How to start investing in index funds through Fidelity

Fidelity lets you open an index fund account online in about 15 minutes. You will need a Social Security number, a valid ID, your current address, and a bank account or debit card to fund it. The account types available are individual (taxable), IRA (traditional or Roth), or employer-sponsored 401(k) if your workplace offers Fidelity as the plan administrator.

Once your account is open, you choose which index funds to buy and how much money to invest. Fidelity's index funds track major market indexes like the S&P 500, total U.S. stock market, or international stocks. You can set up a one-time purchase or automatic monthly transfers from your bank account.

The minimum investment varies by fund type. Most Fidelity index funds have no stated minimum for new accounts, though some mutual fund index funds require $2,500 to start. Exchange-traded fund (ETF) versions of the same indexes have no minimum — you buy them one share at a time at whatever the current share price is.

Key Takeaways

  • You can open a Fidelity account online with your Social Security number, ID, address, and a bank account or debit card to fund it.
  • Fidelity offers index funds as mutual funds (with minimums ranging from zero to $2,500) or as ETFs (no minimum, priced per share).
  • You choose between a taxable individual account, a traditional IRA, a Roth IRA, or a workplace 401(k) depending on your situation and tax goals.
  • After your account is funded, you can make a one-time purchase or set up automatic monthly investments from your bank account.

The difference between Fidelity mutual fund index funds and ETF index funds

Fidelity offers the same indexes in two formats: mutual funds and exchange-traded funds (ETFs). The main difference is how you buy them and what the minimum investment is.

Mutual fund index funds are priced once per day after the market closes. You can buy any dollar amount (like $500 or $1,000), and Fidelity will calculate how many shares that buys. Some Fidelity mutual fund index funds have a $2,500 minimum for the first purchase, though many have no minimum. You can set up automatic monthly investments, and Fidelity will buy fractional shares each month.

ETF index funds trade throughout the day like stocks. You buy them one share at a time at the current market price. If a share costs $400, you buy one share for $400 — there is no fractional share option for ETFs at Fidelity (though some brokers offer it). ETFs have no account minimum. You can still set up automatic monthly purchases, and Fidelity will buy whole shares when your monthly amount reaches the share price.

For most people starting out, mutual fund index funds are simpler because you can invest any amount and get fractional shares automatically. ETFs work well if you want to buy a small number of shares at a time or prefer trading during market hours.

Step-by-step: opening your account

Go to Fidelity.com and click "Open an Account." You will choose your account type first: individual brokerage, IRA, or workplace plan (if applicable). Then you will enter your name, date of birth, Social Security number, current address, and employment information.

Fidelity will ask you to verify your identity. This usually means answering security questions based on your credit history or uploading a photo of your ID. The process takes a few minutes and happens immediately online.

Next, you will link a bank account or provide a debit card to fund your account. Fidelity accepts transfers from most U.S. banks. If you link a bank account, the first transfer may take one to three business days to clear. Debit card funding is usually instant.

Once your account is funded and the money has cleared, you can buy index funds. Fidelity will show you a list of its index funds, sorted by category (U.S. stock, international stock, bonds). You select the fund, enter the dollar amount or number of shares, and confirm the purchase.

Choosing which index funds to buy

Fidelity's index funds track different parts of the market. The most common choices for beginners are broad U.S. stock indexes, which hold hundreds or thousands of companies and spread your risk across the entire market.

The Fidelity ZERO Total Market Index Fund (mutual fund ticker: FZROX; ETF ticker: FZROX) tracks the entire U.S. stock market and has no expense ratio — you pay nothing annually to own it. This is often the simplest choice for someone starting out.

The Fidelity 500 Index Fund (mutual fund: FXAIX; ETF: FXAIX) tracks the S&P 500, which is 500 large U.S. companies. It has a very low expense ratio (around 0.03% annually). This is also a solid choice if you want to own the largest U.S. companies.

If you want international exposure, the Fidelity International Index Fund (mutual fund: FSPSX; ETF: FSPSX) tracks developed markets outside the U.S. Many people own both a U.S. index fund and an international index fund to diversify across countries.

