Boost your investing confidence

We're going to fry the bottoms and steam the tops, and that's how we end up with a perfectly pan-fried dumpling. If investing were a dumpling, what would be inside? A whole cabbage is a sign of prosperity. I love it. Investing gives you that potential for long-term growth. I do want to become more active with my brokerage accounts. I think it's part of having a sustainable future and being able to have the lifestyle that I want. All right, let's dig in. [MUSIC PLAYING] Are you investing, but you want to know more? Maybe you want to get more involved, or just have a deeper understanding of what's happening with your money. This is a great episode for you. Hi, I'm Ally Donnelly, and this is Fidelity's Money Unscripted podcast. Today we're going to walk through how to choose your balance of stocks, bonds, and other investments, ways to avoid putting all your eggs in one basket, tax-smart strategies to protect what you're building, and more. But first, I want to introduce you to Irene Li. The award-winning chef wants to level up her investing knowledge and skills to help her reach her goals. [MUSIC PLAYING] [METAL CLANGING] What goes into a good dumpling? I think anything that tastes delicious outside of a dumpling goes great inside of a dumpling. So what we're going to do, is just dip our fingers in the water and moisten the outer edge of the dumpling wrapper. And that's going to help us seal up our dumplings. OK. The making of the dumplings is really nostalgic for me. When I was growing up, for every Chinese New Year, someone's birthday party, we would have a big bowl of dumpling filling in the middle of the table. Everybody gossiping, teasing each other, eating dumplings, and having bags of dumplings to take home. Awesome, awesome. OK, so we're here. Yes. We're in your dumpling factory and cafe, Mei Mei Dumplings. Tell me about your business you've built. We started out as a food truck 13 years ago. We were called Mei Mei Street Kitchen. And Mei Mei actually means little sister in Mandarin. Nice. So, it was my big brother, Andy's, idea to start a food truck, and his two very bossy Mei Meis got involved. And we had no idea it was going to get this out of control. But we're here now in South Boston. We have 5,000 square feet and we produce about 40,000 dumplings every week. Wow. You're running a factory, you're running classes, you're running a dumpling empire here. But this isn't the only thing you do. You also are part of a consulting firm. Tell me about that. As a food business owner myself, I know how hard it gets to pay attention to the finances when everything else is going on around you. So, I founded a consulting firm called Prep Shift. With our clients, we often start with the owner, making sure that they understand what we call, Restaurant Finance 101. And then we look to expand that to the team. Why? Why are you so invested in the financial health of other small businesses? I love food, I love restaurants. And when I am old enough to retire and have money to spend on all of life's pleasures, I want there to be a thriving, diverse, delicious, independent restaurant community that I can support. How does that drill down to your own financial literacy? I am still on my own financial literacy journey, and so I'm just hitting the point where I'm looking to be more intentional about how I manage my own finances. You mentioned retiring and great food. What are your big-picture financial goals? My top financial goals are to buy a home and move, and also, to be set up for retirement in a way that supports my passions and hobbies, like investing in small businesses, supporting charitable organizations, being able to travel and spend time with friends and family. Do you feel like you're on track, or do you feel like you're in a good position or getting there? I do feel like I might be a little bit behind in terms of retirement and meeting the goals that I have for myself, so there is a little bit of a sense of OK, time to catch up. And part of that, is that I had very little income, work-related income, for the first 10 or so years of my career. Yeah. Additionally, I am in a really privileged position to already own a home and to have a safety net with my family. And so I think that has given me a little bit of a longer leash, and it's time to tighten things up a little. You were very lucky indeed, that your parents started a brokerage account for you early on. How do you see investing as part of your path to get to those goals you mentioned? When I was little, I knew that every Sunday my dad would open up the newspaper and read all these tiny little numbers and write them down on a piece of paper. And he told me that he was investing in the stock market. And I didn't have any idea what that meant. But I remember really clearly that one day, we went to a fast-food restaurant, and he told me, you know, Irene, you own a tiny little piece of this business. So, I know that investing is part of it. I do want to become more active with my brokerage accounts. Why? Why do you want to invest more? It's funny that that's such a hard question for me. I think it's because I know I have to. I know it worked for my parents. I don't know how it's going to work for me. I think my hesitance is feeling like, I don't know who to take advice from or who to trust. And so that's where I get a little stuck. Beyond the trust issue, is there a knowledge issue, knowledge gap issue for you? Knowledge is probably the biggest factor. And so the question is, who do I trust enough to get my knowledge from? But I think it's part of having a sustainable future and being able to have the lifestyle that I want. If investing were a dumpling, what would be inside? Well, I think there would, of course, have to be lots of cabbage, because in Chinese culture, a whole cabbage is a sign of prosperity. Oh, yes. There would be garlic, scallions, and then lots of little flavorful bits and bobs. Diversification. Exactly. I love it. All right, let's eat. Oh, my gosh. Oh, my gosh. This is amazing. Dumplings for the win. Dumplings make the world go round. [MUSIC PLAYING] Dumplings for the win. I want to bring Leanna Devinney into the conversation. She's a Fidelity VP and branch leader and talks to people like Irene every day. Leanna, thanks for being here. Thanks for having me. You heard Irene. She has retirement accounts, she has that brokerage account, but she hasn't really leaned in. So I want to talk through some of the benefits of having a brokerage account and investing beyond that 401(k). Absolutely. So the biggest benefit is going to give you the potential for maximized growth over time. And brokerage accounts are more flexible. You're not tied to contribution limits or being able to access your money by a certain age, like you are with your retirement accounts or your workplace plans. So that's a big benefit. And I see so often, so many do such a great job saving for retirement in their workplace plans. They also have their checking account and savings account. But we haven't tapped into the power of a brokerage account. We've seen a lot of up and