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What If You Invest $200k in the BEST 5 Fidelity Index Funds — Transcript

by John's Money Adventures · 3,673 words · 616 segments · language en · Watch on YouTube

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0:00What happens when you take $200,000 and
0:04spread it across the five best Fidelity
0:06index funds? John's asking himself that
0:09right now. And the answer comes down to
0:12one thing. How he builds it.
0:15>> [music]
0:15>> Build it one way and John gets paid more
0:17than $6,000 a month for life. Build it
0:21another way, same $200,000,
0:24same five [music] funds, and the account
0:27grows into almost $13 million.
0:31In this video, John takes that $200,000
0:34and spreads it across five Fidelity
0:36index funds built to cover everything
0:39from America's biggest companies to the
0:41fastest growing corners of the world.
0:44Then he builds two completely different
0:46portfolios out of those same five. One
0:50tilted to pay him, one [music] tilted to
0:54grow.
0:55And by the end, you'll see how one
0:57version pays John over $6,200
1:00a month for life, and the other turns
1:03that same $200,000
1:06into a $12.8 [music] million account.
1:11So, here's where John starts. He's gone
1:13through just about every index fund that
1:15Fidelity offers, and he [music] keeps
1:17landing on the same five. There's a
1:19reason for that. Every portfolio worth
1:22building has a few jobs that need to be
1:25[music] filled. Number one, something to
1:27anchor it. Two, something to [music]
1:29grow it fast. Three, something reaching
1:32for the companies that aren't big yet.
1:34Four, something paying real income. And
1:38five, something betting on the parts of
1:41the world that everyone's written off.
1:44Five jobs, and these five funds handle
1:47them.
1:48Quick thing before we get into them in
1:50case you're newer to this. An index fund
1:53is just a basket of stocks that follows
1:55a set rule. Nobody's sitting there
1:58picking winners and losers. The fund
2:00owns whatever is in the index that it
2:02tracks, and that's it. That's why these
2:05things cost almost nothing to own, and
2:07why they tend to work so well if you
2:09just leave them alone over the long
2:12term.
2:13All right, the five funds. John starts
2:17with the one that holds everything
2:18together, the boring one, FXAIX,
2:23the Fidelity 500 Index Fund. This is the
2:27anchor.
2:28It tracks the S&P 500, which is
2:31basically the 500 biggest companies in
2:34America all in one fund. When you hear
2:36someone say, "Well, the market was up
2:38today." This is basically what they
2:40mean. The names inside are exactly who
2:44you'd guess, Nvidia, Apple, Microsoft,
2:47Amazon, Meta, and it leans heavy on
2:49tech, more than a third of the whole
2:52fund. John picks this one first and
2:54doesn't think twice about it. There's
2:56nothing to debate here. If you're
2:58building anything at all, this is the
3:00floor you build it on.
3:03One quick note before we get to the
3:04numbers because we're about to use the
3:06word dividend a lot. A dividend is just
3:10a slice of a company's profits that get
3:13paid back to you for owning the stock,
3:16usually every 3 months. Own more shares,
3:19get a bigger check. That's the whole
3:21idea.
3:23On the numbers, FXAIX runs a 1.06%
3:27dividend yield, a 6.84% dividend growth
3:30rate, and a 13.54%
3:33annual share price appreciation. And
3:36that appreciation number is the steady
3:38engine the rest of the portfolio gets
3:41measured against.
3:43So, the core gives John all 500 of those
3:46companies at their normal size, every
3:48one of them treated the same. But, a
3:50handful of those names [music] have been
3:52pulling most of the weight lately. And
3:54the next fund John picks is built
3:57[music] to lean right into them.
4:01the Fidelity Nasdaq Composite [music]
4:04Index Fund. If FXAIX is the anchor, this
4:08one [music] is the engine.
4:10It tracks the Nasdaq Composite, which is
4:13around 3,000 companies, [music] and it's
4:15packed with tech.
