Invest Money With Fidelity: A Guide To Getting Started

Investing can be a great way to grow your net worth and build a more comfortable future for yourself and your family. However, it can be a complicated process with a lot of jargon, new concepts, and stressful decisions. Fidelity offers a range of investment options, including mutual funds, which are a practical and cost-efficient way to build a diversified portfolio of stocks, bonds, or short-term investments. Here are the steps to follow if you want to invest your money in funds with Fidelity:

- Figure out what you're investing for: Are you investing for retirement, saving for your child's education, or something else? This will help you choose the right type of account.

- Choose an account type: Consider the pros and cons of different account types, such as brokerage accounts, 401(k)s, and Individual Retirement Accounts (IRAs).

- Open the account and fund it: Decide how much money you want to invest and choose an account that fits your financial goals and risk tolerance.

- Pick your investments: You can invest in individual stocks and bonds, mutual funds or ETFs, or hire a professional manager. Diversifying your investments is essential to managing risk.

- Buy the investments: Look up the investment's ticker symbol and decide on the amount you want to invest.

- Monitor your investments: Check in on your investments periodically to ensure they are performing as expected and rebalance your portfolio if needed.

Choosing the right account type for your goals

The type of account you choose will depend on your investment goals. For example, preparing for retirement requires a different type of account than saving for your child's education. You'll put money into each account—from your own savings and/or contributions from an employer—and it's then invested into securities like index funds until you're ready to cash out.

• Brokerage account: Anyone over the age of 18 can open a brokerage account, which is a standard-issue investment account. You can add as much money as you want, whenever you want, and there's a wide range of investment options. You can generally withdraw any cash whenever you want. However, a brokerage account is a taxable account, meaning you have to pay taxes on any realised investment profits.
• 401(k): This is an employer-sponsored plan for investing for retirement. It offers tax-advantaged investment growth potential with relatively high contribution limits. You can contribute to the account pre-tax and you generally don't pay any taxes while your money is sitting in the account. You only pay income taxes when you make withdrawals. Many employers will match your contributions, which can be set up through payroll deductions.
• Individual Retirement Account (IRA): This is an account for retirement that you can open and invest in yourself. Traditional IRAs come with similar tax benefits to 401(k)s, although there are some differences. For example, you can't contribute pre-tax, but you may get a tax deduction for the year your contribution is made. You also often get more flexibility and control than with a 401(k).
• 529 plan: These tax-advantaged accounts are designed for education savings. Contributions to the account are made with post-tax dollars, and any earnings grow federal income tax-deferred. As long as the money is used for qualified education expenses, withdrawals are tax-free.
• Health Savings Account (HSA): This kind of account allows you to set aside pre-tax dollars for future healthcare expenses. You can only contribute to an HSA if you are enrolled in an HSA-eligible health plan. The money rolls over from year to year, and there's no tax on growth or withdrawals for qualified medical expenses.
• Taxable brokerage account: This type of account doesn't offer tax advantages, but it provides more flexibility and fewer restrictions than tax-advantaged accounts.

Understanding the pros and cons of brokerage accounts

Brokerage accounts are a type of investment account that allows individuals to invest in securities such as stocks, mutual funds, exchange-traded funds (ETFs), and bonds. They offer an accessible way to build wealth and save for various financial goals, including retirement, home remodelling, or a child's wedding. While brokerage accounts provide flexibility and diversification, there are also some downsides to consider. Here are the pros and cons of brokerage accounts to help you make informed decisions:

Pros of Brokerage Accounts:

• Easy Diversification: Brokerage accounts allow individuals to allocate their investments based on their financial goals and risk tolerance. Diversification can be achieved by investing in a mix of assets, such as stocks and bonds, and across different locations and industries, reducing risk and minimising the impact of market fluctuations.
• No Required Minimum Distributions: Unlike tax-advantaged retirement accounts, brokerage accounts do not require individuals to start taking minimum distributions at a certain age, providing more flexibility in managing distributions.
• No Contribution Limits: Retirement accounts have annual contribution limits, which can restrict the growth potential of investments. In contrast, brokerage accounts do not impose any restrictions on the amount individuals can invest.
• Accounts Are Typically Insured: Brokerage firms that are members of the Securities Investor Protection Corporation (SIPC) insure accounts for up to $500,000 if the brokerage goes out of business. However, it's important to note that this insurance does not protect against investment losses.
• Flexibility: Brokerage accounts offer flexibility in terms of age requirements, with individuals as young as 18 being able to open an account. There are generally no restrictions on the amount of money that can be added to the account, and account holders can usually withdraw cash at any time without penalties.

Cons of Brokerage Accounts:

• Fees and Taxes: Brokerage accounts often come with various fees, including annual fees, account maintenance fees, management or advisory fees, and transaction fees. Additionally, earnings from investments are typically taxed annually, which can reduce overall returns.
• Constant Monitoring: Brokerage accounts require active monitoring and a good understanding of the market and specific investments. This can be time-consuming and may not be suitable for those who cannot dedicate the necessary time and effort.
• Statement Analysis: While brokerage accounts provide instant statements, individuals are responsible for analysing the information and making investment decisions. This can be complex and time-consuming, especially for those new to investing.
• Learning Curve: Successful trading and investing require extensive knowledge and a steep learning curve. Broker-managed accounts, on the other hand, are handled by professionals who have industry expertise and can make real-time decisions to minimise losses.
• Risk of Losses: Investing carries the inherent risk of losses. While brokerage accounts offer a wide range of investment options, individuals must carefully assess their risk tolerance and make informed decisions.

How to open and fund your account

Opening an account with Fidelity is easy and can be done in just a few minutes.

Step 1: Figure out what you're investing for

Firstly, you need to determine your investment goals. Are you investing for retirement, for a child's education, or some other reason? This will help you choose the right type of account.

