Fidelity is a great choice when choosing a brokerage. Fidelity is a brokerage with a great history of customer support and improvements over time. By the time you finish this post, you will know how to invest for beginners Fidelity.
This post will be specific to Fidelity. If you want to learn more about investing for beginners in general, check out my post on that.
Step 1: Type of Account
Fidelity offers many types of accounts. The primary differentiation most people should decide on is whether this is a retirement or standard account. A retirement account is best if your goal is to invest with tax advantages toward retirement. A traditional brokerage account is the way to go if you are looking to invest post-tax funds and withdraw as necessary for big purchases.
Fidelity offers several retirement accounts. The most popular are the Roth IRA and self-employed 401K. Simply put, a Roth IRA is a retirement account funded with post-tax income, grows tax-free, and whose contributions can be withdrawn at any time. A 401K utilizes pre-tax contributions, grows tax-free, and tax-deductible contributions. Fidelity offers a self-employed 401K can replace the standard employer-sponsored 401K.
As for a standard brokerage account, Fidelity’s offering has no fees, access to the entire market, and $0 commissions. Be aware that a traditional brokerage account has virtually no tax advantages. You use post-tax contributions and are taxed on any capital gains. The only exception to this is that you can use losses to offset future gains.
Step 2: Sign Up
Once you select your desired account, you must sign up for a corresponding Fidelity account. The process of signing up is straightforward. Essentially all you need is your personal information, such as your social security number and address.
Step 3: Deposit Funds
To invest using your new Fidelity account, you must deposit funds to trade stocks.
If you set up an account that utilizes after-tax contributions, this should be done by linking a bank account. If you set up something like a 401K that uses pre-tax contributions, you will need to mail checks to Fidelity for deposits. Though this may sound cumbersome, it’s worth it to take advantage of a 401K.
How much you deposit upfront doesn’t matter, as Fidelity has no minimum deposit. I recommend depositing as much as you’re comfortable to lock in those savings. If those funds continue to sit in your bank account, it is too easy to spend them before depositing them.
Depositing a bunch of money at once doesn’t mean you will invest all those funds. In fact, it’s even better not to invest it all at once, which will be covered later. So feel safe to invest as much as possible without the pressure to risk it all on investments at once.
Remember that withdrawing deposited funds is more complex depending on your Fidelity account. If you started a 401K, withdrawals can’t be made until you are 65. If it was a Roth IRA, you could withdraw contributions whenever but only withdraw gains once you are 59 ½.
Regardless of your type of account, including non-retirement accounts, you must sell your assets before withdrawing funds. Keep this in mind since if you are in a low-volume fund or stock, selling isn’t always instantaneous. Stick with high-volume, popular funds and stocks to keep liquidity in your portfolio.
Step 4: Invest
The most critical step of this process is investing using your contributions. If you utilize your contributions poorly, it won’t matter how much or often you invest. You will lose the money you worked so hard for. Make sure you treat investing as seriously as it should.
Invest in Fidelity
Fidelity makes it incredibly simple to invest. If you are on the website, you can search for the company or ticker and select buy or sell, or you can go to Accounts & Trade in the top left, then to trade. If you are looking for data behind your desired stock before trading, the first option of searching for the stock is best.
You may notice a couple of things in the trading process. You can either place an order in shares or dollars. If you place an order in shares, you can only trade whole shares. If you select dollars, you can trade with any whole dollar amount. This flexibility can be beneficial depending on a given stock’s share price.
Also, there is the option for a market or limit order. A market order means that the stock will be traded at whatever price is available at the time. A limit order means the stock will only be purchased if the limit is reached. A limit buy will only be bought for a price at or below the limit. For a limit sell, it will only be sold for a price at or above the limit.
When you are dollar-cost averaging, market orders are sufficient. If you want to make an accurate trade, a limit will ensure you don’t overspend or undersell. But keep in mind that the trade will never occur if the limit is never reached.
Don’t Invest All at Once
If you opened a Fidelity account and immediately deposited a decent sum of money, as I recommended above, don’t invest it immediately. Investing it all at once is a dangerous bet. If the market goes down, you will feel that dip much more than if you had waited to spread out your investments.
There are thousands of investing strategies out there. The most common and effective is dollar-cost averaging. This entails investing a set amount of funds into a set stock regularly. For example, investing $100 into Apple (ticker AAPL) every month.
Dollar-cost averaging is intended to track whatever asset you invest in by buying in consistently, regardless of activity. Using the example above, dollar-cost averaging with Apple will allow your performance to follow Apple’s performance. You are constantly buying in whether Apple goes down and becomes a better deal or goes up and makes you money.
Don’t Try to Time the Market
It is tempting to buy a lot of an investment when you see an opportunity, such as a dip in the market. In general, this is a bad idea. This will lead to you losing money when the market dips again.
The likelihood of you or any other investor timing the market is nearly 0%. The probability of a professional investor beating the market is 10-20%. The likelihood of a new or amateur investor beating the market is nearly 0%. Instead, buy consistently into index funds or blue-chip stocks for reliable returns.
It’s not worth risking so much of your hard-earned savings to try and make an extra percent or two on your investments. Instead, take the save way out and dollar-cost average your way in over time.
If you see the market down and want to take advantage, investing more than usual is okay. The real trouble comes when you make massive bets, like investing three times as much as usual to try and take advantage. If you have this much extra cash to spare, you should invest more monthly instead of saving it.
If you want to become proficient at investing, there is much more to dive into. Check out my post on 10 Tips for Beginner Investors.
If you are instead looking to invest in the overall market, the S&P 500 is the best choice. The S&P 500 is an index that tracks the top 500 companies in the stock market based on market capitalization. To invest in the S&P 500, check out my post on the S&P 500.
Step 5: Automate
The single most often missed step in investing is automating the investing process.
Think about a habit that you have wanted to build. It could be working out more consistently or calling family regularly. Now imagine you could automate the habit with virtually zero input from you after the fact. That is how simple it is to build the habit of investing.
Assuming that your goal is to dollar-cost average like most investors, investing consistently is the key. Not only to successfully dollar-cost averaging but also to consistently building your position in the market over time.
Many investors fail because they forget to invest or invest inconsistently. The old “I’ll invest at the end of the month” trope leads to rarely investing. Your long-term gains will be uncertain if you don’t consistently buy into the market. To generate the expected 10% returns, automate your investing.
Fidelity is a fantastic brokerage. If you stick with this guide and make sure to automate your process, you will see fantastic results. To learn more about investing as a whole, check out my post on investing as a beginner.
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