Fidelity's Automatic Investment Plans: How Do They Work?

Fidelity offers automatic investment plans to its customers. These plans allow investors to automate their investment contributions and take advantage of dollar-cost averaging, which can help to reduce the impact of market volatility. By setting up automatic investments, investors can ensure that a portion of their income is consistently invested, allowing them to benefit from potential higher returns over time. This disciplined approach not only helps in wealth accumulation but also makes it easier to stick to financial goals, even during volatile markets. Fidelity's automatic investment plans offer flexibility, with the ability to customise the frequency and amount of contributions to align with an individual's financial objectives and risk tolerance.

Dollar-cost averaging

Fidelity offers automatic investment plans that allow you to automate your savings and investments. This can be done by establishing regular transfers into your investment account, where you can also have the cash automatically invested for you.

One of the key features of Fidelity's automatic investment plans is dollar-cost averaging (DCA). This is a strategy where you invest equal dollar amounts at regular intervals, such as monthly or bi-weekly, regardless of the direction of the market or a particular investment. In other words, purchases occur regardless of price changes, potentially reducing the impact of volatility on the overall purchase.

Let's say you decide to invest $25 per month using a dollar-cost averaging strategy. On the first of every month, your account is set to automatically buy $25 worth of a hypothetical stock, Qualified Robotics Scientific (QRST), which trades at different prices.

• On January 1, QRST trades at $10 per share, so your $25 buys 2.5 shares.
• On February 1, the price increases to $12.50, and you get 2 shares for $25.
• On March 1, the stock price dips back to $10, and you get 2.5 shares for your $25 investment.
• On April 1, the stock soars to $50, and your $25 only buys 0.5 shares.
• On September 1, the stock tanks to $8, and your $25 investment buys 3.125 shares.

By investing a fixed amount at regular intervals, dollar-cost averaging helps to smooth out the impact of market volatility on your portfolio. It also helps to reduce the risk of making large lump-sum investments at inopportune times and can remove the emotional aspect of investing, preventing impulsive decisions based on short-term market movements.

However, it's important to note that dollar-cost averaging may also reduce your potential returns. If the price of the investment rises while you are executing this strategy, you will end up buying fewer shares than if you had made a lump-sum investment at the outset. Additionally, the funds used for dollar-cost averaging are typically held in cash or cash equivalents, earning very low rates of return.

Ultimately, dollar-cost averaging is a useful strategy if it aligns with your investing objectives. It can be a disciplined way to save and invest without trying to time the market, but it's important to consider if it makes sense for both the individual investment and your overall investing goals.

Reduced stress

Automatic investment plans can significantly reduce stress for investors. By automating the investment process, individuals no longer need to worry about manually managing their portfolios or making impulsive decisions during market fluctuations. This frees up time and mental energy, allowing investors to focus on other aspects of their financial planning.

One of the main benefits of automatic investment plans is the reduction of stress associated with daily swings in the stock market. With automatic investments, individuals can invest on a fixed schedule, regardless of the market's highs and lows. This is especially beneficial for long-term investment horizons, as it enables a more hands-off approach to investing.

Additionally, automatic investment plans help to mitigate the impact of market volatility. By investing a fixed dollar amount consistently through dollar-cost averaging, investors can reduce the risk of large lump-sum investments at inopportune times. This disciplined approach to investing promotes consistency and financial discipline, which are crucial for effective risk management and long-term financial well-being.

Another stress-reducing factor is the ability to set up automatic transfers from a bank account to a Fidelity account. This ensures that funds are regularly available for investing or everyday spending, without the need for manual transfers. It also helps individuals avoid the temptation to spend money sitting in their bank accounts, promoting a more disciplined approach to saving and investing.

Fidelity's advanced tools and technology also contribute to stress reduction by effectively monitoring investments and making real-time adjustments. This provides investors with peace of mind, knowing that their investments are consistently managed in line with their financial objectives and market conditions.

Overall, automatic investment plans with Fidelity offer a convenient and stress-free approach to investing, allowing individuals to focus on their financial goals without the burden of constant decision-making and manual portfolio management.

Out of sight, out of mind

Automating your investments with Fidelity can be a powerful tool to help you reach your financial goals, and one of the key benefits is summed up in the phrase "out of sight, out of mind".

Firstly, automating your investments can reduce the temptation to spend. By setting up automatic transfers from your paycheck or bank account, the money goes directly into your investments without you ever seeing it in your account. This means you're less likely to be tempted to spend that money on something else.

Secondly, automating your investments can free up your time and mental energy. With automatic contributions, you don't have to worry about manually managing your portfolio or remembering to make deposits regularly. This can reduce the stress and cognitive load associated with financial decision-making.

Here's how to set up automatic investments with Fidelity:

Step 1: Log in to Your Fidelity Account

Go to the Fidelity website and click on the login button on the homepage. Enter your username and password. If it's your first time, you may need to register and create your login credentials.

Step 2: Go to the 'Accounts & Trade' Tab

Once logged in, navigate to the ''Accounts & Trade' tab on the Fidelity platform. This is where you can access your investment accounts, scheduled transfers, and transaction history.

Step 3: Select 'Automatic Investments'

Within the 'Accounts & Trade' section, locate and select 'Automatic Investments' to set up recurring contributions for your chosen investment accounts, including retirement accounts.

