Hands-Off Investing: Fidelity's Passive Investment Strategies

Investing with Fidelity can be done in a hands-off manner by setting up automated investing. This can be done by setting up regular transfers into your investment account. Fidelity Go® is an example of a managed account that can be used for automated investing. It is a robo-advisor that offers low-cost professional money management.

Fidelity Personal Retirement Annuity

Fees

Investment approaches

You can choose from over 65 fund options or let one Fidelity-managed fund do it all. You can also customise your investment approach based on how much you want to be involved and your financial goals.

Funding and withdrawals

You can add money to an existing deferred variable annuity by visiting the Transfer Page. You can also set up recurring deposits with the Fidelity Automatic Annuity Builder. There are no IRS contribution limits.

Tax-deferred potential

You can defer paying taxes on investment earnings until the money is withdrawn, giving your savings the opportunity to compound. Taxes on assets within your FPRA annuity can be deferred until the oldest owner is age 95 (or age 90 in the state of New York).

Beneficiary options

Upon your death, if you've named your spouse as the beneficiary, they can continue the FPRA contract as their own. If you've named others as beneficiaries, they can take advantage of tax deferral with the stretch provision, allowing them to stretch payments from the inherited annuity over their life expectancy.

Brokerage accounts

Benefits of a Brokerage Account

• Wide range of investments: Even if you already have an investment account, you may still consider a brokerage account for its broad access to investment types and orders.
• No contribution limits: Unlike other types of investing accounts, brokerage accounts don't have a maximum contribution limit.
• No early withdrawal penalties: With a brokerage account, any money you contribute or earn is yours to withdraw at any time.
• No income restrictions: There are no income requirements to open and fund a brokerage account.
• Potential tax strategies: Although brokerage accounts don't offer the same tax advantages as other types of investment accounts, they can still be used to implement tax-aware strategies such as tax-loss harvesting and taking advantage of long-term capital gains tax rates.

Considerations Before Opening a Brokerage Account

• No tax advantages for contributions or eligible withdrawals: You generally cannot deduct your contributions to a brokerage account from your taxable income, and earnings don't have the potential for tax-free or tax-deferred growth.
• No employer match: With a brokerage account, all contributions are made by the owner of the account.
• Inherent risk: There is no shield against individual investments losing value. Diversification can help manage this risk by investing in different types of investments and stocks.

How to Open a Brokerage Account

• Figure out where to open a brokerage account: Consider factors such as convenience, account features, customer service, ease of use, and commissions and fees.
• Decide what kind of account you want: You can choose to manage your investments yourself, work with a financial advisor, or use a robo-advisor, which uses technology to build a portfolio based on your goals, risk tolerance, and time horizon.
• Fill out the application: Provide personal details, employment information, investment profile, and bank information if you'll be investing online.
• Fund your account: Link your brokerage account to a bank account and transfer money.
• Invest using the cash in your account: Make a transaction to invest your money in stocks, bonds, mutual funds, or ETFs.
• Check in on your investments: Monitor your investments periodically to ensure they align with your financial goals, risk tolerance, and time horizon.

Individual stocks and bonds

When you buy individual stocks, you're buying a small stake in a specific company. It's important to do your research, understand the risks, and diversify your portfolio to avoid putting all your eggs in one basket.

With bonds, you're essentially giving a loan to a company or government. They agree to make regular interest payments to you, the bondholder, over a set period of time. When the bond's loan period is over, the company or government pays back the original amount of the loan. Bonds are often lower risk than many other types of investments, but their rate of return is generally capped.

• Control and transparency: You have total control over what you own and can choose exactly which stocks and bonds to buy. You also decide whether to hold your bonds until maturity or sell them before they mature. This gives you greater visibility into your income stream, as you know the maturity dates and coupon payment dates of your bonds.
• Required research and oversight: Assembling and managing a portfolio of individual stocks and bonds requires significant research and ongoing monitoring. You need to research and monitor the financial stability of each company or entity you invest in, determine if the price of each stock or bond is reasonable, and build a portfolio that aligns with your income needs, risk tolerance, and diversification goals. Fidelity offers resources such as its fixed-income research center and fixed-income alerts to help with this process.
• Credit risk: Investing in individual stocks and bonds doesn't inherently increase or decrease credit risk, which is the risk that the issuer doesn't make its scheduled payments. The level of credit risk depends on the quality of the stocks and bonds you choose. Diversification can help reduce overall credit risk, but achieving broad diversification can be more challenging with individual stocks and bonds compared to funds.
• Transaction costs: Buying and selling individual stocks and bonds typically incurs transaction costs. Investors may also pay a mark-up when buying and a mark-down when selling. However, if you simply buy and hold your stocks and bonds until maturity, your total costs could be relatively low.
• Income frequency: With individual stocks and bonds, you'll receive income whenever a coupon payment is made or a bond matures. Most bonds make coupon payments twice a year, though the exact dates may vary. You can construct a portfolio of bonds that makes equal coupon payments each month to target a steady income stream. Alternatively, you can build a bond ladder by investing in bonds with different maturities.
• Minimum investment amount: Investing in individual stocks and bonds typically requires a higher initial investment amount compared to funds. Bonds usually trade with a minimum order quantity, which can range from a face value of $1,000 to $100,000 or more. To achieve adequate diversification, you'll need to invest in a broad range of stocks and bonds from different issuers, so Fidelity recommends having several hundred thousand dollars allocated to fixed income if you're considering investing in individual stocks and bonds. However, if you're investing in securities that don't present credit risk, such as US Treasury bonds or FDIC-insured certificates of deposit (CDs), you can achieve adequate diversification with a much lower investment amount.
• Liquidity: With individual stocks and bonds, you'll generally receive cash inflows whenever a coupon payment is made or a bond matures. If you need to access your principal before a bond matures, you can sell it, although this may involve transaction fees. Certain types of bonds, such as Treasurys and some corporate bonds, tend to be more liquid and easier to sell than municipal bonds, which are traded in thinner, less liquid markets. Selling before maturity can result in either a profit or a loss compared to your original purchase price.
• Impact of rising or falling interest rates: When interest rates rise, the market value of individual stocks and bonds generally falls, and when interest rates fall, their market value rises. However, if you hold your stocks and bonds to maturity and they make all their payments as promised, you won't realize this impact in the form of capital gains or losses.