You do not have to choose just one. Many people own a mix — for example, 70% in a U.S. total market index fund and 30% in an international index fund. Fidelity's website shows the holdings, expense ratio, and historical performance of each fund so you can compare.

Setting up automatic monthly investments

After your first purchase, you can set up automatic transfers from your bank account to your Fidelity account each month. This is called dollar-cost averaging — you invest the same amount regularly regardless of whether the market is up or down.

To set this up, log into your Fidelity account and go to "Accounts & Trade" > "Transfers." Choose "Set up recurring transfer" and select your linked bank account. Enter the amount you want to transfer each month and the day of the month it should happen.

Once the money lands in your Fidelity account, you can either let it sit or manually buy index funds with it. To automate the purchase itself, you can set up a "systematic investment plan" (SIP) within the fund details. This tells Fidelity to automatically buy a specific index fund with your monthly transfer on the same day the money arrives.

Most people set their automatic transfer for a few days after payday, so the money is in their checking account and ready to move. Starting with $50 to $100 per month is common for people just beginning to invest.

Understanding fees and expenses

Fidelity does not charge a commission to buy or sell index funds — there is no transaction fee. However, each fund has an expense ratio, which is an annual cost expressed as a percentage of what you own.

For example, if a fund has a 0.03% expense ratio and you own $10,000 in that fund, you pay about $3 per year. This fee is deducted automatically from the fund's value; you do not write a check. Fidelity's index funds have some of the lowest expense ratios in the industry, often between 0% and 0.05%.

If you hold your index funds in an IRA or Roth IRA, there is no annual account fee. If you hold them in a taxable individual account, Fidelity also does not charge an account maintenance fee. The only ongoing cost is the fund's expense ratio.

When you sell index fund shares, you may owe capital gains tax if the fund's value has increased since you bought it. This happens in taxable accounts only — IRAs and Roth IRAs have different tax rules. Fidelity will report your gains to the IRS, and you will handle the tax when you file your return.

Moving money in and out of your account

You can transfer money from your bank account to Fidelity whenever you want. Transfers from a linked bank account usually take one to three business days. You can also deposit by check or wire transfer, though these are less common for regular investing.

When you want to withdraw money, you can transfer it back to your bank account. This also takes one to three business days. If you sell index fund shares to raise cash, the sale happens immediately during market hours (for ETFs) or by end of day (for mutual funds), and the cash sits in your account until you transfer it out.

If you withdraw from a traditional IRA before age 59½, you will owe income tax on the withdrawal and a 10% penalty in most cases. Roth IRAs have different rules — you can withdraw contributions (the money you put in) anytime tax-free, but earnings have restrictions. Taxable accounts have no withdrawal restrictions.

Frequently Asked Questions

Do I need a lot of money to start investing in Fidelity index funds?

No. Most Fidelity index funds have no minimum investment, especially the ETF versions. You can start with $50 or $100 and add more over time. Even if a mutual fund has a $2,500 minimum for the first purchase, you can often set up automatic monthly investments of any amount after that.

What is the difference between a taxable account and an IRA?

A taxable account has no contribution limits and no withdrawal restrictions, but you pay capital gains tax when you sell investments at a profit. A traditional IRA lets you deduct contributions from your taxes now, but you pay tax on withdrawals later. A Roth IRA has no tax deduction now, but withdrawals in retirement are tax-free. IRAs have annual contribution limits (currently $7,000 for people under 50) and withdrawal restrictions before age 59½.

Can I move my index funds to another brokerage later?

Yes. You can transfer your account to another brokerage through a process called an ACAT transfer. Fidelity will help you with this. If you move money between IRAs, follow IRA rollover rules to avoid tax penalties. Taxable accounts can be transferred without tax consequences.

What happens if the market drops after I invest?

Your account value will drop too, but you still own the same number of shares. If you keep investing through automatic monthly transfers, you will buy more shares at the lower price. This is why regular investing over time (dollar-cost averaging) can reduce the impact of market swings.

How do I know which index fund is right for me?

Start with a broad U.S. stock index fund like the Fidelity ZERO Total Market Index Fund or Fidelity 500 Index Fund. If you want international diversification, add an international index fund. Your choice depends on your age, risk tolerance, and time horizon. Fidelity's website has educational resources and tools to help you think through this.