Fidelity Investment Strategies: A Guide To Getting Started

Investing can be a daunting task for beginners, but it doesn't have to be overly complicated. Fidelity offers a range of investment options, including brokerage accounts, retirement accounts, and health savings accounts, each with its own benefits and features. Before investing, it is important to define your investment goals, risk tolerance, and time horizon. You can choose to invest by yourself (DIY), use a robo-advisor, or work with a financial advisor. DIY investors should keep diversification in mind, which means spreading your investments across different types of assets to manage risk. Robo-advisors are a more affordable option, using automated programs to create a portfolio based on your goals and preferences. Working with a professional advisor can help minimize stock research and portfolio management, but it is usually the most expensive option. When investing with Fidelity, you can start with as little as $1 and there are no account fees or minimums.

Choose an account type

Brokerage Account

A brokerage account is a standard-issue investment account. Anyone over the age of 18 can open one, and children between 13 and 17 can open a Fidelity Youth® Account to begin learning about investing. There are no minimums to open an account with Fidelity, and you can invest with as little as $1. You can add as much money as you want, whenever you want, and choose from a wide range of investment options. You can generally withdraw any cash in the account whenever you want. However, it is a taxable account, which means you have to pay taxes on any realised investment profits every year.

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A 401(k) is an employer-sponsored retirement plan and may be the most readily available investment account. It offers tax-advantaged investment growth potential with relatively high contribution limits. You can contribute to the account pre-tax and generally don't pay any taxes while your money is in the account. You only pay income taxes when you make withdrawals. Many employers will match your contributions, encouraging you to invest. However, there are rules to follow on how much you can contribute and when and how you can take money out. You may also be limited in what investments you can buy.

Individual Retirement Account (IRA)

A traditional IRA is an account for retirement that you can open and invest in yourself, separate from any workplace accounts. It comes with similar tax benefits to a 401(k). You can contribute whenever you like and make contributions for the previous calendar year up to the tax filing deadline. You may also have more investment choices and can trade individual stocks. However, there are rules and restrictions on who is eligible to receive a tax deduction, how much you can contribute each year, and how and when you can take money out.

Open the account and put money in it

The first step is to decide how you'd like to invest. You can either do it yourself (DIY), use a robo-advisor, or work with a financial advisor. DIY investors should keep diversification in mind, which means spreading your money across different types of stocks and other investments to balance out the risk. Robo-advisors are a good option for inexperienced investors as they are automated and generally less expensive. Financial advisors are the most expensive option, but they can help to minimise the amount of work required and build a portfolio that's tailored to your personal circumstances.

Next, you need to decide which type of investment account best suits your goals. For example, if you're saving for retirement, you might want to consider a tax-advantaged retirement account such as an employer-sponsored retirement plan or an Individual Retirement Account (IRA). If you're saving for your child's college tuition, you might want to look into a 529 plan or a UGMA/UTMA custodial account.

Once you've chosen your account type, you can open your account with a financial institution such as Fidelity. You can then link your bank account to your investment account and transfer money across. With a 401(k), you can contribute through payroll deductions, meaning the money is taken out of your paycheck automatically. If you're opening an IRA or brokerage account, you can start by depositing a chunk of money and then add to it when you're ready.

There's no one-size-fits-all answer for how much money to invest, as this will depend on your income, budget, and financial goals. However, it's important to remember that starting small is better than not starting at all. Fidelity suggests eventually aiming to save an amount equal to 15% of your income towards retirement each year.

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Pick investments

Picking Investments

This is the step that tends to trip people up. It can feel like other people know some secret to picking investments—like there's a trick that can help you choose only the best ones. But here's the truth: there isn't.

Investing is actually a lot like creating a healthy diet. Most people should focus on getting a broad range of common-sense investment types rather than placing all their bets on a small number of "high-promise" investments. After all, turmeric and açai may be superfoods, but they still shouldn't be the only things you eat. Many people can be well-served by investing in a broad range of stocks and bonds—with more money in stocks if they're young or investing for a goal that's a long time away.

But if you're new to the investing grocery store, how do you figure out what to put in your cart? There are three basic methods:

• Individual stocks and bonds—This is the most complicated and labor-intensive way, but it's what many people think of when they hear "investing." If you want to go this route, you'll need to learn about researching stocks, building a diversified portfolio, and more. It's doable, but it can take a lot of time to build your portfolio. Fortunately, there are easier ways for beginners to get started if you don’t have the time or will to research individual investment options.
• Mutual funds or ETFs—Mutual funds and ETFs pool together money from many investors to purchase a collection of stocks, bonds, or other securities. You can use them like building blocks, putting a few together to create a portfolio. Or, you can buy an all-in-one fund, which is an easy-to-manage diversified portfolio in a single fund. If you're investing in a 401(k) or IRA, one option to consider is a target date fund—an all-in-one professionally managed fund that's specifically designed with a target retirement date in mind.
• Hire a professional manager—If you're getting stuck, consider getting help. While this may sound like it's only an option for the wealthy, there are low-cost options that can meet your needs too. For example, robo advisors like Fidelity Go® can offer low-to-no-cost professional management because the day-to-day money management is handled by computers rather than live humans.

And of course, plenty of people end up deciding to use some mix of those options—like investing in funds with their retirement money, but perhaps also picking individual stocks with a small portion of their money. There's nothing wrong with mixing and matching. Whatever options you're considering, just be sure also to consider any fees, expenses, or commissions.

Buy the investments

Once you have chosen your investments, you can purchase them in several ways. If you are using a robo-advisor, they will often buy and sell investments for you. If you are using a brokerage account, you will need to select an account to trade in, choose an investment, select an order type, and choose how long your order is active for.

If you are buying stocks, you will need to understand the basic types of trading orders you can place. A market order instructs your brokerage to buy or sell securities at the next available price. A stop order is generally used to protect a profit or prevent further loss if the price of a security moves against you. A limit order means that when you place it to buy, the stock is eligible to be purchased at or below your limit price, but never above it.

If you are buying index funds, you can use Fidelity's Mutual Funds Research Page to research potential investments and select "Buy" from the individual security's research page. From there, you can enter the number of shares you would like to buy and preview and edit your order before placing it.

If you are buying stocks yourself, using technical analysis such as charts and other tools can help you determine when to buy and sell.

Check in on your investments

Checking in on your investments is an important part of investing. Even if you have a professional financial advisor managing your portfolio, it's crucial to review your investments at least once a year to ensure they align with your goals. Here are some key considerations when checking in on your investments:

Diversification

Diversification is a risk management strategy that involves spreading your investments across different types of assets to reduce exposure to any single investment or market sector. A well-diversified portfolio typically includes a mix of stocks, bonds, and other investments. Diversification helps to balance your portfolio, as different investments may perform differently over time.

Risk

It's important to assess whether your level of risk is appropriate for your investment goals and risk tolerance. For example, if you are nearing retirement, you may want to adjust your risk level compared to someone who is several decades away from retirement.

Goals

Life changes and new priorities may cause your investment goals to evolve. Checking in on your investments allows you to evaluate whether your current investment strategy aligns with your short-term and long-term goals.

Fit

Consider whether you are comfortable with the level of involvement required for managing your investments. If you feel that choosing and managing your investments is not for you, or if you have more complex needs, you may want to engage a professional financial advisor to assist you.

Rebalancing

Over time, the balance of your investments may shift due to market fluctuations. Regularly checking in on your investments allows you to rebalance your portfolio and ensure it stays aligned with your goals and risk tolerance.

Taxes

When you sell your investments, there may be tax implications. Planning for how you will handle the potential taxes is an important part of managing your investments.

Frequently asked questions