Mutual funds and ETFs

Both mutual funds and ETFs can track an index like the S&P 500. In this case, both products will hold all (or most) of the 500 stocks in the index, in the exact proportion in which they exist in the index. The difference is that ETFs are "exchange-traded", meaning they can be bought and sold intraday, like any other stock. In contrast, mutual funds can only be bought or sold once per day, after the close of trading, by contacting the mutual fund company directly.

• Intraday liquidity: You can buy and sell ETFs at any time during the trading day.
• Lower costs: ETFs often have lower total expense ratios than competing mutual funds because there is less paperwork involved when shares are bought and sold through a brokerage account.
• Transparency: ETF holdings are generally disclosed regularly and frequently, whereas mutual funds are only required to disclose their holdings quarterly, with a 30-day lag.
• Tax efficiency: ETFs are almost always more tax-efficient than mutual funds because of how they interact.
• Greater flexibility: Because ETFs are traded like stocks, you can do things like writing options against them, shorting them, and buying them on margin.
• Commissions: Many trading platforms, including Fidelity, offer commission-free ETF trading programs.

However, there are also some potential downsides to ETFs:

• Spreads: In addition to commissions, investors pay the "spread" when buying or selling ETFs (i.e. the difference between the price you pay to acquire a security and the price at which you can sell it).
• Premiums and discounts: ETF share prices can trade at a premium or discount to their net asset value (NAV), so you may end up losing out if you buy at a premium and sell at a discount.
• General illiquidity: Not all ETFs are as tradable as they seem. Some trade rarely or only at wide spreads, making it difficult to exit your position.

How to Invest in Mutual Funds and ETFs with Fidelity

Fidelity offers a range of mutual funds and ETFs that you can invest in. Here are the steps to get started:

• Figure out what you're investing for: Are you investing for retirement, for a specific goal, or for general wealth accumulation?
• Choose an account type: This could be a brokerage account, a 401(k), or an individual retirement account (IRA).
• Open the account and fund it: You can open an account with Fidelity or another financial institution. With a 401(k), contributions are made through payroll deductions, while with an IRA or brokerage account, you can deposit a lump sum and then add to it over time.
• Pick your investments: You can choose from a range of mutual funds or ETFs that align with your investment goals and risk tolerance.
• Buy the investments: Look up the investment's ticker symbol and decide on a dollar amount or number of shares to buy.
• Relax and monitor your investments: Remember that it's normal for investments to fluctuate in the short term. Try to stay focused on your long-term goals and your portfolio's overall performance.

Summary

Both mutual funds and ETFs can be good tools for investors, offering comprehensive exposure at minimal costs. The choice between the two depends on your specific needs and preferences. If you prefer the flexibility of intraday trading and lower expense ratios, ETFs may be the better option. On the other hand, if you're concerned about the impact of commissions and spreads, or if tax efficiency is your top priority, mutual funds might be a better fit. Ultimately, you can also choose to include both types of investments in your portfolio to gain exposure to different asset classes.

Robo advisors

Fidelity's robo advisor is called Fidelity Go. With Fidelity Go, you'll start by telling us about yourself and your individual financial goals so that we can suggest an investment strategy for your account. We'll then manage your money in accordance with your goal, helping you track your progress along the way. Once your account is open, you can add money to it. Once your account balance reaches $10, we’ll start investing for you.

Fidelity Go is a hybrid robo advisor, which means it combines a robo advisor with live, personalized financial coaching. This means you'll have a chance to ask questions, exchange ideas, and discuss your goals with a real person. These conversations happen by phone rather than in person, which helps keep costs down.

Fidelity Go offers tiered pricing based on your account balance. You'll pay no advisory fee for a balance under $25,000, or 0.35% per year for any balances of $25,000 and over. There is no minimum initial investment to open a Fidelity Go account. However, in order for us to invest your money according to the investment strategy you've chosen, your account balance must be at least $10.

• They strengthen your portfolio through diversification, which means spreading your money around to different investments to potentially reduce your risk of losing all your money if one investment fails.
• They monitor and analyze the markets, so you don't have to.
• They automatically rebalance your investments when changes are needed due to market conditions or other factors to help your portfolio stay on track.

If you are new to investing, having pros manage things for you could potentially be a less risky option than trying to research and make decisions yourself.

Frequently asked questions