For many investors, building a diversified portfolio is one of the first steps in investing. Fidelity Investments’ extensive range of ETFs offers a powerful toolkit to achieve this.
ETFs may provide enhanced diversification, transparency, and lower expense ratios compared to traditional mutual funds. This makes ETFs a compelling option as the building blocks of portfolios. Here’s a step-by-step guide to constructing a diversified portfolio using Fidelity ETFs.
Step 1: Define Investment Goals & Risk Tolerance
Before selecting any ETFs, understand your financial objectives and your comfort level with risk. A longer time horizon typically allows for greater risk, while shorter-term goals may require a more conservative approach. For instance, a younger investor might lean towards a higher percentage of equities, while an investor nearing retirement might prioritize income and capital preservation with a larger fixed income allocation.
Step 2: Determine Your Asset Allocation
Asset allocation is the division of the portfolio across different asset classes. This article will focus solely on stocks and bonds, although cash and cash equivalents and commodities are often included. A common starting point for a growth-oriented portfolio may be 60% stocks and 40% bonds, but this should be adjusted based on the investor’s risk tolerance and time horizon.
Within equities, investors may consider diversifying across market capitalizations (large, mid, small cap) and geographies (U.S. and international). For bonds, think about diversification by credit quality (investment-grade, high-yield) and duration.
Step 3: Select Fidelity ETFs to Fit Your Desired Allocation
Fidelity offers a wide array of ETFs across various asset classes, often with competitive expense ratios and commission-free trading within a Fidelity brokerage account.
- Equity Exposure: For broad U.S. stock market exposure, consider the Fidelity Enhanced Large Cap Core ETF (FELC ) or the Fidelity Fundamental Large Cap Core ETF (FFLC ). For more targeted exposure, investors may look into Fidelity’s sector-specific ETFs such as the Fidelity MSCI Information Technology Index ETF (FTEC ) or those focusing on growth with the Fidelity Blue Chip Growth ETF (FBCG ) or value, with the Fidelity Enhanced Large Cap Value ETF (FELV ).
- International Equity Exposure: To diversify globally, consider broad international equity ETFs like the Fidelity Enhanced International ETF (FENI ) or the Fidelity International Multifactor ETF (FDEV ). The Fidelity Emerging Markets Multifactor ETF (FDEM ) is another option for investors that prefer more targeted exposure.
- Fixed Income Exposure: For the bond portion of your portfolio, Fidelity provides various ETF offerings to choose from. The Fidelity Investment Grade Securitized ETF (FSEC ), the Fidelity Low Duration Bond Factor ETF (FLDR ), and the Fidelity Corporate Bond ETF (FCOR) are just three options.
For more news, information, and analysis, visit the ETF Investing Content Hub.
Fidelity Investments® is an independent company unaffiliated with VettaFi LLC (“VettaFi”). These articles do not form any kind of legal partnership, agency affiliation, or similar relationship between VettaFi and Fidelity Investments, nor is such a relationship created or implied by the articles herein. VettaFi LLC is the author and owner of these articles.
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