Opening A Fidelity Investment Portfolio: A Step-By-Step Guide

Investing can be a complicated process, but Fidelity offers a range of investment accounts to help you get started. These include brokerage accounts, 401(k)s, and individual retirement accounts (IRAs). Each account type has its own pros and cons, so it's important to understand your financial goals before choosing one. For example, if you're investing for retirement, a 401(k) or IRA might be a better option than a brokerage account due to their tax advantages. Once you've chosen an account type, you can open an account with Fidelity and start investing.

Choose an account type

The type of account you choose will depend on what you're investing for. Here are three main account types to consider:

Brokerage account

A brokerage account is a standard investment account that offers flexibility. Anyone aged 18 or older can open one, add as much money as they want, whenever they want, and have access to a wide range of investment options. Children aged 13 to 17 can also start learning about investing with a Fidelity Youth® Account. However, a brokerage account is a taxable account, which means you generally have to pay taxes on any realised investment profits every year. Brokerage accounts are most commonly used for investing and trading a full range of investment options, either for specific goals or for building wealth. Fidelity charges $0 account fees and has no minimums for opening or maintaining a brokerage account.

K)

This is an employer-sponsored plan for investing for retirement and may be the most readily available investment account. 401(k) plans offer tax-advantaged investment growth potential with relatively high contribution limits. This means that you can contribute to the account pre-tax and generally don't pay any taxes while your money is sitting in the account and potentially growing. Contributing to a traditional 401(k) account can also lower your taxable income for the year the contribution is made. Many employers will match your contributions, up to a certain amount. However, there are rules to follow on how much you can contribute and strict rules on when and how you can take money out. You may also be limited in what investments you can buy.

Individual retirement account (IRA)

This is an account for retirement that you can open and invest in on your own. Traditional IRAs come with similar tax benefits as 401(k)s. There are a couple of differences: you can’t contribute pre-tax, but you may get a tax deduction for the year your contribution is made. You also often get a bit more flexibility and control than with a 401(k). For example, you can pretty much contribute whenever you feel like it, and contributions for the previous calendar year can be made up to the tax filing deadline. You also may have more investment choices and can typically trade individual stocks. However, there are rules and restrictions on who's eligible to receive a tax deduction for contributing, how much you can contribute each year, and how and when you can take money out.

Open the account and put money in it

Step 3: Open the account and put money in it

The nuts and bolts of this step aren't too complicated, but there are still some decisions you need to make.

Decision: Where to open your account?

If you're opening a 401(k), this part is simple: you'll open it through your employer, with whatever company is handling their 401(k)s. With an IRA or brokerage account, you'll need to choose a financial institution to open your account with.

Decision: How much money to invest?

With a 401(k), you contribute through payroll deductions, meaning the money is taken out of your paycheck automatically. You decide how much of your pay to contribute. If your employer offers matching contributions, consider investing at least enough to capture the full amount of the match. For example, if your employer offers a dollar-for-dollar match up to 3%, you would contribute 3% to take full advantage.

If you're opening an IRA or brokerage account, you can start by depositing a chunk of money, and then add to that when you're ready. If it’s possible to make regular, recurring contributions, you can take advantage of dollar-cost averaging. That’s a strategy where you invest your money in equal portions, at regular intervals. Your investments occur regardless of the changes in price for the stock or other investment, potentially helping reduce the impact of volatility on the overall purchase.

There's no one magic number for how much you need to start investing, or how much you should add each month, because the right number varies depending on your income, budget, and what other financial priorities you're juggling. But if you're getting stuck on this step, remember that starting small is better than not starting at all.

Investing a little bit every month and gradually increasing that amount over time, as you get more comfortable, is a fine way to go. Fidelity suggests eventually aiming to save an amount equal to 15% of your income toward retirement each year (including any employer match). If you decide to invest in a brokerage account or IRA, consider setting up automatic contributions so you keep investing every month.

