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You’ve heard of credit card sign-up bonuses. Whether it’s $1,250 in free travel or $200 in instant cash back, getting some extra bang for your buck on your everyday expenses is always a welcome deal.
But what if instead of being rewarded for spending money, you are being rewarded for investing?
Through the power of time and compound interest, a seemingly small sign-up bonus on a brokerage account can grow into amounts several times greater than the most lucrative credit card sign-up bonus on the market.
Enter the latest signup bonus from Fidelity, one of NextAdvisor’s top picks for online brokers. Currently, Fidelity will give you $100 if you open an eligible investment account using the offer link and deposit at least $50. The deal is even more valuable when you consider how the money will grow if you invest it over the long term. Think how this $150 initial investment ($50 deposit + $100 bonus) will grow over 40 years with an average annual return of 10%:
Growth from an initial investment of $150 with a 10% annual return over a 40-year period. According to CNBCThe average annual total return for the S&P 500, a popular index fund that tracks the largest companies in the stock market, is 9.8% over the past 90 years.
In 40 years you could have $6,789 in cash – all with an initial investment of $150, with no additional deposits. But more importantly, you now have a good foundation to start investing, which will allow your wealth to grow in the years to come.
Here’s how to get the bonus, plus the best strategy to start investing.
Fidelity is one of NextAdvisor’s affiliate advertising partners. Our evaluation of its products is not affected by compensation.
Right now you can get $100 when you sign up for a new eligible account through Fidelity’s offer page Use the promo code FIDELITY100 and deposit $50 or more within 15 days of opening your account. Eligible accounts for this offer are The Fidelity Account® (a taxable brokerage account), Cash Management Account, Roth IRA or traditional IRA. After you open and deposit a new qualifying account, Fidelity will add $100 to your account within 25 days of opening.
Even if you are an existing Fidelity customer, you can still take advantage of this offer if you open a new eligible account and to meet the requirements† However, you cannot receive the bonus on an existing account.
An expiration date for the offering has not been officially announced, and a company representative told us: “We have not set an end date. However, this is a limited time offer and Fidelity reserves the right to discontinue this offer at any time.” You can view the full terms and conditions of this offer here† (Fidelity is one of NextAdvisor’s affiliate advertising partners. Our evaluation of its products is not affected by compensation.)
Unlike other broker sign up bonuses, this $100 bonus is relatively large and requires a relatively small first deposit. In comparison, the sign-up bonuses currently offered by Ally Invest and E*TRADE (both among NextAdvisor’s top broker picks) both require a minimum deposit of $10,000 to receive a bonus. Therefore, the Fidelity offering can be a great opportunity for new investors who want to start investing with one of our top recommended brokers, but don’t have a lot of cash on hand. Fidelity offers commission-free trading in US stocks, ETFs, mutual funds and US Treasuries.
Choose an account
You can get the bonus if you sign up for one of four eligible accounts: The Fidelity Account® (a taxable brokerage account), a Cash Management Account, a Roth IRA or a traditional IRA. Each has its unique advantages and disadvantages that make them better or worse for certain investors. Here’s an overview of each account and who they might be good for:
Taxable securities account: The most basic account for buying and selling investments, a taxable brokerage account carries no tax benefits, but it also has no restrictions on contributions or withdrawals. With this account you can deposit and withdraw your money at any time, but you will pay tax on the profit you make from selling investments. The tax rate differs depending on your tax bracket and whether you have owned the sold investments for longer or less than a year. A brokerage account can be a good choice if you’ve already maximized your retirement contributions but still want to invest, or if you plan to use the money before retirement age. Cash management account: A cash management account works just like a traditional checking account. You can easily deposit, withdraw and move money and access features such as paying bills and writing checks. You also get access to an ATM/debit card. Your cash balances are FDIC-insured and earn interest. In general, this type of account is best for your day-to-day cash management needs rather than long-term investments. However, you do have access to some short-term investment options such as certificates of deposit (CDs) if you want to grow your money while holding it in this account. Roth IRA† One of the best ways to save for retirement, Roth IRAs let you invest with after-tax dollars and withdraw the money — both principal and any income — after age 59½ without paying taxes. Your investments will be tax-free on this account, making it a favorite among NextAdvisor’s contributors. Please note, however, that there is a annual contribution limit, shared by all your traditional and Roth IRA accounts. For 2021, the limit is $6,000, or $7,000 if you’re 50 or older. And, subject to certain exceptions, if you withdraw your earnings before age 59 , you will pay tax and an early withdrawal penalty. traditional IRA† Like a Roth IRA, a traditional IRA is a retirement account with tax benefits, but also with certain limitations. The difference is that while your money grows tax-free with a Roth IRA, your money is tax-deferred with a traditional IRA. This means you fund the account with pre-tax dollars — and claim a tax deduction up front — but pay taxes when you withdraw the money. Like a Roth IRA, there is an annual contribution limit and rules about when you can withdraw your money without penalty.
In general, a Roth IRA is better for those who believe they will fall into a higher tax bracket when they retire – for example, young professionals who are just starting their careers and aren’t earning much now. A traditional IRA is better for those who plan to fall into a lower tax bracket than their current one when they retire, and would benefit more from the tax break today.
How to invest your deposit and bonus
Once your first deposit and sign-up bonus are in your account, you need to pick out some investments so that your money can grow. NextAdvisor recommends buying and holding low-cost index funds for the long term to maximize returns and minimize risk.
Just as a chocolate sampler provides a quick gift with many different items in it, an index fund allows you to easily diversify your portfolio by allowing you to buy many different stocks in a single “bundle.”
There are many types of index funds with varying degrees of specificity. Some, like the S&P 500, contain 500 major companies on the exchange, so they serve as a good way to let your investments track the growth of a stock market as a whole. Others, such as the Vanguard Information Technology Index Fund ETF or the Vanguard Health Care Index Fund, track specific industries and include stocks of many companies in that industry.
You may also want to consider target-date funds, which are based on a set date when you plan to withdraw the money — for most people, this would be around their desired retirement date. Many of these funds are actively managed and rebalanced as needed, especially as the target date approaches. Target-date funds can be an easy and hands-off way to save for retirement, which is why they’re a favorite of veteran investor Jeremy Schneider.
By diversifying your portfolio with index funds, you can spread the risk so that you don’t lose all your savings if a particular stock underperforms. And by buying and holding these stocks over the long term, you are less susceptible to the day-to-day swings, as the stock market almost always shows overall positive growth over the long term.
Also look at the expense ratio, the administrative fee that an index fund charges. The lower the expense ratio, the more income you will have.