Introduction
In 1988, Fidelity Investments followed Vanguard's lead and dipped its toes into the nascent and often-ridiculed (at the time) world of index funds with the Fidelity 500 Index Fund (MUTF:FXAIX). Having since grown to a fund that manages 233.5 billion investor dollars as of the date of this writing, the impressive fund flows have mirrored the success and increasing popularity of passive investing in general. As a fund that tracks the S&P 500 index, it does a great job of accurately tracking its risk and return attributes, and is about as close to actually investing directly in the index an investor could hope for. Most investors rarely even consider tracking error these days, given the remarkable accuracy and sophisticated trading execution of most index funds today, but even in that context, FXAIX is a cut above the rest.
Where the fund really shines more than any other area is its rock-bottom fees. For passive investors looking for a cheap and dependable index-hugger, this is a fund I highly recommend. That said, the underlying index itself presents its own risks, particularly in today's environment, where certain sectors have begun to dominate the fund's behavior. In this article, I'll discuss the considerable merits of the fund, while highlighting some of the potential risks as well - as with any investment, a lot of your experience will depend on how you intend to use it.
The Cost
FXAIX has one of the very lowest expense ratios ('ER') in the entire fund industry, coming in at a mere 0.015%. That translates to just $1.50 per $10,000 investment (or $1.65, assuming a 10% return). This compares very favorably to the granddaddy of all index funds, the stalwart Vanguard 500 Index Fund (VFAIX), even when looking at its lowest-cost Admiral share class, with an ER