Step 4: Choose Your Investment Account

Select the specific investment account where you want to automate contributions. This could be mutual funds, exchange-traded funds (ETFs), or individual stocks. Consider your investment goals, risk tolerance, performance history, fees, and management style when making your choice.

Step 5: Select Your Investment Options

Within your chosen investment account, select the investment options that align with your financial goals and risk tolerance. This could include bonds, various asset management strategies, or opportunities for compounding returns. Consider diversifying across different sectors or regions to mitigate market risk.

Step 6: Set Your Investment Amount and Frequency

Specify the amount you wish to invest and how often, ensuring it aligns with your long-term financial goals. You can usually choose between monthly, quarterly, or semi-annual investments, and you can also set up multiple schedules to achieve more frequent contributions.

Step 7: Confirm and Save Your Automatic Investment Plan

Review and confirm your automatic investment plan to ensure it reflects your investment decisions and financial objectives. Remember to monitor and adjust your plan periodically to adapt to changing market conditions and personal circumstances.

Fidelity's automatic investment plans

Fidelity offers automatic investment plans to help you grow your portfolio and reach your financial goals. Here's a detailed guide to Fidelity's automatic investment plans:

Benefits of Fidelity's Automatic Investment Plans:

• Consistency and Discipline: Automatic investments promote financial discipline by regularly channeling funds into selected investment vehicles, helping you maintain a regular savings habit and fostering financial stability over time.
• Time and Energy Savings: Automating your investments frees up your time and mental energy, as you don't have to worry about manually managing your portfolio.
• Dollar-Cost Averaging: This strategy involves investing a fixed amount at regular intervals, smoothing out market volatility and providing a disciplined approach to investing.
• Potential for Higher Returns: Automating investments enables better management of your portfolio, allowing you to adjust your investments based on market analysis and economic indicators, potentially leading to higher returns.

Steps to Set Up Automatic Investments with Fidelity:

• Login to Your Fidelity Account: Access your account through their secure online platform by entering your username and password.
• Go to the 'Accounts & Trade' Tab: Navigate to this tab to access your investment accounts, scheduled transfers, and transaction history.
• Select 'Automatic Investments': Within the 'Accounts & Trade' section, locate and select this option to initiate the process of setting up recurring contributions.
• Choose Your Investment Account: Decide where you want to automate contributions, such as mutual funds, exchange-traded funds (ETFs), or individual stocks. Consider your investment goals, risk tolerance, performance history, fees, and management style when choosing.
• Select Your Investment Options: Within your chosen investment account, select options that align with your financial goals and risk tolerance, such as bonds, asset management strategies, or opportunities for compounding returns.
• Set Your Investment Amount and Frequency: Specify the amount you wish to invest and the contribution frequency, ensuring they align with your long-term financial growth objectives.
• Confirm and Save Your Plan: Review and confirm your automatic investment plan to ensure it reflects your investment decisions and supports your journey towards financial independence.

Types of Automatic Investments:

Fidelity offers various types of automatic investments:

• Recurring Investments: You can set up recurring investments in stocks, mutual funds, ETFs, and Fidelity Basket Portfolios. You can choose the amounts, frequency, and timing of these investments and change them as needed.
• Dollar-Cost Averaging: This strategy involves investing a fixed amount at regular intervals, smoothing out market volatility and providing a disciplined approach to investing.
• Automatic Investment Plans: You can set up automatic investments into funds you already own in your brokerage, retirement, 529 savings, or other eligible retail Fidelity accounts.
• Managed Accounts: Once your account is set up, you can add extra money through direct deposit or recurring transfers, and it will be invested according to your investment plan.

Investment options

Fidelity offers a range of investment options for those looking to automate their investments. These include:

• Mutual funds: You can set up automatic investments into mutual funds that you already own. This is a popular option as it allows you to take advantage of dollar-cost averaging, reducing the impact of market volatility.
• Stocks: Fidelity now allows automatic investments into stocks, in addition to mutual funds. This gives you more flexibility and control over your investment choices.
• Exchange-Traded Funds (ETFs): ETFs are traded on exchanges like stocks and tend to have lower fees than mutual funds. Fidelity offers automatic investments into ETFs, providing an opportunity to diversify your portfolio.
• Bonds: Bonds are a common investment option for those seeking compounding returns. Fidelity allows you to include bonds as part of your automatic investment plan, providing a stable source of income.
• Fidelity Basket Portfolios: This option lets you create baskets of stocks and ETFs that you can manage as a single investment. Adding recurring investments to these baskets can make it easier to reach your financial goals.
• Retirement accounts: You can set up automatic investments into retirement accounts such as traditional, rollover, and Roth IRAs. This helps simplify your retirement planning and ensures consistent contributions towards your future financial goals.
• Health Savings Accounts (HSAs): Fidelity also offers the option to set up automatic investments into HSAs, providing tax advantages and a way to save specifically for healthcare expenses.
• 529 College Savings Plans: These plans are designed to help save for future college expenses. With automatic investments, you can make regular contributions towards these plans, ensuring a more secure financial future for your education.

When choosing your investment options, it's important to consider your financial goals, risk tolerance, and time horizon. Diversification across different asset classes, sectors, and regions can help mitigate risks and maximize potential returns. Additionally, evaluating the performance history, fees, and management style of each investment option will help ensure that your choices align with your financial objectives.

Frequently asked questions