Fidelity's Automated Investing: How Does It Work?

Automating your investments with Fidelity is a great way to grow your wealth over time without the need for constant manual intervention. Fidelity offers a range of investment options, such as stocks, mutual funds, and ETFs, that can be automatically purchased through recurring transfers from your bank account or core position. This strategy, known as dollar-cost averaging, helps to reduce the impact of market volatility and can lead to long-term growth and risk management. Setting up automatic investments with Fidelity is a convenient way to invest predetermined amounts at regular intervals, ultimately helping you reach your financial goals with a disciplined and consistent approach.

Dollar-cost averaging

Imagine you decide to invest using a dollar-cost averaging strategy. On the 1st of every month, your account is set to automatically buy $25 of a stock (let's call it Qualified Robotics Scientific or QRST for short).

• On January 1, QRST trades at $10 per share, so your $25 buys you 2.5 shares.
• On February 1, the price goes up to $12.50, so your $25 gets you 2 shares.
• On March 1, the stock price dips back to $10, and you get 2.5 shares again.
• On March 15, the company makes a major positive announcement, and the stock soars to $50 by April 1. Your $25 now only buys you 0.5 shares.
• A few months later, there is negative news about the company, and the stock tanks to $8. Your September $25 investment now buys you 3.125 shares.
• However, it turns out the negative news was a hoax, and the stock recovers just in time for the holidays. Your monthly $25 investment buys you more shares during the months when the stock cost is lower, benefiting your overall position.

While dollar-cost averaging can help manage risk, it may also reduce your potential returns. It does not prevent losses and may lead to lower returns if the investment rises over time. Additionally, funds waiting to be invested are typically held in low-return cash or cash equivalents.

Fidelity's automatic investment feature

Step 1: Log in to Your Fidelity Account

First, log in to your Fidelity account on their user-friendly online platform. This will give you access to a range of tools and features that can help streamline your investment journey. It is important to ensure the security of your login details to protect your sensitive financial information. Fidelity offers multi-factor authentication and encryption protocols to safeguard your account.

Step 2: Select the Investment Account

After logging in, choose the specific investment account where you want to set up automatic transfers for securities and other brokerage services. Fidelity offers a wide array of investment options, including mutual funds, ETFs, individual stocks, and bond funds, allowing you to tailor your investment portfolio according to your risk tolerance and investment horizon.

Step 3: Choose the Automatic Investment Option

Select the automatic investment option on Fidelity to enable recurring transfers at the frequency that aligns with your investment strategy. With Fidelity's automatic investment feature, you can easily set up periodic contributions to your investment account, eliminating the need for manual intervention. You can schedule transfers at regular intervals, such as weekly, bi-weekly, monthly, or quarterly, based on your financial goals and preferences.

Step 4: Select the Investment Frequency and Amount

Specify the investment frequency and amount for your automatic transfers to align with your financial goals and scheduled contributions. It's important to consider your unique financial situation and objectives when setting up automatic transfers to streamline your wealth-building process and maintain discipline in your investment strategy. Ensure that the transferred funds match your risk tolerance and investment timeline.

Step 5: Choose the Investments to Be Made

Select the specific investment options to create a diversified investment mix. Diversification is key to spreading risk across various asset classes within your portfolio. Allocate your investments among different types of assets, such as stocks, bonds, and mutual funds, to reduce the impact of any one investment performing poorly. By diversifying, you can potentially enhance returns while minimising overall risk.

Step 6: Review and Confirm the Automatic Investment Setup

Before finalising, review and confirm the automatic investment setup to ensure it aligns with your investment strategy and goals. Assess whether the chosen investments match your risk tolerance levels and aspirations. Consider factors such as time horizon, diversification, and asset allocation while evaluating your automated portfolio. Remember to periodically revisit and adjust your automated investment plan to stay aligned with your evolving financial goals and market conditions.

Benefits of Automating Investments with Fidelity:

Automating investments with Fidelity offers benefits such as dollar-cost averaging, tax-efficient investing, and hassle-free wealth growth. Dollar-cost averaging helps reduce the impact of market volatility by spreading out investments over time. Fidelity's tax-efficient strategies also minimise tax liabilities and enhance overall returns. Additionally, their optimised investment returns make them a preferred platform for effortless wealth accumulation.

Consistency in Investing:

Automating investments fosters consistency in reaching your investment goals through regular and periodic contributions. This systematic approach helps individuals stay disciplined, allowing them to resist the temptation of market fluctuations and emotional decision-making. By setting up automated contributions, investors establish a routine that reinforces their commitment to their long-term financial objectives.

Removes Emotional Decision-Making:

Automating investments eliminates emotional decision-making, enhancing adherence to a structured investment strategy. This disciplined approach helps investors avoid impulsive decisions driven by emotions, which can lead to costly mistakes. By relying on automated systems and algorithms, individuals can mitigate the influence of psychological biases that may cloud their judgment.

Saves Time and Effort:

Automating investments with Fidelity saves time and effort by streamlining the investment process, enabling you to focus on asset growth and financial goals. Their automated investing tools allow efficient portfolio management and wealth accumulation without constant monitoring. By setting up automatic contributions and rebalancing features, investors can ensure their portfolios stay aligned with their objectives.

