How to Open and Fund an Index Fund Account at Fidelity

How to start investing in index funds through Fidelity

Fidelity lets you buy index funds through a regular brokerage account, an IRA, or a 401(k) if your employer offers one through them. The fastest route is opening a brokerage account online — you can fund it and place your first trade the same day. You'll need a Social Security number, a bank account to transfer money from, and a few minutes to answer questions about your income and investment experience.

If you're saving for retirement, an IRA at Fidelity often makes more sense than a regular account because contributions may reduce your taxes. A 401(k) through Fidelity is available only if your employer has chosen Fidelity as the plan administrator — you can't open one yourself. Each account type has different rules about when you can withdraw money and how much you can contribute each year.

Key Takeaways

• You can open a Fidelity brokerage account online in minutes and fund it from a linked bank account the same day.
• A Fidelity IRA lets you invest in index funds with tax advantages, but you cannot withdraw the money before age 59½ without paying a penalty.
• Fidelity's own index funds (FSKAX, FXAIX, FSSNX) have no minimum investment and charge no transaction fees when you buy them through Fidelity.
• You can also buy index funds from other companies through Fidelity, though some may charge a transaction fee.
• Once your account is funded, buying an index fund takes two minutes: search the fund name or ticker, enter the dollar amount or number of shares, and confirm.

Opening a Fidelity brokerage account

Go to fidelity.com and click "Open an Account". Choose "Brokerage Account" if you're investing money you don't need for retirement, or "IRA" if you want tax advantages. Fidelity will ask for your name, address, Social Security number, employment status, and annual income. You'll also answer questions about your investment knowledge and whether you've invested before — these don't disqualify you, but Fidelity uses them to decide what warnings and educational materials to show you.

The whole process takes about 10 minutes. Fidelity will ask you to link a bank account so you can transfer money in. You can link any U.S. bank account you own. Once you've submitted everything, your account is usually approved within a few minutes, though it can take up to one business day.

After approval, log in and go to "Accounts & Trade" to link your bank account if you haven't already. You can transfer money via ACH (which takes one to three business days) or set up automatic transfers on a schedule you choose. There's no minimum amount to transfer, and Fidelity charges no fees for transfers in or out.

Funding your account and buying your first index fund

Once money is in your Fidelity account, you're ready to buy. Log in, click "Trade" at the top, then "Stocks, ETFs & Mutual Funds". In the search box, type the name or ticker symbol of the index fund you want — for example, "FSKAX" (Fidelity's total U.S. stock market index fund) or "VOO" (Vanguard's S&P 500 index fund).

Click the fund name in the results. You'll see the current price and a "Buy" button. Enter either the dollar amount you want to invest or the number of shares, then click "Preview Order". Review the details — the fund name, number of shares, and total cost — then click "Submit Order". Your order executes immediately during market hours (9:30 a.m. to 4 p.m. Eastern time on weekdays). If you buy after hours or on a weekend, the order waits until the market opens the next trading day.

Fidelity charges no transaction fee when you buy Fidelity-branded index funds (those starting with "FS" or "FX"). If you buy index funds from other companies, Fidelity may charge $49.95 per transaction, though some popular ones like Vanguard and iShares funds are commission-free. Check the fund page before you buy to see if there's a fee.

Understanding Fidelity's index fund options

Fidelity offers its own index funds with no minimum investment and no transaction fees when you buy them through Fidelity. The most common ones track the entire U.S. stock market (FSKAX), the S&P 500 (FXAIX), U.S. bonds (FXNAX), and international stocks (FXAIX). Each fund has an expense ratio — the annual cost to run the fund, expressed as a percentage of your investment. Fidelity's index funds typically charge 0.03% to 0.10% per year, meaning you pay $3 to $10 annually on a $10,000 investment.

You can also buy index funds from Vanguard, iShares, Schwab, and others through Fidelity without paying a transaction fee. These funds track the same market segments as Fidelity's own funds but may have slightly different expense ratios. For example, Vanguard's total stock market index fund (VTI) charges 0.03% per year, the same as FSKAX. The choice between them usually comes down to personal preference — the performance difference is negligible.

If you're opening an IRA, Fidelity also offers target-date funds (like FIKFX), which automatically shift from stocks to bonds as you approach retirement. These are index funds that hold multiple other index funds, so you can invest in just one fund and get a diversified portfolio.

