Derivatives. Yield curves. P/E ratios. Arbitrage. Cryptocurrency. Commodities. Annuities. REITS. Spiders.
The sheer number of financial terms and investment options out there can make your head spin. For many of us, it’s hard enough to find time in the day to do laundry, much less navigate through countless—and at times confusing—choices to form a solid strategy for our financial future.
But here’s the good news. You don’t need to be an expert stock picker, market-timing pro, or money maven to create and maintain a sound investment plan. You just need to put some basic building blocks in place.
“The most important part of investing is not picking individual investments, but having the right asset mix that take into consideration your time horizon, risk tolerance, and financial situation to help you reach your goals,” says Aliya Padamsee, CFA, CFP®, director of financial solutions at Fidelity Investments.
First steps to consider: Your savings foundation
Before you dive into creating an investing plan, your initial step is to ensure you have the foundations of your financial wellness set, says Padamsee.
Save enough money to create an emergency fund to cover 3 to 6 months of essential expenses and pay down any high-interest debt. If your employer offers a 401(k) that matches a percentage of your contribution, be sure to put in enough to get the full match.
“It’s like free money,” Padamsee says.
Once you get those things squared away, you can focus on creating an investment strategy to help build wealth that works with your busy life. Here are 6 ideas to consider.
1. Consider mutual funds and ETFs
You don't need to pour over financial statements and filings to be a "real" investor. If you want to manage your own investments, mutual funds and exchange traded funds (ETFs) can help fill your investment mix quickly and efficiently. Funds provide a collection of stocks or bonds, letting you invest in multiple securities at one time.
The benefits of using funds include convenience, diversification in many cases, and in the case of actively managed funds, professional management. The downsides can include fees, as there is often a cost associated with running funds. There can be taxes as well, which can come as a surprise if you're investing outside of a tax-advantaged account like an IRA, health savings account, or 401(k).
There is some good news—Fidelity offers 4 zero expense ratio index funds and hundreds of funds with no transaction fees. Learn about pricing and fees at Fidelity: Value you expect from Fidelity.
2. Look into target date funds
Target date funds can help you reach your financial goals with minimal fuss. As their name implies, these funds are designed to help you meet certain time-based financial goals, such as having a set amount of money for when you retire, or your child starts college.
They are super easy to use. You just have to select a fund that aligns with your objective. For instance, if you plan to retire in 2040, you can pick a “2040 fund,” which will reallocate investments as the fund approaches its target date.
“These funds automatically adjust the asset allocation from higher risk to lower risk along a roll-down schedule as they approach their target date,” says Padamsee.
This investing vehicle, sometimes called a “glide-path fund,” can be found in many 401(k) plans. (The term glide path refers to how the asset allocation shifts from more aggressive investments to relatively more conservative as the target date gets closer.)
As with other investments, target date funds have benefits and disadvantages. One potential drawback is that you can’t customize the holdings to your specific financial situation.
3. Let a robo-advisor do the investing for you
Another option is to capitalize on technology and use a so-called “robo advisor.” With a robo advisory service, you answer a few questions about your financial goals, timeline, and risk tolerance. That information is then used to produce a strategy for you.
If you want to combine a personal touch with technological advances, you can also opt for a hybrid robo-advisor. With a hybrid advisor, you can typically get the best of both worlds: access to automated intelligence and the ability to speak with a financial coach over the phone or on video.
Fidelity's robo advisor, Fidelity Go®, has no advisory fee for balances under $25,000 and then 0.35% a year for balances of $25,000 or more, which includes unlimited 1-on-1 coaching calls.
4. Invest in a model portfolio
Another option to lessen your stress is to consider a model portfolio. This option can work well for those who don’t want to build a diversified portfolio from scratch but want to be somewhat hands-on. For instance, investors using Fidelity's model portfolios are responsible for purchasing the securities separately, reviewing their investments annually, and rebalancing as needed.
Each model is designed to meet the needs of different investor profiles, with asset classes and allocation percentages predetermined by financial professionals. For instance, if you’re passionate about sustainability and want your investments to be conservative, you can look for a ready-made model portfolio that aligns with your values and risk tolerance.
5. Consider a managed account
For more direct and ongoing help, check out managed accounts. These accounts are personalized and are typically supervised by a financial professional.
“Managed accounts often make sense when you want the experts to manage your money for you in accordance with your goals,” says Padamsee.
By working with a financial advisor, you reap multiple benefits, she notes. An advisor can help you look at your financial picture holistically, factoring in elements such as retirement, taxes, estate planning, and insurance.
“It can be helpful to work with someone who has your best interests in mind and can support many areas of your financial life,” says Padamsee.
If you’d like to work with a financial advisor, you may need to meet certain investment minimums, and pay a fee or a percentage of your investable assets.
6. Put your contributions on autopilot
Want an easy, procrastination-busting way to invest? Set up regular transfers from your paycheck or bank account to your investment account.
Automating regular contributions to a 401(k), other retirement accounts, brokerage accounts, or a health savings account takes the pressure off you to remember to transfer money. You can take it a step further by setting up automatic investmentsLog In Required into funds you already own in your brokerage, retirement, 529 savings plan, HSA, or other eligible retail Fidelity accounts.
Read Viewpoints on Fidelity.com: Help your money grow with automation
“Setting up auto-invest is a great way to take the stress off and be less prone to emotional decisions that can derail your financial plan,” says Padamsee.
Once you opt into a 401(k), your contributions will typically be auto invested, she notes. But you’ll have to set up the auto-invest feature on other investment accounts.
If you make a habit of contributing regularly, such as biweekly or monthly, it will save you the cognitive strain—and potential missteps—of determining the best time to buy.
Automation allows for dollar-cost averaging, which is when you invest a fixed amount of money at regular intervals, regardless of how the stock market is performing. By continually investing, you’ll be well positioned to buy shares when prices are low and not be sitting on the sidelines when the market has a large upswing.
Automation also goes beyond just transferring money. Some employers let you set automatic percentage increases to your 401(k) for each forthcoming calendar year. For instance, if you contribute 7% of your pay, you could schedule one-percentage-point increases, so your contribution would automatically bump to 8% the next year and 9% the year after up to the maximum allowed.
Increasing your contribution by a mere 1% each year can significantly improve your financial situation in retirement. If your 401(k) plan doesn’t have an annual increase feature, you can simply set a recurring reminder in your calendar to go in manually each year and bump up your contribution yourself.