Beat Financial Engines With Fidelity Investments Strategies

Fidelity Investments offers a range of investment options, from do-it-yourself investing to digital investment management. With no minimum initial investment to open a Fidelity Go account, investors can access a robo-advisor service that builds a personalized investment strategy based on their financial goals and risk tolerance. Fidelity also provides a wide range of investment options, including stocks, bonds, mutual funds, and ETFs, with \$0 trading commissions and a large selection of no-transaction-fee mutual funds. In addition to its investment offerings, Fidelity stands out for its educational resources and research options, making it a well-rounded choice for both beginner and advanced investors.

Diversify your portfolio with stocks, bonds and other investments

Diversifying your portfolio is a crucial step in managing your investment risk. Here are some detailed tips on how to diversify your portfolio with stocks, bonds, and other investments:

Spread Your Investments

Diversification is about not putting all your eggs in one basket. Invest in a variety of asset classes such as stocks, bonds, cash, Treasury bills (or T-bills), real estate, and precious metals. These different assets should have a low correlation to each other, meaning they move in opposite directions. For example, if one investment declines, another tends to counteract it.

Choose Different Types of Stocks

When investing in stocks, consider investing in a range of companies across different sectors, industries, and geographies. You can also diversify by market capitalization, investing in a mix of small, mid, and large-cap stocks. Additionally, consider investing in growth stocks, which have high revenue growth potential, and value stocks, which are typically undervalued by the market.

Include Bonds and Fixed-Income Investments

Bonds are a popular way to diversify due to their low correlation with other major asset classes, especially equities. Fixed-income investments such as T-bills, bankers' acceptances, and certificates of deposit (CDs) are also good options as they are generally considered less risky than stocks.

Explore Other Investment Options

Real estate is another way to diversify your portfolio. You can invest in physical property or explore Real Estate Investment Trusts (REITs), which trade like stocks and offer high yields. Additionally, consider investing in commodities, exchange-traded funds (ETFs), and mutual funds.

Regularly Review and Rebalance Your Portfolio

Diversification is not a one-time task. It requires regular monitoring and rebalancing to maintain your desired risk level and investment strategy. Review your portfolio at least once a year or whenever your financial circumstances change significantly.

By following these steps and utilizing the services offered by Fidelity Investments, you can effectively diversify your portfolio, helping to manage risk and improve your long-term investment success.

Keep a budget and spend within your means

Budgeting is a key part of taking control of your money and can help you reach your financial goals. It's important to spend less than you earn and prepare for emergency costs, such as medical expenses or car repairs.

• Track your expenses and income consistently and completely: This will help you understand your spending habits and make any necessary adjustments to reach your financial goals.
• Set reasonable expectations: Setting realistic goals for your spending and savings will help you stick to your budget over time.
• Pick the right tool: You can create your own budgeting tracker or use one of the many budgeting worksheets or apps available for free online.
• Note your monthly income: If you have a predictable income, add up your paychecks over the month and include that amount in your budget. If your income varies, use the lower range of past monthly income to create your budget.
• List your monthly expenses: Account for all your expenses, even the small ones. For cash purchases, keep your receipts. For credit and debit purchases, go through your statements. Include both one-off purchases and recurring charges.
• Aim for the right allocation: Group your expenses into high-level categories: essential expenses, retirement savings, and short-term savings. Fidelity recommends the 50/15/5 guideline:
• Essential expenses: Allocate no more than 50% of your take-home pay to must-haves such as rent, utilities, groceries, and debt payments.
• Retirement savings: Save 15% of pre-tax income (including any employer contributions) for retirement.
• Short-term savings: Put aside 5% of your take-home pay in a savings account for emergencies.
• Cut yourself some slack: Avoid setting unrealistic spending limits or monthly savings goals. Instead, make subtle changes to your spending habits over time. For example, if you want to reduce your dining-out expenses, decrease your spending by a smaller amount each month, rather than cutting it in half immediately.

Save for emergencies

Emergencies are predictably unpredictable, often striking when we're the least prepared for them. Without savings, many people resort to credit cards to cover the bill, which can lead to a snowball effect of debt. An emergency fund acts as a financial safety net, helping you handle unexpected expenses without accruing additional costs.

Fidelity recommends starting with at least $1,000, or one month's rent or mortgage (whichever is more), as an initial buffer. This provides a cushion to cover immediate expenses or a deductible while you stabilise your situation.

From there, aim to save 3-6 months' worth of essential living expenses. This range depends on your personal circumstances: having dependents, inconsistent income, or being in an industry prone to layoffs may prompt you to save towards the higher end of this range.

When calculating your average monthly costs for this savings goal, focus on essential expenses like:

• Rent or mortgage payments and utilities
• Childcare and/or tuition
• Minimum debt payments (e.g. student loans, car loans)

Tips for building your emergency savings:

• Choose the right account: Select an account that won't charge penalties or high taxes upon withdrawal, and consider keeping your emergency fund separate from your spending money and other savings to avoid unintentional use.
• Treat it as a bill: Prioritise building your emergency fund by considering it a non-negotiable monthly expense.
• Make automatic contributions: Set up direct deposits from your paycheck or regular automatic transfers from your checking account.
• Save windfalls: Unexpected income, such as bonuses, tax refunds, or credit card rewards, can boost your emergency savings.
• Use raises wisely: Allocate at least a portion of any pay increases to your emergency fund to build financial security and avoid lifestyle creep.
• Cut unnecessary expenses: Review your bills and subscriptions for opportunities to reduce costs, redirecting those savings to your emergency fund.
• Round up: Utilise "round-up" savings options or apps, which transfer the spare change from your credit or debit card purchases to your emergency savings.
• Replenish: If you withdraw from your emergency fund, make it a priority to rebuild your savings as soon as possible.