4:17One quick bit of context first, because
4:19this one trips people up. The Nasdaq
4:22isn't a company, and it isn't really a
4:24fund, either. It's a stock exchange, a
4:27place where stocks get bought and sold.
4:30It just happens to be where most of the
4:32big tech names list themselves. So, any
4:34fund [music] tracking it ends up tilted
4:37hard toward tech.
4:39Now, look at what's actually inside.
4:41Some top names you just saw in FXAIX,
4:44Nvidia, Apple, Microsoft, Amazon,
4:47Alphabet. But, the weights are a
4:50completely different story. In this
4:52fund, Nvidia alone is more than 11%. The
4:56top 10 holdings make up nearly 59%
4:59of the entire thing. So, you're not
5:01really getting 3,000 companies spread
5:03out evenly, you're getting a heavy bet
5:06on a few tech giant names with a long
5:09tail trailing behind them.
5:11John adds this one as his growth play,
5:14and the reason is basically one number.
5:17FNC MX comes in at a 0.47%
5:20dividend yield, a 6.91% dividend growth
5:24rate, and a 17.95%
5:28annual share price appreciation. That
5:3117.95%
5:33is the highest of any fund in this
5:35entire video. That's the upside. Just
5:38one thing to know, remember that tech
5:40heavy concentration cuts both ways. When
5:44big tech is running, the fund flies.
5:47When big Tech takes a hit, this is the
5:50one that feels it first and feels
5:52[music] it the hardest.
5:54FXAIX
5:55and FNCIMX have one thing in common
5:58though. They're both built out of
6:01giants, companies that already made it,
6:04which leaves a pretty obvious gap.
6:06Where's the [music] growth that hasn't
6:09happened yet?
6:11FSSNX,
6:13the Fidelity Small Cap Index Fund. And
6:16to introduce it, let me just read you a
6:18few of its top holdings. Bloom Energy,
6:21Core Mining, Fabrinet. If you've never
6:25heard of a single one of those, good.
6:27That's kind of the whole point of this
6:29fund. It tracks the Russell 2000, which
6:32is about 2000 small American companies,
6:35the ones that are too small to make it
6:37into the S&P 500. And unlike FNCIMX,
6:41nothing in here is a big bet. The top 10
6:43holdings add up to under 6% of the fund.
6:47No single company really moves the
6:49needle.
6:50>> [music]
6:50>> It's 2000 little shots on goal spread
6:53thin.
6:54The idea behind it is simple. Every
6:56giant inside FXAIX
6:59was a tiny company once as well. This is
7:02[music] John's bet that a few of these
7:04names turn into the giants of the next
7:0730 years. Run the numbers on FSSNX
7:11and you get a [music] 0.89% dividend
7:14yield, a 7.44%
7:16dividend growth rate, and a 9.6%
7:19annual share price appreciation.
7:22Now, I've got to be straight with you
7:23about this one because the numbers don't
7:25tell the story you'd expect. Small caps
7:29are supposed to be the high-risk,
7:31high-reward slice, the rocket fuel. But
7:34look at that 9.6% appreciation.
7:37It's the lowest we've seen so far, lower
7:39than both big US funds. Small companies
7:43have actually trailed the giants for
7:46years now. So why even hold this one at
7:49all?
7:50Well, not because the track record wins,
7:52because obviously it doesn't. John holds
7:55it because it's the one corner that the
7:57other four funds can't reach. The small
8:01stuff before it's big. That's not a sure
8:04thing, it's a bet and he's making it on
8:07purpose.
8:08And that is the whole American side of
8:11the portfolio. The biggest companies, a
8:14concentrated bet on the best of them,
8:16and a flyer on the smallest ones.
8:19But here's the problem with stopping
8:21there. Every dollar is still riding on
8:24one single country and no country leads
8:27forever. The US has had a brutal decade
8:30before where it went nowhere for years
8:33while the rest of the world kept moving.
