Scribner Fidelity Index Fund Selection Framework

// When should you use the Fidelity Index Fund Selection Framework?

Use this skill when a user is opening a Fidelity account, building or restructuring a long-term investment portfolio, or deciding how to allocate money across Fidelity's fund lineup. Also applicable when a user is choosing between broad market exposure, international diversification, tech concentration, or bond stability.

// What information do you need before selecting Fidelity index funds?

• investor_agerequired
  User's current age, used to apply the 120 Rule for stock/bond allocation
• risk_tolerancerequired
  User's comfort with volatility — conservative, moderate, or aggressive
• us_vs_international_preferencerequired
  Whether the user wants US-only exposure, global diversification, or a blend
• tech_stancerequired
  Whether the user wants to reduce tech concentration, maintain market-weight tech, or actively increase tech exposure
• time_horizon
  How many years until the user plans to access this money (e.g. years to retirement)
• portfolio_model_preference
  Whether the user prefers the 2-fund (120 Rule) or 3-fund portfolio model

// What are the core principles behind choosing Fidelity index funds?

// How do you select and allocate Fidelity index funds step by step?

1. 1

   Establish the user's core equity foundation

   Ask whether the user wants exposure to America's largest ~500 companies (FXAIX, expense ratio 0.015%) or the broadest possible US market including small and mid caps (FSKAX, expense ratio 0.015%). If the user is undecided, default to FXAIX — it sits at the top of most investors' lists and the performance difference versus FSKAX is now marginal. Remind the user that both have identical expense ratios and both are heavily weighted toward big tech due to market value weighting.

2. 2

   Assess the user's stance on tech concentration

   Explain that roughly 39% of every dollar in FXAIX goes into the top 10 tech holdings, with ~15 cents of every dollar going into just Nvidia and Apple alone. Ask: does the user want to reduce this concentration, accept it, or amplify it? If reduce → proceed to Step 3 (international). If amplify → flag FSPTX (Step 4). If accept → skip Steps 3 and 4.

3. 3

   Add international diversification if appropriate

   If the user wants to reduce reliance on US mega-cap tech, introduce FSPSX (Fidelity International Index Fund, expense ratio 0.035%). This fund tracks developed nations outside the US — Japan, UK, Switzerland, Germany, France, Australia, etc. Its largest sectors are Financials (~24%) and Industrials (~20%), with tech at only ~10%. This is structurally different from the first two funds. Use JP Morgan's benchmark of 25–30% of the total equity allocation going into developed non-US equities as a starting reference point for allocation sizing.

4. 4

   Add tech satellite position only if user is explicitly bullish on AI buildout

   If the user wants amplified exposure to AI, semiconductors, software, and cloud computing, introduce FSPTX (Fidelity Select Technology Portfolio). Critical caveats to communicate: (1) This is an actively managed mutual fund, NOT a passive index fund. (2) Expense ratio is 0.61% — significantly higher than the index funds. (3) Over 68% of the portfolio is concentrated in just 10 holdings, with ~22.5% in Nvidia alone. (4) This fund can significantly outperform OR significantly underperform the broader market. Position it as a small satellite holding, never a foundational core.

5. 5

   Determine bond allocation using the 120 Rule

   Take 120 minus the user's age to get the equity percentage. The remainder is the bond allocation. Introduce FXNAX (Fidelity US Bond Index Fund, expense ratio 0.025%) for the bond sleeve. Highlight its 30-day yield (~4.4%) as the primary return driver — this is an income instrument, not a growth instrument. Portfolio breakdown: ~45% US Treasuries, ~26% corporate bonds, ~23% mortgage-backed securities. Remind users in their 20s–30s that bonds feel boring now but become critical closer to retirement.

6. 6

   Choose a portfolio model and calculate final allocations

   Present two models: (A) 2-Fund Portfolio using the 120 Rule — equity fund (FXAIX or FSKAX) + FXNAX bonds. Example: age 30 → 90% FXAIX, 10% FXNAX. (B) 3-Fund Portfolio — domestic equity + FSPSX international + FXNAX bonds. Using the same 30-year-old: 90% equity split as ~67.5% domestic / 22.5% international (applying the 25% international split to the equity sleeve), plus 10% bonds. Recalibrate target allocations every five years.

7. 7

   Execute the purchase inside Fidelity

   All five funds are exclusive to Fidelity and require the Fidelity Investments platform. To buy: navigate to Trade → search by ticker or fund name → enter dollar amount (minimum $1) → Preview → Place Order. Note that index funds (mutual funds) do NOT execute in real time. All trades execute at the end of the trading day (end-of-day NAV pricing). The confirmed price will not be visible until after market close. Track positions under the Positions tab.

