Fun with Fidelity: 3 great tools to use with your account

 Step 1 to being an investor is to open an account with an investment firm. The big 3 are Fidelity, Vanguard and Schwab. I fell into Fidelity because it's the partner that my company works with for 401K benefits, but it's proven to be really useful and everyone says it's the most user friendly interface.

For years I only used it for my 401K, something I set and forget. I didn't even exchange out of my company's matching stock for nearly a decade until the Enron scandal happened and advice spread about the need to diversify one's retirement account. I read that no one should have more than 5% of any one company in their portfolio, but my company matching had always been 50 cents to the $1 in our stock, so my 401K was 30% in one company. Oops! I found the "exchange" button and made a note to think about it once a year.

As years went on I wanted to do more than just a 401K, so here's what I found:

FZROX

In my 20s, I opened a stock trading account with Scottrade, which has since become 5 other companies but it was basically the Robin Hood of the mid-2000s. It was pitched as an easy, accessible "start trading stocks!" kind of community and I dove right in! I learned that I'm bad at picking individual stocks.  I'm not unique. Most people are bad at picking individual stocks. You might get lucky and find some that grow 20% or even double in the year, but if another one of your companies tanks, it cancels all that out. I only had enough money to buy in to about 10 different companies, so one bad stock really ruined things for me. 

The smarter thing to do, I learned, was to invest in funds that split your dollars into 100s or 1000s of companies at once. The Simple Path to Wealth is a great book about why this works so well. With a whole market index fund, you're betting that the average company is going to grow, and there are decades of historical data showing that it's a fairly good bet.

Fidelity has a total market fund called FZROX that lets you buy into 1000s of companies and they don't charge any kind of expense ratio for it. Most companies that do this skim a little off the top... half a percent, 1%. But FZROX was developed to get people in the door at Fidelity, kind of like convenience stores that sell milk at a loss so they can get you to buy pricier more snacks when you come in the door.

FZROX isn't the only index I'm in. Once I learned about funds, I also invested in some that were more tech-heavy (QQQ) or prioritized women in leadership (FWOMX, SHE, WCEO). But FZROX is a very popular fund and if you read other finance forums, it's a fair bet you'll hear it brought up a lot.

Roth IRA

The other issue with my casual stock trading account was that I had to pay taxes on any gains. This isn't a huge deal to me... I'd always rather make money and pay some taxes than NOT make money. But there are tax-advantaged accounts set up to encourage us all to do a little investing and we should use those when we can. Fidelity is an easy place to open a Roth IRA. With a Roth, you can deposit a limited amount of money each year (example: $6500 in 2023) and you won't have to pay taxes on the growth. It's a little tricky to withdraw money from a Roth, you can only take money out for a few specific purposes. I haven't made any withdrawals. But you can invest for your future and you'll never pay taxes on the growth because the money you put in is from your income that you already paid taxes on. 

Roth IRAs are individual and you must earn money to add to one. You also have to remember to invest the funds yourself. People have forgotten, and they're really sorry to miss out on the growth! But once you figure out what to invest IN (I picked index funds!) it's easy to set back and not worry about it.

The other terrible mistake I've seen people make? Setting up a Roth IRA at a local bank. They're terrible! They're not a brokerage firm, so you can't really invest it, certainly can't make choices. They offer to pay you a little interest, like a savings account, but it's a Roth IRA? So you deposit your annual $6500, can't deposit anywhere else, and it's locked into a bank fund with a terribly low interest rate. You don't have to pay taxes on that terribly low interest rate but who cares, the taxes would be nothing anyway. Don't do it!

529

I was so intimidated by college savings plans, I didn't invest for years. I kept reading all these horror stories like "College costs are growing so fast, if you set aside $2000 a month now you might have enough money for your kids first semester!" Then I realized that all these articles were written by universities that WANT you to save up infinity. I finally started small, once I knew where to invest. Fidelity makes it easy to set up a 529 college fund and pick an easy option - I went with a New Hampshire 529. In my state, Kansas, you can pick any state's fund, and write off up to $6000 per kid from your state income taxes. I decided that would be my annual goal, but I didn't pressure myself to get to $500 a month right away.

The Fidelity Credit Card

2% of every purchase goes into the investment account of your choice - I picked my oldest daughter's 529 fund. It is really hard to find a card that does 2% back on anything! You'll find some that give you more on dining out, or have rotating categories you have to track, but I've never seen a bonus for car repairs or other expensive things that I HAVE to pay for. I use this card for bills and it's really helped the 529. 

I realize this post is scattered - 529, Roth IRA, I have a taxable brokerage account too, 401K is a given, but I was happy to realize I could set these all up in one place.