created a guide for you.
Can You Buy ETFS Through Fidelity?
Yes, you can buy exchange-traded funds (ETFs) through Fidelity.
Fidelity offers trading in many financial products, such as stocks, options, ETFs, mutual funds, and even cryptocurrencies.
In fact, Fidelity offers zero trading fees on ETFs, which might be a big draw for investors in this financial instrument to come to this platform.
Buying an ETF on Fidelity is a simple five-step process involving choosing your ETF, selecting how to pay for it, and deciding what price to buy it.
The steps are as follows:
- Login to your account
- Enter the stock ticker for the ETF you want to buy
- Choose “buy” (or sell, for the reverse process)
- Select how to buy – Dollars or shares, and enter the amount
- Opt for the right order type – Market or Limit
Market orders are executed immediately at the current price of the ETF, whereas limit orders allow the buyer to set a price at which they want to buy.
If the ETF reaches that price, the limit order gets executed; otherwise, it gets deleted. This helps traders set a prospective price that they feel would be a good deal for them.
For example, if an ETF is trading at $210, users can create a limit order for $205.
If the price falls down to $205 in some time, the order is immediately executed, and the stock comes into their account.
But the order is not executed if the ETF does not touch $205.
There is one final step in the process when setting up a limit order. The buyer has to choose how long the order will stay open: for the day or good till canceled (GTC).
GTC orders are canceled if the trade is not executed for the next 180 days.
Day orders will get canceled when the market closes for that day.
How Do I Choose an ETF for Fidelity?
Apart from the expense ratio, it is important to understand the underlying stocks and markets of an ETF, as well as the tracking difference between the fund and the index it follows.
Most people look at just the expense ratio and think that the one with the lowest is the best ETF for them.
However, it is also important to look at what underlying assets and markets an ETF is following. If it does not match your investment objectives, don’t buy it.
For example, an ETF tracking the S&P 500 (which is very broad-based with 500 stocks) is very different from one following the Dow Jones Industrial Average (which has only 30 stocks).
Similarly, ETFs that focus on sector investing can be very different from those that only track indexes, such as the two above.
Risk also varies by asset class. An equity ETF may have much higher fluctuation, and the risks could be much greater when compared with a bond ETF.
Lastly, those funds focused on emerging economy stocks will behave very differently from those that only trade in US stocks.
Another factor to consider is that most ETFs may not track their indexes perfectly, especially in volatile markets.
If the difference between the ETF returns and the index returns is very high, it’s best to look at how positive or negative the difference is and then buy accordingly.
Does Fidelity Charge For Trading ETFs?
While Fidelity does not charge commissions for trading an exchange-traded fund, these trades are subject to activity assessment fees.
These could range from anywhere between $0.01 to $0.03 per $1,000 of the principal amount.
Moreover, ETFs are subject to management fees and other expenses.
Returns on ETFs are also subject to market fluctuation, and of course, any investment involves risk. You can lose money on ETFs just like you can on other financial instruments.
Are Fidelity ETFs Any Good?
While Fidelity is better known for its low-cost mutual fund lineup, it also has a portfolio of about 50 exchange-traded funds.
These include actively managed and passive ETFs, and they offer an investor a good range of choices.
While most of these are less than five years old, a few are older and have significant assets under management.
Funds like Fidelity MSCI Information Technology Index ETF and Fidelity Nasdaq Composite Index ETF are more than five years old and have offered higher than 15% returns in that time.
Which ETF to Buy for Beginners?
For beginner investing, we suggest the following three ETFs, each covering a separate segment of the market:
- iShares Core S&P Total U.S. Stock Market ETF (NYSE:ITOT)
- SPDR Portfolio S&P 500 Value ETF (NYSE:SPYV)
- Vanguard Small Cap Index Fund (NYSE:VB)
The iShares Core S&P Total US Stock Market ETF tracks the S&P Total Market Index.
It is a broad-based index that includes small-cap, mid-cap, and large-cap stocks. Its management fee is 0.03%.
SPDR Portfolio S&P 500 Value ETF tracks the S&P 500 Value Index.
It selects stocks based on earnings-to-price, book value-to-price, and sales-to-price ratios. The gross expense ratio of the fund is 0.04%.
Vanguard Small Cap Index Fund tracks the CRSP US Small Cap Index. It is a fully replicated and passive ETF with an expense ratio of 0.05%.
How Many ETFs Should I Own?
Most investing gurus advise having 5-10 ETFs in your portfolio. These securities are primarily a source of portfolio diversification, and 5-10 is usually enough for that purpose.
However, what matters more than the number of ETFs is actually the types of markets, asset classes, and investing strategies covered.
For example, buying five funds that are all focused on small-cap stocks does not increase diversification.
But choosing one focused on each of small/mid-cap stocks, large-cap securities, commodities, REITs, and emerging markets might be considered more diversified, with lower risk.
All ETFs carry the risks of their underlying investments, but when traders combine them in this way, the overall portfolio risk is lower.
What’s Better Index Fund or ETF?
ETFs are traded all day, typically allow lower minimum investments, and are more tax efficient than Index Funds.
For intraday traders, ETFs are more beneficial because they can benefit from price movements throughout the day.
However, for long-term investors, this factor does not matter much.
In terms of expense ratios, both can be very inexpensive.
However, you might incur trading costs when you buy or sell ETFs regularly, which can eat into profitability. That said, one big positive for them is that they are much more tax efficient.
Their trading happens between buyers and sellers on stock markets, which does not create capital gains for the issuer.
For index funds, this trade happens between the buyer/seller and the fund issuer, which makes them liable to capital gains tax.
Moreover, ETFs also structure buying and selling with brokerage services through “creation units,” which they trade in kind rather than cash
Since no trading happens in cash, there are no capital gains.
Overall, both index funds and ETFs are good investment strategies for portfolio diversification and passive investing.
Where Should I Buy ETFs?
Here are five of the best online brokerage services to buy ETFs:
- Vanguard Group
- Fidelity Investments
- Charles Schwab
- E-Trade Financial
- TD Ameritrade
All five have zero trading commissions on ETFs, do not need any upfront payments to open a brokerage account, and offer all their ETFs commission-free to investors.
Fidelity offers a range of investing services, investment advice, and personal finance-related tools, but few know that it also offers ETFs.
In fact, learning how to buy ETF on Fidelity is very easy; it takes only a few minutes. Fidelity does not charge for ETF trading, but other expenses could be involved.
Additionally, some of the ETFs offered by Fidelity have performed exceedingly well over the last five years.
We suggest you visit their website to learn more about their ETF trading platform and ETFs.