8:35So putting a piece of your money outside
8:37America isn't betting against it. It's
8:40making sure your whole plan doesn't
8:43depend on one country winning every
8:45single decade.
8:46For this, John goes with FSPSX.
8:51The Fidelity International Index Fund.
8:54And this is the one that genuinely
8:56surprised him. Because the highest
8:58paying fund of the five isn't an
9:01American fund at all. It's this one.
9:04FSPSX tracks something called the MSCI
9:08EAFE, which is a fancy way of saying
9:11developed countries outside of the US.
9:14Think Japan, the UK, Germany,
9:16Switzerland, Australia, established
9:19economies, big stable companies. The
9:22kind of names you sort of half
9:24recognize. Nestle, Roche, AstraZeneca,
9:28HSBC, plus ASML, a Dutch company most
9:33people have never even heard of that
9:35builds the only machines on Earth
9:37advanced enough [music] to print a
9:40modern computer chip. They don't make
9:43the chips, they make the machine that
9:46makes [music] them possible. FSPSX does
9:50two jobs in this portfolio. The first
9:52one is income, and we'll get to exactly
9:54how much in just a minute. The second is
9:57insurance. If America hits a rough
10:00patch, this is the part of the portfolio
10:02that doesn't go down with it because it
10:04isn't tied to the US at all. Here's
10:07where FSPSX earns [music] its spot. A
10:105.8%
10:13dividend yield, a 6.85% dividend growth
10:16rate, and a 7% annual share price
10:19appreciation. That dividend yield at
10:225.8%
10:24is more than triple the next highest
10:26fund in the lineup. But sit with those
10:29numbers for a second because they pull
10:31in two directions. FSPSX pays the most
10:35of any fund here, while it grows the
10:38account the slowest of any fund here.
10:41Developed international has lagged the
10:44US for well over a decade. So, you've
10:47got the best income and the weakest
10:50growth living inside the same fund. Hold
10:53that thought because it's the exact
10:56tension the back half of this video runs
10:58on. So, developed international hands
11:01John the income and the stability, but
11:04those same developed economies are the
11:06slow-growing part of the world, which
11:09leaves one last piece,
11:10>> [music]
11:10>> the part of the world that's still on
11:13its way up. FPADX,
11:17the Fidelity Emerging Markets Index
11:20Fund. And this one's a flat-out
11:22contradiction. It's been one of the
11:24worst-performing corners of the market
11:26for about 10 years running, and it has
11:28the fastest-growing dividend of all five
11:30funds in this portfolio. Both of those
11:33are true at the exact same time.
11:36Emerging markets just means the
11:37economies that are still growing into
11:40their full size. Not the US, not Europe,
11:43places like Taiwan, South Korea, China,
11:47India. About 80% of this fund [music]
11:50sits in Asia. And it's top heavy in a
11:52way that's worth seeing for yourself.
11:55Taiwan Semiconductor is the company that
11:57takes machines like ASMLs and actually
12:00manufactures the chips. Most of the
12:03world's advanced chips come out of their
12:05factories. And it's more than 14%
12:07[music]
12:08of the whole fund on its own. One
12:11company on one island
12:13>> [music]
12:13>> carrying a seventh of everything in
12:16here.
12:17After that, it's Samsung, SK [music]
12:19Hynix, Tencent, Alibaba. All of them
12:22giants, none of them American.
12:25It's worth noticing actually. Nvidia
12:28anchored the American fund. ASML showed
12:31up over in Europe. And now Taiwan
12:34Semiconductor here in Asia. Chip makers
12:37are propping up every single corner of
12:40this portfolio on every continent. The
12:42whole modern market kind of runs on them
12:45now. John's reason for holding this one
12:48>> [music]
12:49>> is the dividend growth. The numbers on
12:51FPADX land at a 1.91%
12:54dividend yield, an 11.01%
12:57dividend growth rate, and a 7.71%
13:01annual share price appreciation. That
13:0311.01%
13:05dividend growth is the highest in the
13:07entire portfolio.
