A Guide To Investing In Other Funds With Fidelity

Investing in other funds using Fidelity can be a great way to build a diversified portfolio of stocks, bonds, or short-term investments. Fidelity offers a wide range of mutual funds, including domestic equity funds, international equity funds, and fixed-income funds, providing investors with numerous options to choose from.

When investing in other funds using Fidelity, it is important to consider your investment goals, risk tolerance, and time horizon. Fidelity offers various account types, such as brokerage accounts, retirement accounts (401(k), IRA), and education savings accounts (529), each with its own tax implications and contribution limits.

Additionally, Fidelity provides resources and tools to help investors make informed decisions, including research pages, screeners, and fund evaluators. It is also important to consider the fees and expenses associated with the funds to ensure they align with your financial goals.

By utilizing the features and funds offered by Fidelity, investors can effectively invest in other funds to diversify their portfolios and work towards their financial objectives.

How to choose an account type

The type of account you choose depends on your investment goals. Here are some of the most common account types offered by Fidelity:

Brokerage Account

A brokerage account is a standard investment account that offers flexibility. Anyone aged 18 or older can open one, and you can add as much money as you want, whenever you want. You'll also have access to a wide range of investment options. However, it's important to note that brokerage accounts are taxable, so you'll generally have to pay taxes on any realised investment profits. Fidelity charges $0 account fees and has no minimums for opening or maintaining this type of account.

K)

A 401(k) is an employer-sponsored retirement plan. It offers tax-advantaged investment growth potential with relatively high contribution limits. You can contribute pre-tax, and you generally don't pay any taxes while your money grows in the account. You may also get tax deductions for your contributions. Many employers will match your contributions up to a certain amount. However, there are rules and restrictions on how much you can contribute and when and how you can withdraw money.

Individual Retirement Account (IRA)

An IRA is a retirement account that you can open and invest in on your own. Traditional IRAs offer similar tax benefits to 401(k)s, with a few differences. You can't contribute pre-tax, but you may get a tax deduction for the year your contribution is made. You also have more flexibility and control over your contributions and investments. However, there are rules and restrictions on who is eligible for tax deductions, how much you can contribute, and how and when you can withdraw funds.

Roth IRA

A Roth IRA is a good choice for investors at the beginning of their careers when their income and tax bracket are typically lower. With a Roth IRA, you contribute after-tax, but qualified withdrawals are generally tax-free.

Fidelity Youth Account

The Fidelity Youth Account is designed for teens aged 13 to 17 who want to start learning about investing. It offers a safe and controlled way to introduce young people to the world of investing and help them build a strong financial foundation.

How to fund your account

Once you've opened your Fidelity account, it's time to fund it. There are several ways to deposit money into your account:

• Link your bank account: You can link your bank account to your Fidelity account and transfer money anytime or set up automatic deposits.
• Direct deposit: You can set up direct deposits from your employer so that your paycheck is deposited directly into your Fidelity account.
• Electronic funds transfer (EFT): You can send money to or from a bank account using an electronic funds transfer.
• Wire transfer: You can wire money to your Fidelity account from a bank or third-party account.
• Check deposit: You can deposit a check by mobile upload or mail a paper check.
• Third-party payment apps: You can transfer money using third-party payment apps like Venmo or PayPal.
• Transfer from another Fidelity account: If you have multiple Fidelity accounts, you can easily transfer money between them.

When depositing money into your Fidelity account, it's important to consider the purpose of your investments. Are you investing for retirement, for a specific goal, or for general wealth accumulation? This will help you choose the most appropriate account type and determine how much money you should invest.

If you're investing for retirement, you may want to consider a 401(k) or an Individual Retirement Account (IRA). These accounts offer tax advantages and can help you save for the future. If you're investing through your employer, they will likely provide you with the necessary information and may even offer matching contributions.

If you're investing for a specific goal, such as a down payment on a house, or for general wealth accumulation, a brokerage account could be a suitable option. Brokerage accounts offer flexibility in terms of contribution amounts and investment options.

Regardless of the account type you choose, it's important to plan ahead for any potential delays, keep track of your deposits, and consider setting up automatic deposits to streamline your financial transactions.

How to choose your investments

When choosing an investment, it's important to consider how it fits into your overall investment strategy. Ask yourself: What am I investing for? Many people start by investing for retirement. Once you have a goal in mind, you can choose an account type, decide how much money to invest, and what to invest in.

Create a Game Plan

Ask yourself: How long do I plan on staying invested? This is known as your time horizon. Generally, the longer you invest, the more time your money has to grow, meaning you may be able to take on more risk. How much risk am I willing to take? This is your risk tolerance—how comfortable are you with the idea of losing money? Knowing your willingness and ability to accept risk can make it easier to stick with your investing plan.

Choose Your Investments

With your time horizon and risk tolerance in mind, you can look at your investment options.