Pick investments

Picking Investments

Once you've opened a Fidelity investment account and funded it, the next step is to select your investments. You can choose from individual stocks and bonds, ETFs, and mutual funds. Your risk tolerance and goal's time horizon should be considered when making your decision.

• Stocks: Stocks represent a piece of ownership, or a share, in a public company. Stock prices fluctuate depending on various factors, including company performance and news. Investing in stocks can be rewarding, but it's also considered riskier than other options. It's important to research before buying individual stocks and avoid putting all your eggs in one basket.
• Bonds: Investing in bonds is like loaning money to companies or governments, which they agree to pay back with interest. Bonds are typically considered lower risk than stocks and are assigned grades to help you understand the risk of the issuer defaulting on their promise to repay you.
• ETFs (Exchange-Traded Funds): ETFs are investment bundles that allow you to invest in a group of securities, such as stocks or bonds, at once. They are often created to follow a specific theme or category, such as a sector or market index. ETFs are considered less risky than buying individual stocks due to diversification.
• Mutual Funds: Mutual funds pool money from multiple investors to buy a collection of stocks, bonds, or other investments. Like ETFs, mutual funds spread out your money across a mix of investments. They are often actively managed by professionals and trade only once a day at the end of the day, so you'll only see price changes after the market closes.

When choosing your investments, it's important to create a game plan by considering your time horizon (how long you plan to stay invested) and your risk tolerance (how comfortable you are with the idea of losing money). Review your investments regularly as your life changes, and don't be afraid to adjust your investment plan when necessary.

Buy the investments

Now that you've opened an account, it's time to start investing. There are a few different ways to go about this. You can buy individual stocks and bonds, which is the most complicated and labor-intensive way, but it's also a popular option for many people. If you choose to go down this route, you'll need to do your research on stocks and building a diversified portfolio.

Alternatively, you can invest in mutual funds or ETFs, which are collections of stocks, bonds, or other securities pooled together from many investors. These can be used as building blocks for your portfolio, or you can buy an all-in-one fund, which is a diversified portfolio in a single fund. Target date funds are an example of an all-in-one fund and are designed with a specific retirement date in mind.

Another option is to hire a professional manager, such as a robo-advisor like Fidelity Go®, which offers low-to-no-cost professional management.

Once you've decided on the type of investment you want to make, it's time to actually make the purchase. For stocks, mutual funds, and ETFs, you'll need to look up the investment's ticker symbol and decide on the amount you want to invest. With a 401(k), you can set up your investment choices and contribution amount at the same time, and your money will be automatically invested in the choices you've selected.

Fidelity Basket Portfolios is another option to consider. This is a way to build and manage your portfolio by creating "baskets" of stocks and ETFs that you want to invest in. You can create as many basket portfolios as you like and invest as little as $1 per security. There is a monthly fee for this service, but you can try it out with a 30-day free trial.

Remember, investing always comes with risks, and the value of your investments can fluctuate over time.

Monitor your portfolio

Once you've established an investment mix, you'll need to keep it on track by rebalancing and adding to your savings through regular investing.

"Rebalancing" means regularly monitoring and adjusting your portfolio so your asset allocation and diversification remain consistent with your selected investment mix. Think of it as doing routine maintenance, like taking your car in for an oil change to help performance and protect against larger problems down the road.

Regular investing

Regular investing, or ongoing contributions to your investments, is a fancy way of saying "save on a schedule". It may be one of the most important things you can do to help maximize your retirement savings.

Tips for regular investing

• Figure out how often you want to invest: weekly, monthly, or every paycheque.
• When picking a dollar amount to invest, try to find a balance between stretching yourself and keeping it manageable.
• Consider automating the process with direct deposits or automatic fund transfers. If you stick to your plan, contributions can really add up.

Other tips for monitoring your portfolio

• Try not to check your investments too often. There's evidence that the more often you check your investments, the riskier they seem, because you notice more of the short-term blips.
• Stay focused on the big picture, like your long-term investing goals and your total portfolio's performance.

Frequently asked questions