13:09So, that's all five. An anchor, an
13:12engine, a wild card, an income pair, and
13:16a long shot. Five funds, five jobs,
13:20done. But here's the part most people
13:22get completely backwards.
13:25Picking good funds, that's the easy
13:28part. Anyone can do it. The decision
13:30that actually changes John's life is how
13:34much of each one he buys. Because these
13:37exact five funds can be built two
13:40completely different ways. Lean the
13:42weights in one direction and this
13:45portfolio pays John every single month.
13:48Lean them the other way and it grows
13:51into something close to twice the size.
13:54Same $200,000,
13:56same five funds. The weighting is the
13:59entire strategy.
14:01Next, I'll walk you through the dividend
14:04[music] tilted portfolio, the version
14:06that pays John $6,273
14:09every single month for life. And in the
14:12end, you'll see how the growth tilted
14:14version takes that same $200,000
14:18and turns it into a $12.86
14:21million portfolio.
14:23So, let's build the first one, the
14:25version designed to pay him.
14:28This is the dividend tilted portfolio.
14:30Here's how the $200,000
14:32splits up. The biggest slice, 35%, goes
14:36to FSPSX, the [music] international
14:39fund. That's $70,000.
14:41It's the biggest piece because it's the
14:43one writing the checks. That 5.8%
14:46[music]
14:46yield is the cash actually landing in
14:49John's account. Next, 20% [music] into
14:53FPADX, the emerging markets fund,
14:56$40,000.
14:58This is the long shot, but remember,
15:00it's also got the fastest growing
15:02dividend of the five. In an income
15:05[music] portfolio, that matters a lot.
15:07It's the piece that grows the paycheck
15:09over time. [music]
15:10Then, 20% into FXAIX, the S&P 500,
15:16another $40,000.
15:18That's the quality anchor, keeping the
15:20whole thing grounded in America's
15:22biggest companies. 15% goes to FNCMX,
15:26the growth engine, $30,000.
15:29Even in an income build, [music] John
15:31wants some real growth in here, so the
15:33account doesn't just stall out. And the
15:36last 10%, $20,000,
15:39goes into FSSNX,
15:42the small-cap wildcard. The smallest
15:44slice, because in a portfolio built to
15:46pay you, the long shots stay small.
15:50Now, here's something that flips how
15:52this looks. Add up the American funds,
15:54FXAIX, FNCMX, and FSNX,
15:58and they come out to 45% of the
16:00portfolio. The two international funds
16:04are the other 55%.
16:06So, this isn't John turning his back on
16:09America, it's him letting the
16:10higher-paying side of the world take the
16:13lead while almost half the money stays
16:16home.
16:17Put those five weights together, and the
16:19dividend-tilted portfolio comes out to a
16:222.78%
16:23yield, a 7.75%
16:26dividend growth rate, and a [music]
16:2710.35%
16:29annual appreciation.
16:31So, that's the build. Here's what it's
16:33projected to actually do. After the
16:36first year, projections show the
16:38$200,000 growing to $226,272.
16:43Nothing wild yet. Give it 10 years, and
16:46it's projected to reach $668,839.
16:51By year 20, projections have it at
16:54$2,125,315,
16:58and by year 30, the dividend-tilted
17:01portfolio is projected to reach
17:03$6,492,396.
17:08By year 30, this portfolio is projected
17:11to pay John $75,282
17:15a year in dividends. That works out to
17:18$6,273
17:20a month every month for the rest of his
17:22life.
17:23And here's what makes that different
17:25from just selling off stock to live on.
17:28He doesn't touch [music] the account to
17:30get it. The $6,273
17:33is the dividends being paid out on their
17:35own. The shares stay invested. [music]
17:38The account stays whole and keeps right
17:40on growing. The money just shows up.
