Fidelity's Principal-Guaranteed Investment: A Safe Bet?

Fidelity is a well-rounded brokerage offering a range of investment options, including stocks, bonds, mutual funds, ETFs, options, forex, and cryptocurrencies. While it does not offer futures trading, it provides investors with various tools and resources to make informed decisions. One of its key features is the protection it offers to its customers' assets. This includes the Federal Deposit Insurance Corporation (FDIC) insurance, which covers cash deposits up to $250,000 per account, and the Securities Investor Protection Corporation (SPIC) insurance, which covers up to $500,000 in securities and $250,000 in cash held in brokerage accounts. Additionally, Fidelity provides a Customer Protection Guarantee, safeguarding customers from unauthorized account activity and reimbursing them for any losses. With its range of investment options, security measures, and customer-centric approach, Fidelity is a trusted choice for both active traders and beginner retirement investors.

Fidelity's Customer Protection Guarantee

Fidelity is proud to offer its Customer Protection Guarantee, giving customers peace of mind when doing business with them. This guarantee covers losses from unauthorized activity in covered accounts, which include Fidelity brokerage accounts, Fidelity Crypto accounts, and Fidelity retirement plan accounts.

To be eligible for coverage, customers must frequently check their account information and promptly review correspondence, account statements, confirmations, and alerts. They should also maintain up-to-date contact information and immediately report any suspected unauthorized account activity, errors, or discrepancies.

Fidelity also provides guidelines on protecting one's accounts, such as using a unique username and password, changing passwords if one becomes a victim of identity theft, and never sharing account access information with anyone.

The Customer Protection Guarantee does not cover losses from authorized activities, such as transactions made by an independent investment advisor or any person with whom the customer has shared their account information. It also does not cover credit/debit card fraud, physical theft, or losses from accounts held outside of Fidelity.

Fidelity also offers additional protection through its FDIC-Insured Deposit Sweep Program, which insures cash balances in eligible accounts up to $5 million.

FDIC-insured cash balances

Fidelity offers a Cash Management Account (CMA) that is a brokerage account designed for spending, saving, and investing. The CMA is not a bank account and is not FDIC-insured, but uninvested cash balances are eligible for FDIC insurance.

The CMA offers two competitive options for your cash: the Fidelity® Government Money Market Fund and the FDIC-Insured Deposit Sweep Program.

The Government Money Market Fund is designed to help you maximize your potential earnings. Your cash is automatically held in a money market fund (SPAXX). However, it is not covered by FDIC insurance and is subject to market risk.

The FDIC-Insured Deposit Sweep Program provides additional protection for your cash. Your cash (up to $5 million) is insured by the Federal Deposit Insurance Corporation (FDIC). Fidelity automatically places your cash in an account at one or more program banks. Deposits swept into the program bank(s) are eligible for FDIC Insurance, subject to FDIC insurance coverage limits.

Fidelity's FDIC-Insured Deposit Sweep Program is available for the following accounts:

• The Fidelity® Cash Management Account
• Certain eligible Fidelity retirement accounts such as Traditional, Rollover, and SEP IRAs; Fidelity Roth IRAs, Fidelity SIMPLE IRAs
• Fidelity Health Savings Account

It's important to note that balances that are swept to the Money Market Overflow, a money market mutual fund, are not eligible for FDIC insurance but are covered by the Securities Investor Protection Corporation (SIPC). SIPC is a nonprofit organization that protects stocks, bonds, and other securities in case a brokerage firm goes bankrupt and assets are missing. The SIPC will cover up to $500,000 in securities, including a $250,000 limit for cash held in a brokerage account.

SIPC insurance

• Up to $500,000 in total coverage per customer, or per account if the accounts are of separate capacities.
• Up to $250,000 of the total coverage can be used to protect cash within a customer's account that is not yet invested in securities.
• Protection in the case of unauthorised trading or theft from an account.

• Investment losses or worthless stocks or other securities.
• Losses due to account hacking, unless the firm was forced into liquidation due to the hack.
• Claims against bad or inappropriate investment advice.
• Investments in commodity futures, fixed annuities, currency, hedge funds or investment contracts (e.g. limited partnerships) not registered with the SEC.
• Accounts of partners, directors, officers or those with a significant/beneficial ownership in the failed firm.
• Mutual fund investments (stock, bond or money market), stocks, bonds, treasuries and other investment products purchased at a bank, brokerage or dealer.
• Life insurance policies.
• Safe deposit box contents.