• Stocks: Stocks represent a piece of ownership in a public company. Stock prices fluctuate depending on factors like company performance and news. Investing in stocks can be rewarding but is considered a riskier option. Before buying individual stocks, do your research and avoid putting all your eggs in one basket.
• Bonds: Investing in bonds is like giving a loan to a company or government that agrees to pay you back with interest. Bonds are typically considered lower risk than stocks and are assigned grades so you can understand the risk of the issuer defaulting on their promise to repay you.
• ETFs (Exchange-Traded Funds): Buying an ETF means investing in a group of securities (like stocks or bonds) at once. They're like an investment bundle, often created to follow a theme or category, such as a sector or market index. Thanks to this diversification, ETFs are considered less risky than buying individual stocks.
• Mutual Funds: Mutual funds pool money from many investors to buy a collection of stocks, bonds, or other investments. Like ETFs, mutual funds spread out your money across a mix of investments. Mutual funds are often actively managed by professionals and trade only once a day at the end of the day.

Buy Your Investments

After deciding what to invest in, use your cash or money in your default money market account to purchase the investment option.

Review Your Investments Regularly

As your life changes, your risk tolerance, time horizon, and goals probably will too. Don't be afraid to adjust your investment plan when necessary.

How to buy your investments

Once you've chosen your account type, you need to fund it. You can easily link your bank account(s) to your Fidelity account(s) and transfer money at any time or set up automatic deposits. When your money hits your account, it will be automatically deposited as either cash (in a brokerage account, you might see something like "core position" or FCASH) or in a money market fund (for accounts such as IRAs).

Now, it's time to choose your investments. You can select from stocks, bonds, mutual funds, or exchange-traded funds (ETFs). Stocks are what many people think of when they think of investing, but deciding which individual stocks to buy and sell is one of the most labor-intensive ways to invest. There is potential for high highs and low lows. You're essentially buying a small stake in a specific company, so it's important to do your research, understand the risk, and diversify your portfolio.

With bonds, you are essentially giving a loan to a company or government. They agree to make regular interest payments to you over a set period of time. When the bond's loan period is over, the company/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.

Mutual funds and ETFs are groups of stocks, bonds, and/or other investments. With mutual funds, a professional has created the group for you. There are tens of thousands of mutual funds, including target date funds, index funds, and thematic funds. ETFs are similar, but they can be bought and sold anytime throughout the trading day and usually don't require a minimum investment.

You can use the trading widget to select which of your accounts you want to trade in and how much money you have available to trade. Then, you can select an investment, an order type, and how long your order will be active.

Buying investments at Fidelity

If you want to buy index funds at Fidelity, you can research potential investments using Fidelity's Mutual Funds Research Page, which allows you to select "Index" under "Key Criteria" > "Management Approach." You can also look at the ETF Screener and choose the "Passively Managed" option under "Investment Philosophy." From the individual security's research page, select "Buy," enter the number of shares you'd like to buy, and select "Preview order." Check that the details are correct, and then select "Place order." You can repeat these steps if you'd like to buy more index funds. Fidelity account holders can also place trades in the Fidelity app.

How to manage your investments

Managing your investments is an important part of investing. Here are some key steps to help you manage your investments effectively:

• Diversification: Diversifying your investments is crucial to managing risk. Spread your investments across different asset classes, such as stocks, bonds, and other investment types. Diversification can help reduce the impact of market volatility on your portfolio.
• Risk Management: Assess your risk tolerance and choose investments that align with your comfort level. If you are investing for the long term, such as for retirement, you may want to adjust your risk level accordingly.
• Regular Review: Periodically review your investments to ensure they align with your goals and risk tolerance. It's normal for investments to fluctuate in the short term, but regular check-ins will help you stay focused on your long-term goals.
• Goal Alignment: Ensure that your investments are aligned with your financial goals. As your life circumstances change, your investment strategies may need to be adjusted.
• Professional Guidance: Consider seeking advice from financial professionals, especially if you have complex needs or feel overwhelmed by managing your investments. Fidelity offers a range of professionally managed options to suit different investor needs.
• Performance Monitoring: Keep track of your investments' performance and make adjustments as necessary. Monitoring can help you identify areas that may require rebalancing or adjustments to your investment strategy.
• Tax Implications: Be mindful of the tax implications of your investments. Consult with a tax professional to understand how taxes may impact your investment returns and plan accordingly.
• Cost Management: Consider the fees and expenses associated with your investments. While index funds typically have lower fees, actively managed funds may charge higher fees. Understand the cost structure of your investments to make informed decisions.
• Buy and Sell Decisions: Make informed decisions about buying and selling your investments. Assess the performance and prospects of each investment and consider your overall portfolio allocation when making changes.
• Long-Term Perspective: Investing is typically a long-term endeavour. Focus on your long-term goals and avoid making impulsive decisions based on short-term market fluctuations.

Frequently asked questions