Step 2: Choose an account type

The three main account types are:

• Brokerage account: A standard-issue investment account with no minimum age (18 for a Fidelity Youth Account) and no restrictions on contributions and withdrawals. However, it is a taxable account, so you'll have to pay taxes on any profits.
• 401(k): An employer-sponsored retirement plan with tax benefits and potentially free money from employer matching contributions. There are rules and restrictions on contributions and withdrawals.
• Individual Retirement Account (IRA): An account for retirement that you can open and manage yourself, with similar tax benefits to a 401(k) and more flexibility. There are rules and restrictions on who is eligible, contributions, and withdrawals.

Step 3: Open the account and put money in it

If you're opening a 401(k), this is done through your employer. For an IRA or brokerage account, you'll need to choose a financial institution, such as Fidelity. Then, you can start by depositing a lump sum and adding to it when you're ready. You can also set up regular, recurring contributions to take advantage of dollar-cost averaging, which can help reduce the impact of volatility.

Step 4: Choose your investments

Once your account is open, you can link your bank account(s) to easily transfer money. Your money will automatically be deposited as cash or into a money market fund, depending on the type of account. Now, it's time to choose your investments. You can invest in stocks, bonds, mutual funds, exchange-traded funds (ETFs), or hire a professional manager.

Step 5: Buy the investments

Look up the investment's ticker symbol, then decide on the amount or number of shares you want to buy.

Step 6: Monitor your investments

Remember to check in on your investments at least annually to ensure they're progressing as desired.

Other considerations:

• If you're opening a 401(k), you'll likely have a small selection of funds to choose from, and your money will be automatically invested according to your regular contribution amount.
• When choosing a financial institution, look for one that offers diverse investment options, low or no commissions, minimal fees, an affordable account minimum, and easy online or mobile access.
• There is no minimum amount required to start investing, but Fidelity suggests eventually aiming to save 15% of your income toward retirement each year.
• If you're investing through an employer-sponsored plan, you may be limited in what investments you can buy, and you may not be able to buy specific stocks.

Picking the right investments for your goals

Understand Your Investment Goals

Before selecting specific investments, it's essential to define your investment goals. Are you investing for retirement, saving for your child's education, or pursuing a different financial milestone? Each goal may require a different type of account and investment strategy. For example, retirement planning often involves tax-advantaged accounts like 401(k)s or IRAs, while saving for a child's education may involve 529 plans or custodial accounts.

Assess Your Risk Tolerance

Different investments carry varying levels of risk. It's important to evaluate your risk tolerance, which refers to the amount of risk you're comfortable taking on. Your risk tolerance depends on factors such as your financial goals, investment horizon, and personal circumstances. Generally, younger investors can tolerate more risk, as they have more time to recover from potential losses.

Diversify Your Investments

Diversification is a key principle in investing. It involves spreading your investments across various asset classes, sectors, and geographic regions. By diversifying your portfolio, you can manage risk and potentially improve your long-term returns. Consider a mix of stocks, bonds, mutual funds, exchange-traded funds (ETFs), and other investment options to build a well-diversified portfolio.

Choose the Right Investment Vehicles

Select investment vehicles that align with your goals and risk tolerance. For example:

• Stocks: Buying individual stocks can be rewarding but requires careful research and a higher risk tolerance.
• Bonds: Investing in bonds is often considered lower risk, as you're essentially lending money to a company or government and receiving regular interest payments.
• Mutual Funds: Mutual funds pool money from multiple investors to purchase a diversified group of stocks, bonds, or other securities. They offer instant diversification and are managed by professionals.
• Exchange-Traded Funds (ETFs): ETFs are similar to mutual funds but trade on an exchange like stocks, offering more flexibility in buying and selling throughout the trading day.
• Index Funds: These funds aim to mirror the performance of a specific market index, like the S&P 500. They provide instant diversification and are managed by professionals.

Monitor and Adjust Your Investments

Investing is an ongoing process. Regularly review your investments to ensure they align with your goals and risk tolerance. Market conditions and your personal circumstances can change, so be prepared to make adjustments to your investment strategy over time.

Remember, investing involves risk, and the value of your investments may fluctuate. It's important to carefully consider your investment decisions and seek professional advice if needed.

Buying your chosen investments

Once you've chosen your investments, it's time to buy them. Here's a step-by-step guide:

• Select an account to trade in: Choose the account you want to use for the trade. This could be a brokerage account, IRA, 401(k), or another type of account.
• Choose an investment: Decide on the specific investment you want to buy, such as stocks, bonds, mutual funds, or ETFs.
• Select an order type: There are different types of orders you can place, such as market orders, limit orders, stop loss orders, and stop limit orders. Each has its own advantages and disadvantages, so choose the one that aligns with your investment goals and risk tolerance.
• Choose how long your order is active: You can choose between different durations for your order, such as Day, Good 'til Cancelled (GTC), Fill or Kill, Immediate or Cancel, and more. Consider how long you want your order to remain active before placing it.
• Pick a quantity: Decide on the amount you want to invest. You can target a dollar amount, a certain number of shares, or a fraction of a share.
• Select an action: Choose between buying or selling. "Buying" refers to investing money into your chosen investment, while "selling" means trading it out of your account.
• Choose an investment: Know the symbol of the investment you want to buy. If not, you can search for it by name.
• Select an account to trade in: Choose the account that allows you to manage your investments directly.
• Choose a trade type: There are different types of investments to choose from, such as stocks, bonds, mutual funds, or ETFs.

Remember to consider the fees, expenses, and commissions associated with each investment option. Additionally, it's important to review your investments regularly to ensure they align with your risk tolerance, timeline, and financial goals.

Frequently asked questions