If you have multiple accounts of separate capacity, SIPC insurance treats them as separate accounts. For example, if you have an IRA account and a joint account with your spouse, SIPC insurance will provide up to $500,000 in protection for each account.

Scroll to the bottom of any page on a brokerage firm's website, and you should see the SIPC membership disclosure. All of the online brokers reviewed by NerdWallet carry SIPC insurance.

SIPC coverage is limited to $500,000 total per customer. If you have more than this amount at the institution, you may still be insured for a greater amount if you have multiple accounts of separate capacity.

Even if your brokerage firm shuts down or becomes insolvent, other layers of protection will shield you from loss before SIPC needs to step in. Regulatory requirements mandate that brokerage firms keep customer assets segregated in separate accounts from the firm's own money and maintain a minimum amount of liquid assets.

If your broker enters the liquidation phase before you get back your money, you will be notified by a court-appointed trustee for the liquidation on how to file a claim.

Zero-expense-ratio index funds

How Zero-Expense-Ratio Index Funds Work

Advantages of Zero-Expense-Ratio Index Funds

One of the main advantages of zero-expense-ratio index funds is their low cost. By eliminating management fees, these funds can help investors keep more of their investment returns. This can be especially beneficial for long-term investors, as the compound effect of lower fees can result in significant savings over time. Additionally, zero-expense-ratio index funds offer the same benefits as traditional index funds, including diversification, broad market exposure, and low investment minimums.

Disadvantages of Zero-Expense-Ratio Index Funds

While zero-expense-ratio index funds offer a number of advantages, there are also some potential drawbacks to consider. One disadvantage is that these funds may not be as comprehensive as traditional index funds. In order to keep costs low, zero-expense-ratio funds may use a statistical sampling method to invest in a smaller selection of underlying stocks, rather than investing in the entire market. This means that the performance of the fund may not exactly match the index it is tracking. Additionally, zero-expense-ratio funds may not be portable to other brokerages, limiting investors' flexibility in managing their investments.

Examples of Zero-Expense-Ratio Index Funds

Several investment companies offer zero-expense-ratio index funds, including Fidelity, Vanguard, and Schwab. For example, Fidelity offers the ZERO Large Cap Index Fund (FNILX), which seeks to provide investment results that correspond to the total return of a broad range of large-capitalization U.S. companies, with a 0% expense ratio and no minimum investment requirement. Vanguard and Schwab also offer similar zero-expense-ratio funds, allowing investors to choose from a variety of options to suit their investment needs.

Suitability of Zero-Expense-Ratio Index Funds

Fidelity Youth Account

The Fidelity Youth Account is a teen-owned brokerage account for 13-17-year-olds that lets teens save and invest in one account. The teen is the owner of the account and has control over it. There are no subscription fees, no account fees, and no minimum balance requirements. The account is secured with the Fidelity Customer Protection Guarantee.

A parent or guardian must open the account on behalf of their teen and needs to have their own existing account with Fidelity. The parent/guardian will have "inquiry access" to the account as an Interested Party, allowing them to review debit card statements, trade confirmations, and account transactions. They will be designated as the "trusted contact" and can be contacted if a situation concerning the teen's welfare arises. However, they cannot transact or withdraw money from the account.

Teens can invest in:

• Fidelity mutual funds
• Some exchange-traded funds (ETFs)
• Some international equities

They cannot invest in:

• Third-party mutual funds
• Municipal fixed-income securities
• Certificates of deposit (CDs)
• Leveraged and inverse ETFs
• FILI Insurance products
• Penny stocks (stocks valued at $5/share or less)

Additionally, they cannot engage in options or margin trading, short selling, or participate in a company's IPO.

There are no subscription or account fees, and no minimum balance requirements. However, there is a suggested deposit limit of $30,000 per calendar year, and Fidelity will restrict additional deposits and trading capabilities if this limit is exceeded.

The funds in the account belong to the teen, but both the parent/guardian and the teen should consider the tax consequences of funding the account. Earnings on the account may require the teen to file a tax return and pay taxes on those earnings.

The Fidelity Youth Account is covered by the Fidelity Customer Protection Guarantee, which offers additional fraud protection for losses from unauthorized account activity occurring through no fault of the account holder. To be eligible for this coverage, account holders must frequently check their account information and promptly review correspondence, statements, confirmations, and alerts.

Once the teen reaches 18, the Fidelity Youth Account must be converted to a standard Fidelity brokerage account. The assets will stay in the same account, and the teen will keep the same account number and login credentials. They can still use the Fidelity Youth app, but additional capabilities will be available to them in the Fidelity Mobile app.

Frequently asked questions