Dollar-Cost Averaging:

Dollar-cost averaging through automatic investments helps smooth out market volatility and optimise investment returns while maintaining a balanced asset allocation. Automating regular contributions can establish a consistent investment plan, reducing the emotional impact of market fluctuations. By spreading out investments, you can benefit from buying more shares when prices are low and fewer when prices are high.

Risks of Automatic Investments:

Despite the benefits, automatic investments carry risks such as market volatility and limited control over investment choices. Automated investing offers convenience and easy diversification, but investors must still manage risks in a dynamic market. Market fluctuations can impact automated portfolios, causing sudden shifts in asset values. It's crucial to balance the desire for convenience with active involvement in investment strategies to safeguard your financial interests.

Investment frequency and amount

Fidelity's automatic investment feature allows you to set up recurring transfers at the frequency that aligns with your investment strategy. You can schedule transfers at regular intervals such as weekly, bi-weekly, monthly, or quarterly, based on your financial goals and preferences. This helps establish a disciplined savings habit and ensures consistent capitalization of chosen investment vehicles, promoting long-term wealth growth and financial stability.

When setting up automatic investments, you can specify the investment frequency and amount to align with your financial goals and scheduled contributions. It is important to consider your unique financial situation and objectives when determining the regular schedule and investment amount. By aligning your contributions with your long-term wealth management goals, you can stay disciplined in your investment strategy and work towards achieving financial independence.

Fidelity offers a wide range of investment options, including mutual funds, ETFs, individual stocks, and bond funds, allowing you to tailor your investment portfolio according to your risk tolerance and investment horizon. You can choose to invest in stocks, mutual funds, ETFs, and Fidelity Basket Portfolios directly from your Fidelity account or your bank. The amount you can invest will depend on the type of investment you choose. For example, a recurring investment plan for stocks, ETFs, and baskets can be set up to transfer between $1 and $100,000, while mutual funds typically have a minimum investment requirement of $10 to $100,000.

It is important to note that the automatic investment feature at Fidelity currently only works with eligible mutual funds that you already hold in your account. However, there are plans to roll out automatic investments in stocks and ETFs to all users in the future. Additionally, you can set up recurring investments from your paycheck by setting up direct deposits into multiple accounts, including a bill-paying account and an investment account. This way, you can automatically allocate a portion of your earnings towards your financial goals.

Investment options

Fidelity offers a wide range of investment options to cater to your financial goals. Whether you prefer the diversification of mutual funds, the flexibility of ETFs, the potential growth of individual stocks, or the stability of bond funds, Fidelity has something for every type of investor.

• Mutual Funds: Mutual funds allow you to invest in a diversified portfolio of stocks, bonds, or other securities. Mutual funds are managed by professional fund managers who make investment decisions on your behalf. This option is suitable for those seeking a hands-off approach to investing.
• Exchange-Traded Funds (ETFs): ETFs are similar to mutual funds in that they also offer a diversified portfolio of securities. However, ETFs are traded on stock exchanges, allowing investors to buy and sell them throughout the trading day. ETFs generally have lower fees than mutual funds and are suitable for those seeking more flexibility and control over their investments.
• Individual Stocks: Investing in individual stocks allows you to purchase shares of a specific company. This option offers the potential for higher returns but also carries more risk. It is suitable for those who are comfortable with actively managing their investments and conducting their own research.
• Bond Funds: Bond funds invest in fixed-income securities such as government or corporate bonds. They are considered a more stable investment option compared to stocks, as they typically provide regular interest payments and are less volatile. Bond funds are suitable for those seeking a more conservative investment approach.

When choosing among these investment options, it's important to consider your financial goals, risk tolerance, and investment horizon. Diversification is key to spreading risk and enhancing returns. You can allocate your investments across different asset classes, such as stocks, bonds, and mutual funds, to reduce the impact of any one investment performing poorly.

Fidelity also offers automated investment options, such as recurring investments and managed accounts, which can help you invest regularly and efficiently towards your financial goals. These options allow you to set up recurring transfers and automatic investments based on your preferences and financial strategy.

Benefits of automating investments

Automating your investments can be highly advantageous, offering a strategic way to put your money on auto-pilot. Here are some of the key benefits:

• Consistency and Timeliness: Just like paying your bills on auto-pay, automating investments ensures that contributions are made consistently and on time, without requiring any effort or constant monitoring from you.
• Dollar-Cost Averaging: This strategy involves investing a fixed amount at regular intervals, regardless of market conditions. By automating investments, you can smooth out market volatility, buying more shares when prices are low and fewer when they're high, ultimately lowering your average cost per share over time.
• Reduced Temptation to Spend: Automated investments directly allocate money to your portfolio, reducing the risk of spending it on other things.
• Avoids Overreactions to Market Fluctuations: With automated investing, you're less likely to make impulsive decisions, such as day trading during volatile markets. It also removes the guesswork and temptation of trying to time the market.
• Time-Saving: By automating your investments, you free up time that would otherwise be spent constantly monitoring the markets, allowing you to focus on other things.
• Simplicity and Stress Reduction: Automating your investments simplifies the process, reducing the number of decisions you need to make. This can lower your overall stress levels, giving you one less thing to worry about.
• Long-Term Wealth Building: Over time, automated investing can have a significant positive impact on your net worth, helping you build wealth steadily and consistently.

Frequently asked questions