17:44Of the roughly $6.29 million this
17:47portfolio is projected to add on top of
17:49the original $200,000,
17:51about 5.45 million would come from share
17:54prices rising over time. The other
17:57$839,000
17:58or so would come from dividends being
18:01reinvested along the way. That word
18:04reinvested is doing a lot of work. So,
18:07quick explanation. Every time a dividend
18:10gets paid, instead of pocketing the
18:12cash, John uses it to automatically buy
18:15a few more shares. Those new shares then
18:18pay their own dividends, which buy more
18:20shares, which pay more dividends.
18:23Stretch that loop over 30 years and it
18:26turns into a snowball. So, that's the
18:29version built to pay John. $6.49 million
18:33in the account and $6,273
18:37landing every month without him selling
18:40a thing.
18:41But, that's only one way to build it.
18:43And John knows there's another version
18:46of him watching this, a version that
18:48doesn't care about the monthly check, a
18:50version that just wants [music] the
18:52biggest possible account at the end. So,
18:55what happens when he takes those exact
18:57same five funds and weights them in the
19:01opposite direction? [music]
19:03Same five funds, brand new weights, and
19:06they look almost nothing alike. Half the
19:09entire portfolio now, 50%, $100,000
19:14goes to FNCMX,
19:16the growth engine. That 17.95%
19:20appreciation was the highest of the
19:22group, and this [music] build leans on
19:25it as hard as it possibly can.
19:2725% goes to FXAIX, the S&P 500, $50,000.
19:33Still the anchor, just a bigger one this
19:36time, adding more steady large-cap
19:38growth. 10% goes into FSSNX,
19:42the small-cap wildcard, $20,000. Same as
19:46before, the longshot for some extra
19:48upside. 10% goes into FPADX, emerging
19:52markets, another $20,000.
19:55The bet is still on the table, just
19:57sized small. And finally, FSPSX, [music]
20:01the international fund that was the
20:02whole star of the income build, well, it
20:05drops all the way down to 5%, [music]
20:08$10,000.
20:10At this weight, it isn't paying the
20:12bills anymore. It's just a little
20:14insurance against the US having a bad
20:16stretch. Notice what happened to the two
20:19international funds. In the income
20:21build, they were 55%
20:24of everything. Here, they're only 15%.
20:27They basically swapped seats with the
20:30American growth names. This portfolio is
20:33now about 85% [music]
20:35American, and almost all of it is built
20:38to grow, not to pay.
20:41When you average those five together,
20:43the growth-tilted portfolio runs at a
20:451.07%
20:47yield, a 7.35%
20:50dividend growth rate, and a [music]
20:5114.44%
20:54annual appreciation. That appreciation
20:56number is what's about to do almost all
20:59the work. So, if the goal is the biggest
21:02possible number at the end, this is what
21:04that's projected to look like. After
21:07year one, it's projected at $231,022.
21:12By year 10, projections show the growth
21:15build reaching $825,205,
21:18already pulling ahead. By year 20,
21:21$3,285,871.
21:25The gap just keeps widening every decade
21:29faster than the one before. And by year
21:3130, the growth tilted portfolio is
21:34projected to reach $12,862,188.
21:40Almost $13,000,000
21:43out of that same $200,000.
21:46And almost all of that is one single
21:48thing. Share prices going up. Of the
21:52$12.66 million this portfolio is
21:55projected to add, about $12.47 million
21:59would come from appreciation alone. Only
22:02about $197,000
22:04of it would come from dividends. That's
22:06close to 98%
22:08pure price growth, and barely a sliver
22:11from income. Which shows up exactly
22:15where you'd expect it to. By year 30,
22:18this portfolio is projected to pay John
22:20$14,244
22:23a year. That's $1,187
22:27a month.