Tax advantages of a Fidelity IRA

A traditional IRA at Fidelity lets you deduct your contributions from your taxes in the year you make them, which lowers your taxable income. A Roth IRA doesn't give you a tax deduction now, but the money grows tax-free and you pay no taxes when you withdraw it in retirement. The choice between them depends on whether you think your tax rate will be higher or lower in retirement — a tax professional can help you decide.

For 2024, you can contribute up to $7,000 per year to an IRA if you're under 50, or $8,000 if you're 50 or older. You can contribute to both a traditional and a Roth IRA in the same year, but your total across both cannot exceed these limits. If you have a 401(k) through your employer, you can still contribute to an IRA, though the tax deduction for a traditional IRA may be limited depending on your income.

The major restriction is that you cannot withdraw money from an IRA before age 59½ without paying a 10% penalty on top of income taxes. There are narrow exceptions for first-time home purchases, medical expenses, and a few other situations, but in general an IRA is meant to stay invested until retirement. A regular brokerage account has no withdrawal restrictions — you can take your money out anytime.

Using a Fidelity 401(k) if your employer offers it

If your employer has chosen Fidelity to administer its 401(k) plan, you can enroll during your company's open enrollment period or when you're first hired. You'll choose what percentage of your paycheck to contribute, and your employer may match a portion of it — for example, matching 50% of contributions up to 6% of your salary. That match is assistance programs, so most financial advisors recommend contributing enough to get the full match.

Once enrolled, log in to your Fidelity 401(k) account and choose how to invest your contributions. Most plans offer a selection of index funds, target-date funds, and other investments. You can usually change your investment choices once per quarter or whenever your life circumstances change (marriage, birth of a child, job change). For 2024, you can contribute up to $23,500 per year to a 401(k) if you're under 50, or $31,000 if you're 50 or older.

Like an IRA, a 401(k) penalizes early withdrawal before age 59½, with limited exceptions. However, if you leave your job, you can roll your 401(k) balance into an IRA at Fidelity or another provider, which gives you more investment choices and lower fees in many cases.

Monitoring and adjusting your investments

After you buy index funds, you don't need to do much. Log into your Fidelity account whenever you want to see your balance and how much your investments have gained or lost. You can view this information on the "Accounts" tab, which shows your total account value and a breakdown by fund.

Most investors add money to their index funds regularly — monthly or quarterly — rather than trying to time the market. You can set up automatic transfers from your bank account to Fidelity, then buy index funds on a schedule you choose. This approach, called dollar-cost averaging, removes the guesswork about when to invest.

Rebalancing — selling some funds and buying others to keep your portfolio aligned with your target allocation — is worth doing once or twice a year if your goals or circumstances change. For example, if you started with 80% stocks and 20% bonds but stocks have grown to 85% of your portfolio, you might sell some stock index funds and buy bond index funds to get back to 80/20. Fidelity's website has tools to help you calculate your current allocation and see what you need to buy or sell.

Frequently Asked Questions

Can I buy index funds at Fidelity with no money down?

No, but Fidelity has no minimum investment for most index funds. You can open an account and buy as little as one share of any index fund, which might cost $50 to $500 depending on the fund's price per share. Some index funds are mutual funds (like FSKAX) and some are ETFs (like VOO), but both can be bought in any amount at Fidelity.

What's the difference between a Fidelity index fund and a Vanguard index fund?

Both track the same market indexes and charge similar fees (usually 0.03% to 0.10% per year). The main difference is that Fidelity index funds are managed by Fidelity and Vanguard index funds are managed by Vanguard. You can buy either through Fidelity without paying a transaction fee. Performance over time is nearly identical because they're tracking the same thing.

Do I have to buy index funds in whole shares?

No. Fidelity lets you buy fractional shares, meaning you can invest any dollar amount and own a piece of a share if needed. For example, if an index fund costs $200 per share and you want to invest $100, you'll own 0.5 shares. This makes it easy to invest small amounts or set up automatic monthly contributions.

What happens to my index funds if Fidelity goes out of business?

Your index funds are held in your name, not Fidelity's, so they're protected even if Fidelity fails. Additionally, Fidelity is insured by the Securities Investor Protection Corporation (SIPC), which covers up to $500,000 per account if a brokerage firm fails. Your cash and investments are separate, so you have $250,000 coverage for each.

Can I set up automatic monthly investments in index funds at Fidelity?

Yes. After linking your bank account, go to "Accounts & Trade" and set up an automatic transfer on whatever schedule you choose — weekly, biweekly, monthly, or quarterly. You can then set up an automatic investment plan that buys index funds with that money on the same day it arrives, or you can transfer the money and buy manually whenever you want.