Where to keep your emergency savings:

• Savings accounts: Provide flexibility and FDIC insurance (up to $250,000 per person, per bank, per account ownership category). Savings accounts are liquid, allowing easy access to your funds, and are suitable for emergency savings.
• Money market funds: Mutual funds that invest in short-term debt securities. They are not FDIC-insured but are protected by the Securities Investor Protection Corporation (SIPC) for up to $500,000. Money market funds offer easy access to your cash and are suitable for short-notice withdrawals.
• Certificates of Deposit (CDs): CDs offer higher yields but require you to lock up your savings for a set period; early withdrawal may result in penalties. Building a CD ladder, which staggers the maturities of multiple CDs, can improve access to your money and allow for reinvestment at higher rates.
• Individual short-duration bonds: Carry more credit or interest-rate risk than the above options but offer the potential for higher returns. They are suitable for those who don't need immediate access to their cash and can be held until maturity.
• Short-duration bond funds: Actively managed by professionals but incur fees. Like individual bonds, they are better for earning yield over time rather than for emergency savings.
• Deferred fixed annuities: Provide a guaranteed fixed interest rate over a set period, generally 3-10 years. They are geared towards investors looking to protect a portion of their retirement savings and defer taxes.

Additional considerations:

• Insurance: Ensure you have adequate insurance coverage, including health, homeowners or renters, auto, life, and disability insurance.
• Beneficiaries: Assign beneficiaries to your accounts, and review them regularly to ensure they reflect your current wishes.
• Credit card debt: Work to minimise credit card debt, prioritising payments towards cards with the highest interest rates.
• Network and resume: Prepare for potential layoffs by nurturing your professional network and keeping your resume and job-related profiles up to date.

Review your insurance policies

Reviewing your insurance policies is an important step in financial planning. Insurance is meant to protect against risks and provide a safety net for unforeseen events. It is important to have the right insurance policies in place to protect yourself and your family financially.

• Assess your risks and needs: Identify the risks that you need to protect yourself and your dependents against. Consider factors such as income, dependents, existing debts, and future financial goals. For example, if you have dependents relying on your income, life insurance can help replace that income in the event of your premature death.
• Determine the appropriate coverage levels and duration: Consider the duration of the coverage you need. For instance, if you have young children, a 20- or 30-year term life insurance policy may be appropriate to ensure financial support until they become independent.
• Review policy details regularly: Insurance needs may change over time due to major life events such as marriage, divorce, having children, or retirement. Review the details of your insurance policies regularly to ensure they still meet your needs and provide adequate coverage.
• Evaluate different types of insurance: Different types of insurance policies are available, such as life insurance, disability insurance, long-term care insurance, homeowners' insurance, and auto insurance. Assess which types of insurance are most relevant to your situation and priorities.
• Consider the reputation and stability of insurance providers: When choosing an insurance provider, it is important to select a reputable and financially stable company. This helps ensure that they will be able to honour their commitments and provide reliable coverage when needed.
• Explore funding options for premiums: There are various ways to fund your insurance premiums. You can use cash, liquidate assets, or explore insurance premium financing options, especially if you want to avoid losing assets to pay large premiums.

Remember, insurance planning is a crucial aspect of your overall financial plan. By regularly reviewing your insurance policies and ensuring they align with your life circumstances, goals, and risk management strategies, you can enhance your financial security and peace of mind.

Make use of Fidelity's robo-advisor

Fidelity's robo-advisor, Fidelity Go®, offers a hybrid robo advisory service for a fee of 0.35% per year for those with balances of $25,000 or more. For those with less than $25,000 in their account, Fidelity Go® is free.

Fidelity Go® is a good choice for those who are reluctant to hand over all control to a robot. Humans handle investment and trading decisions for portfolios, and the robo-advisor uses technology to manage investments on your behalf, based on your goals and preferences.

Fidelity Go® does not offer tax-loss harvesting, but it does use tax-advantaged municipal bond funds in taxable accounts, which can help minimise your taxes.

Fidelity Go® is integrated into the company's existing retail managed business. Customers who have an IRA or taxable account with Fidelity can easily take advantage of the company's robo offering.

Fidelity Go® offers 16 portfolios: eight taxable and eight retirement. The portfolios are built from Fidelity Flex mutual funds, which cover four asset classes: domestic, foreign, bonds, and short-term.

Fidelity Go® also offers health savings accounts (HSAs). There are no account fees or minimums to open an HSA, and anything under $25,000 is managed for free.

Fidelity Go® has 24/7 phone support, as well as live chat during extended business hours. It also offers 24/7 virtual assistants, email and social media support, and a Fidelity Investments subreddit.

Fidelity Go® is a good choice for current Fidelity customers, hands-off investors who still want human portfolio oversight, and investors interested in low-cost management.

Frequently asked questions