Warning: Please note that I am no expert in financial advising and you should take the following with a grain of salt and read at your own risk. That means whatever I tell you here is what I personally experience. I just want to share my story in hopes of inspiring you all to take action.

I am in no way saying you have to do what I do. I recommend you consult with a financial advisor before you do any of the following. Read at your own risk!

Read this post here if you haven’t already, to learn how to open a Roth IRA. Please note that the following general guidelines are more relevant to Fidelity, but could still apply to you even if you are with a different brokerage provider.

When opening a Roth IRA, here some important factors to look out for:

1. Expense Ratio

An expense ratio is like a management fee; this is how much it will cost you to hold this investment over a year.

Here’s a general rule of thumb: You want to buy investments that have an expense ratio of 0.2% or lower. If you buy investments that have a big expense ratio, the fees will add up and you will end up losing thousands of dollars over the next 40-50 years.

In this graph by Investopedia, you can see how rates affect investments. For an index fund with a $10,000 initial investment, a portfolio with an expense ratio of 0.5% will net you $67,275 in 20 years compared to a net gain of $46,022 with a 2.0% expense ratio. 

That’s almost a $20,000 difference!

2. Automated reinvestments

Index funds allow you to automatically reinvest your dividends back into your portfolio. This means that if you make money off of your investments, it is automatically put back into the investment to earn you more money. 

You don’t even have to do anything! To do this in Fidelity:

1. Make sure you’re on the summary page. Click on Account Features
2. Under Brokerage & Trading, click on Dividends and Capital Gains
3. You will see a list of all your investment types. Click on Update
4. Click on both circles under the Reinvest in Security
5. Check off the two options on the bottom and click on Update.

That’s it. If you’re still not sure, watch this video here. It shows you how to reinvest your dividends.

3. Look for a Minimum to Invest

Some investments require you to contribute a certain amount of money before they allow you to buy a share of that investment. This is a minimum to invest. 

As you look at what investment to buy, consider this because you want to set aside enough money to cover this fee.

4. Look at the Investment’s Risk, Returns, and Expenses 

Here are some images of what the FSKAX Index Fund looks like along with its risks, returns, and expenses at the top.

As I was looking at what to buy, I looked for an investment that has low risk, high returns, and low expenses. Of course, it’s hard to come across these, so I try to balance out what I am most comfortable with. 

For example, I’d totally ok if the return is high, the risk is middle, and the expenses are middle. But ideally, I’d rather grab investments with high returns, low risk, and low expenses!

5. Look at the Investment’s Performance Over the Years

Fidelity gives you information about how the investment has performed over the years. In the image below, you can see that the FSKAX Index Fund has been performing generally positively over the three-year, five-year, ten-year, and lifetime mark.

You’d want to purchase an investment that has shown a positive return over the years. If it’s a positive two-digit number (e.g. 10+ over ten years) then I buy a share of that stock!

Example Spreadsheet that Helped Me Decide What to Buy

Here’s a spreadsheet that I created when I was looking at what investments to buy. As I was doing my research, I considered the above factors and a few others. See below:

That’s it! Happy investing. 

What other things do you look for when looking at what stocks to invest in? Comment down below because I’d love to know!