8. 8

   Flag Fidelity Zero Funds as an optional follow-up consideration

   Fidelity also offers Zero expense ratio index funds (0% expense ratio). These were not covered in depth due to lower popularity at time of recording but may be worth investigating if cost minimisation is a top priority. Do not make this a decision blocker — the standard funds covered here are highly cost-competitive already.

// What do real Fidelity fund allocations look like for different investors?

// What mistakes should you avoid when picking Fidelity index funds?

• Do not treat the average annual historical return as the return you will receive each year — most years will be much higher or much lower, and negative years are normal and expected.
• Do not mistake FSKAX (Total Market) as dramatically more diversified than FXAIX (S&P 500) — due to market value weighting and top-heavy market conditions, these two funds have become increasingly correlated and the practical difference is now marginal.
• Do not use FSPTX (Select Technology Portfolio) as a foundational core holding — it is an actively managed, high-expense, highly concentrated satellite position only.
• Do not ignore bonds entirely because you are young — understand their role now so you can introduce them appropriately as you age toward retirement.
• Do not expect index fund trades to execute immediately at the price you see — all Fidelity mutual fund index fund orders execute at end-of-day NAV pricing, not in real time.
• Do not conflate international diversification (FSPSX) with seeking to outperform the US market — its purpose is to reduce single-country and single-sector concentration risk, not to beat the S&P 500.
• Do not over-engineer the FXAIX vs FSKAX decision — both have identical 0.015% expense ratios, excellent long-term returns, and very similar recent performance. There is no wrong answer.

// What are the key terms and fund tickers you need to know?

FXAIX

Fidelity 500 Index Fund. Tracks the S&P 500 — roughly 500 of the largest publicly traded US companies. Expense ratio 0.015%. The fund most investors start with.

FSKAX

Fidelity Total Market Index Fund. Tracks the entire US stock market including ~3,700+ companies across large, mid, small, and micro caps. Expense ratio 0.015%.

FSPSX

Fidelity International Index Fund. Tracks developed markets outside the US (Japan, UK, Switzerland, Germany, France, Australia, etc.). Largest sectors: Financials and Industrials. Expense ratio 0.035%.

FSPTX

Fidelity Select Technology Portfolio. An actively managed mutual fund (not a passive index fund) focused on software, semiconductors, cloud computing, and AI-related companies. Expense ratio 0.61%. Highly concentrated — 68% in top 10 holdings.

FXNAX

Fidelity US Bond Index Fund. Invests 98–99% in US bonds (Treasuries, corporate bonds, mortgage-backed securities). Designed for portfolio stability and dividend income, not capital growth. Expense ratio 0.025%.

The 120 Rule

A portfolio allocation formula: 120 minus your current age = the percentage of your portfolio to hold in stocks/equities. The remainder goes into bonds. Recalibrate every five years.

The 5 Funds

Scribner's core set of Fidelity funds that cover all major investor needs: FXAIX, FSKAX, FSPSX, FSPTX, and FXNAX. Investors can ignore the other 295+ Fidelity funds.

Market Value Weighted

An index construction method where larger companies receive a proportionally larger share of each dollar invested. This causes top-heavy concentration — in the S&P 500, ~39% of invested dollars flow into just the top 10 holdings, all of which are tech companies.

Biggest Players vs. The Entire League

Scribner's analogy for FXAIX vs FSKAX. FXAIX = the biggest players in the league (top ~500 companies). FSKAX = the entire league (all publicly traded US companies).

3-Fund Portfolio

A popular allocation model consisting of a domestic equity fund, an international equity fund, and a bond fund. Percentage splits depend on age, risk tolerance, and goals.

2-Fund Portfolio (120 Rule model)

A simplified allocation using just one equity fund (typically FXAIX) and one bond fund (FXNAX), sized using the 120 Rule.

Satellite Position

A small, non-foundational allocation in a portfolio used to add targeted exposure — in this context, FSPTX as a tech-amplifying add-on rather than a core holding.

Fidelity Zero Funds

A separate class of Fidelity index funds with 0% expense ratios. Mentioned as a follow-up consideration but not covered in detail — less popular than the standard fund versions as of this recording.

Tracking Error

The slight difference between a fund's actual return and its benchmark index return. For example, FXAIX returned 29.76% vs. the S&P 500 benchmark of 29.78% — a minimal but real deviation.

30-Day Yield

Used specifically in the context of FXNAX — the average annualised income generated by the bond fund over the last 30 days, expressed as a percentage. Represents the income return component of a bond fund, distinct from price appreciation.

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