Strategies To Grow Fidelity Investments: A Comprehensive Guide

Investing is a powerful way to help your money grow. You don't need to be a finance expert to understand the basics of investing. Here are some ways to grow your investments with Fidelity:

- Mutual funds and ETFs: Mutual funds and exchange-traded funds (ETFs) are professionally managed collections of stocks or bonds that allow you to invest in multiple securities simultaneously. While funds offer convenience and diversification, they may also come with fees and taxes if sold outside of a tax-advantaged account. Fidelity offers zero expense ratio index funds and funds with no transaction fees.

- Target-date funds: These funds are designed to help you meet time-based financial goals, such as retirement or saving for your child's college education. They automatically adjust their asset allocation from higher-risk to lower-risk investments as the target date approaches.

- Robo advisors: Robo advisory services, like Fidelity Go®, use technology to create a personalised investment strategy based on your financial goals, timeline, and risk tolerance. They offer low-to-no-cost professional management.

- Model portfolios: Model portfolios are suitable for those who want a diversified portfolio without building it from scratch. Investors using Fidelity's model portfolios are responsible for purchasing securities separately, reviewing investments annually, and rebalancing as needed.

- Managed accounts: Managed accounts are supervised by financial professionals and are tailored to your specific financial goals. They can help you look at your financial picture holistically, including retirement, taxes, estate planning, and insurance.

- Automate contributions: Setting up regular transfers from your paycheck or bank account to your investment account is an easy way to invest without the stress of remembering to transfer money manually.

Diversify your investments

Diversification is a crucial aspect of investing, and it involves spreading your investments across various assets to minimise risk and maximise returns. Here are some detailed strategies to help you diversify your investments:

Spread the Wealth

Diversification is about not putting all your eggs in one basket. Instead of investing heavily in one company or asset class, spread your investments across a range of options. Consider investing in a handful of companies from different sectors that you know and trust, and even use in your daily life. This way, you're not overly reliant on the performance of a single stock or industry. However, don't over-diversify to the point where managing your portfolio becomes overwhelming. Aim for a manageable number of investments, around 20 to 30 different options.

Consider Index or Bond Funds

Index funds and fixed-income funds offer excellent diversification benefits. Index funds track various market indexes, providing long-term diversification. Fixed-income funds, such as bond funds, help hedge your portfolio against market volatility and uncertainty. These funds aim to match the performance of broad indexes or the bond market's value. Additionally, index funds often have low fees, putting more money back in your pocket. However, keep in mind that index funds are passively managed, which may be suboptimal in inefficient markets.

Keep Building Your Portfolio

Regularly add to your investments using a strategy called dollar-cost averaging. This approach smooths out the peaks and valleys caused by market volatility. By investing the same amount of money over time, you reduce your investment risk. With dollar-cost averaging, you buy more shares when prices are low and fewer when prices are high.

Know When to Get Out

While strategies like buying and holding and dollar-cost averaging are sound, it's essential to stay informed about your investments and overall market conditions. Keep track of the companies you invest in to know when it's time to cut your losses and move on to other opportunities.

Keep an Eye on Commissions

Be mindful of the fees you're paying, especially if you're not an active trader. Some firms charge monthly fees, while others charge transactional fees. These expenses can add up and eat into your profits. Ensure you understand what you're paying for and whether there are any changes to your fee structure.

Choose a brokerage account

A brokerage account is a standard investment account that offers flexibility, as anyone over the age of 18 can open one. You can add as much money as you want to the account whenever you want and withdraw any cash whenever you need to. You also have access to a wide range of investment options. However, it is a taxable account, meaning you have to pay taxes on any realised investment profits every year. For example, if you sell investments for a gain or receive dividends or interest, you will be taxed on this profit.

Brokerage accounts are most commonly used for investing and trading the full range of investment options for either specific goals or just building wealth as you accumulate assets. If you are investing for retirement, it generally makes more sense to start with a 401(k) or an individual retirement account (IRA). However, as long as you choose an account with no fees or minimums, there is no harm in opening a brokerage account so you have it ready when you need it.

Fidelity offers a range of investment options for brokerage accounts, including stocks, ETFs, mutual funds, CDs, and more. They also offer a Fidelity Youth® Account for children aged 13-17 who want to start learning about investing. Their parent/guardian must have or open an account and are responsible for their teen's activity.

If you are looking to save for college, a new home, or retirement, Fidelity can help you reach your goals. They offer a range of account choices and provide tools and resources to help along the way.

Consider a 401(k)

A 401(k) is a retirement savings plan that lets you invest a portion of each paycheck before taxes are deducted, depending on the type of contributions made. It is an employer-sponsored plan, and approximately 42% of the working population in the US uses a 401(k) to invest money for retirement.

Tax Advantages

A significant advantage of 401(k)s is their tax benefits. Pre-tax contributions to a 401(k) are not taxed until you begin making withdrawals in retirement. This means your investments have the opportunity to grow tax-free until you need the money. Additionally, contributing to a traditional 401(k) can lower your taxable income for the year, resulting in potential tax savings.