22:28So, John's now got two portfolios in
22:31front of him. And the one that grew
22:33almost twice as big is the one that pays
22:35him almost nothing. That's the part that
22:38doesn't [music] sit right with John at
22:40first. The income build ends at $6.49
22:44million, paying $6,273 [music]
22:47a month. The growth build ends at $12.86
22:51million, paying only $1,187
22:55a month. On the dividends alone, the
22:57smaller account pays more than [music]
22:58five times what the bigger one does.
23:01But hey, I know some of you are already
23:04running a different set of math in your
23:06head because there's another way to pull
23:09income out of that big account, and it's
23:12called the 4% rule.
23:14Quick explanation, the 4% rule is the
23:17standard guideline for living off of
23:20your investments. The idea is you can
23:23pull out about 4% of your portfolio
23:25every year in retirement and the account
23:28should last you. So, let's apply it. 4%
23:31of [music] that $12.86 million growth
23:34portfolio is $514,487
23:38a year, which comes to $42,874
23:42a month. That is a fantastic number.
23:45It's nearly seven times the income
23:48portfolio's $6,273.
23:52So, if your goal is the most spendable
23:55cash in retirement, the growth build
23:58using the 4% rule is genuinely hard to
24:02beat. That's a real valid way to do
24:05this. Now, 4% is just the starting
24:08point. If you want to play it safer, a
24:09lot of people pull 2 to 3% instead, so
24:12the money lasts even if they live to
24:14100. On this account, 3% is still
24:18$32,155
24:21a month. Sure, there will be some flex
24:23year to year, more in good markets, less
24:26after a bad one. Whatever number you'd
24:29actually use, you can run it on your own
24:31balance. The point is the big account
24:34gives you that flexibility.
24:36So, if the growth portfolio can pay that
24:39much more,
24:40why would anyone build the income
24:42version instead?
24:44Here's the one thing the 4% rule can't
24:47get around,
24:48selling.
24:49That $42,874
24:52a month only exists if John sells off a
24:55chunk of his shares every single year.
24:58He's slowly drawing the account down to
25:02pay himself. Meanwhile, the income
25:05portfolio's $6,273
25:08works differently.
25:10That's dividends being paid out while
25:13every share stays exactly where it is.
25:15The account doesn't shrink. In fact, it
25:18keeps growing. He never sells a thing.
25:22And that difference matters most the
25:25moment the market drops. Say it crashes
25:28the same year John retires.
25:30>> [music]
25:30>> With the growth portfolio, he'd be
25:32selling shares at the bottom just to
25:35cover his bills, locking in those losses
25:37for good.
25:38>> [music]
25:38>> There's a name for that risk. It's
25:40called sequence of returns risk, and
25:43it's one of the reasons people retire
25:44with huge accounts and still manage to
25:47run low. The dividend [music] portfolio
25:49doesn't care what the market did this
25:51year. The checks just keep coming.
25:54So, I know what you're asking. Which one
25:57actually wins?
25:59Both of them.
26:00That's the honest answer.
26:02The growth portfolio makes John richer,
26:05and it can hand him far more cash to
26:07live on as long as he's comfortable
26:08selling pieces of it and riding out the
26:12timing.
26:13The income portfolio pays less, but it
26:16never asks him to sell, and it never
26:18leans on good timing [music] to work.
26:21One version is a bigger pile he draws
26:23down over time. The other is a check
26:27that shows up every month while the
26:29whole account just sits there, still
26:31growing.
26:32That right there is the real decision
26:35John's making. Does he want a bigger
26:38number that he has to slowly take apart,
26:41or a steady paycheck that leaves the
26:43entire thing standing?
26:46But, that paycheck took $200,000
26:50to build. What if you don't have two
26:53hundred thousand dollars? What if all
26:55you've got is twenty-five dollars a
26:57week?
26:58Click the video on the screen to see how
27:00to earn five thousand dollars a month
27:03with only a twenty-five dollar a week
27:06contribution.

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