Roth 401(k) Option

Some employers offer a second type of 401(k) called a Roth 401(k). With this option, you invest after-tax money, and you don't pay income taxes on your withdrawals in retirement. This can be an attractive option for those who expect to be in a higher tax bracket when they retire, as they can take advantage of paying taxes at their current, lower rate.

Employer Contributions

Another key benefit of 401(k)s is the potential for employer contributions. Many employers will match your contributions up to a certain percentage of your salary. This is essentially "free money" and a great incentive to save for retirement. Fidelity suggests aiming to contribute at least enough to get the full match amount.

Compounding Returns

The earlier you start investing, the more you can benefit from compounding returns. With a 401(k), your investments have the potential to grow over time through the power of compounding. The longer your investments remain in the account, the more opportunity they have to generate returns, which are then reinvested to generate further returns.

Withdrawal Rules

It's important to understand the rules around withdrawing money from your 401(k). Generally, you must wait until you're at least 59½ years old to access the funds without paying a penalty. There are some exceptions, such as distributions after reaching age 55 and separating from your employer, medical costs, and foreclosure. Taking a loan from your 401(k) is another option, but it's important to note that you'll have to repay the loan, and your take-home pay will be reduced.

Required Minimum Distributions (RMDs)

According to the IRS, you must start withdrawing a minimum amount from your 401(k) each year once you reach the age of 73. These are called required minimum distributions (RMDs). Failing to withdraw the required amount may result in a penalty of up to 25%, in addition to the taxes owed on the distribution.

Contribution Limits

It's important to be aware of the annual contribution limits for 401(k)s. In 2024, the employee contribution limit is $23,000 for those under 50, and this increases to $23,500 in 2025. Those aged 50 and older may contribute an additional "catch-up" amount.

In summary, a 401(k) can be an effective tool for growing your Fidelity investments, offering tax advantages, potential employer contributions, and the ability to benefit from compounding returns over time. However, it's essential to understand the rules and restrictions around contributions, withdrawals, and required minimum distributions.

Open an IRA

Opening an Individual Retirement Account (IRA) is a great way to start investing with Fidelity. IRAs are tax-deferred retirement accounts that allow you to save for retirement without being taxed until you withdraw your money. There are two main types of IRAs: traditional IRAs and Roth IRAs.

With a traditional IRA, you can lower your current income taxes by deducting your contributions if you meet income eligibility. You can also withdraw money penalty-free for certain expenses, such as a first home purchase, birth, or college expenses. Additionally, there are no income limits, so you can keep contributing to a traditional IRA as long as you're working.

On the other hand, a Roth IRA offers the potential for tax-free growth and tax-free withdrawals in retirement. This means that you contribute with after-tax money, and your earnings can grow tax-free. With a Roth IRA, you can also take a penalty-free, federal tax-free distribution of contributions at any time.

When choosing between a traditional and Roth IRA, consider your current and future tax brackets. If you expect your tax rate to be higher in retirement, a Roth IRA may be a better choice. On the other hand, if you believe your tax rates will be lower in retirement, a traditional IRA may be more advantageous.

Fidelity offers a variety of IRA options with no account fees or minimums to open an account. You can choose to manage your own investments or have Fidelity choose and manage them for you. With a broad range of investment options, including target-date funds, you can find the right fit for your retirement goals.

Put contributions on autopilot

Setting up automatic contributions from your paycheck or bank account to your investment account is a great way to grow your Fidelity investments. This method of automating your savings and investments is known as putting your contributions on "autopilot".

• Reduced temptation to spend: Automatically transferring money into your investment account can help reduce the temptation to spend it on other things.
• Consistent investing: By setting up regular contributions, you can take advantage of dollar-cost averaging, which means investing a fixed amount of money at regular intervals, regardless of the stock market's performance. This strategy can help you avoid the pressure of determining the best time to buy and reduce the impact of market volatility on your overall purchase.
• Less stress: Automating your contributions can free up your time and lower your stress levels by eliminating the need to constantly think about your investments and saving decisions.
• Time in the market: Automating your contributions ensures that you invest consistently over time. This strategy aligns with the saying, "it's about time in the markets, not timing the markets," emphasizing that investing regularly is more important than trying to predict the best time to invest.
• Convenience: With automated contributions, you only need to make the decision to invest once, and the transfers will continue without any further action required from you. This convenience can be especially beneficial if you tend to procrastinate or forget to make manual contributions.
• Potential for higher returns: By making regular contributions, you increase your chances of buying more when the price is relatively lower and buying less when the price is relatively higher. This strategy can result in better returns over time compared to trying to time the market.

To set up automatic contributions, you can utilize features such as recurring investments or automated investment plans offered by Fidelity. These tools allow you to choose the amounts, frequency, and timing of your contributions, providing flexibility and control over your investment strategy. Additionally, you may have the option to set up direct deposits from your paycheck or recurring transfers from your bank account to your investment account.

Frequently asked questions