downs over the years, but we've also seen that over the long term, the markets have been favorable. To that end, Irene talks about her challenges, the knowledge gap, but also, kind of trust issues. I think it's really important to have a trusting relationship with your financial advisor. This is the relationship with your money and wealth, and you want to feel comfortable and confident. So first, I think it's really important to ask, how is your advisor compensated? Making sure you, as an investor, your interest is first. Second, when you're going through planning with an advisor, ensuring that you're looking at your goals and what you're looking to accomplish, and not just solving for an investment. OK. But it's a relationship. I mean, it is, right? It's a relationship. Yeah. So like we said, Irene has that brokerage account. She hasn't really been actively maintaining it. So if someone's looking to level up their investing knowledge and strategies, what are some of the first things they should look at? The four things we look at are asset allocation, diversification, rebalancing, and fourth, for brokerage account, we look at tax efficiencies in those accounts, because they are taxable accounts. So strategies to help keep more of what you earn. Let's take them one at a time. Asset allocation. So asset allocation, this is your mix of stocks, bonds, and cash. OK. Your asset allocation should be based on you, your risk tolerance, your time frame, your financial picture. Let's say in a brokerage account, you have a long time horizon. The goal of the account is to be used in retirement. So the asset mix may look like your retirement account. It may be a mix of 80% stocks, 20% bonds, as an example. On the flip side, if your goals are five years away or more intermediate, we may be more conservative with that allocation. And that may look something more like 50% stocks, 50% bonds. OK, so in that mix, as well, what about diversification? Diversification is that mantra, don't put all your eggs in one basket. Taking that mix, 50% stocks, 50% bonds, we want to spread out how we are exposed. While diversification doesn't guarantee against losses, it can help minimize risk in your account. So let's bring it to life. So if you have 50% stocks and 50% bonds, we wouldn't want to over concentrate in a few positions. We want to have large cap stocks, mid cap, small cap, the categories of the market, the different sectors, all of these ways that you can invest across the board to again, help minimize the risk we see. OK, third on your list was rebalancing. How do we think about that. Rebalancing is a mechanism that really ensures that you're staying in that asset mix. Remember, we built that based on you, your risk tolerance, your time frame, your financial picture. But what happens if we set it and forget it? We know the market goes up and down. So if we don't do anything, your allocation can shift, and you may be signing up for more risk than you wanted. So rebalancing again, is that mechanism to bring you back to the appropriate risk for you. Bringing this to life, if the stock market goes up, this may be selling some of those stocks and sprinkling them back into the mix that you have. If the market went down, we may have to buy more stock to get back to that healthy mix for you. Here's an example. You can see on the left-hand side, it's December 2003. There's a mix of 50% stocks, 40% bonds, 10% cash. 20 years go by and we haven't rebalanced. The market has grown in that time, and your 50% stocks is now 78.5% stocks. Yes, the market has gone up, but this is more risk than you've signed up for. So what rebalancing means, is that we want to take those gains through that 20 year and sprinkle them back to the appropriate mix for you. OK, OK. How often, I mean, obviously, when circumstances change, but how often should people be looking at their rebalancing issues? We get this question all the time. It really depends. So it depends on you. And maybe your risk tolerance has changed and you're OK to be more exposed in the stock market, as an example. It can also be based on the market. If the market is moving up and down, rebalancing is a great way to be proactive through that type of volatility. OK. We mentioned that brokerage accounts are taxed accounts. So how can we think about making them tax smart or more tax efficient? So tax smart really means, we want to keep more of what we earn and not lose to Uncle Sam. So here are four strategies to do so. The first is investing in municipal bonds. Municipal bonds may provide tax exempt income federally, and maybe locally, as well, when it comes to your bond exposure. The second is minimizing capital gain distributions. This is a strategy where we may be able to avoid investments that pay large capital gain distributions that are taxable to you. The third is tax-loss harvesting. This is a strategy where we can sell positions at a loss to offset against gains you may have. So this mechanism is another strategy that allows you to reduce your tax liability. And when the markets go up and down, this can be a great strategy. And the fourth, is looking out for long-term capital gains versus short-term. Those are taxed differently. So if we have a view into what's long-term versus short-term, we could minimize our tax liability. Anything with taxes can become or feel complex, so please consult with your tax advisor for any of these strategies. OK, words of wisdom I want to talk about two different kinds of investors. Either who's a DIYer or do-it-yourselfer or they have a managed account. How do I know what's right for me? So for the DIYers, there's great investment options and resources out there to help. It does take a lot of will, expertise and time. And when the markets are moving up and down, it does take discipline. If you feel that you want to delegate that responsibility, many have found a lot of value from professional management. Terrific. If I've listened to this episode and I'm looking to level up my investing skills, what do you hope I walk away with? Investing can make a big difference in your overall financial plan. Brokerage accounts are a great way for that potential for long-term savings and growth. You have the power of time and compounding on your side. I know you love compounding. I do. Leanna, thank you. Thank you so much. If you want more tools to help you level up your own investing, check out the show notes or head to our website. It's Fidelity.com/MoneyUnscripted. Be sure to like, follow, subscribe to the podcast, and we'll see you next time on Money Unscripted. It's your life. Get your money's worth. [MUSIC PLAYING] Footnotes + disclosures: Fidelity Investments and Morningstar Inc. This chart is hypothetical, for illustrative purposes only. Hypothetical value of assets held in untaxed portfolios invested in US stocks, foreign stocks, bonds, or short-term investments. Stocks, foreign stocks, bonds, and short-term investments are represented by total returns of the IA SBBI US Large Stock TR USD Ext 1/1926-1/1987, Dow Jones Total Market from 2/1987-12/2023; IA SBBI US Large Stock TR USD Ext 1/1926-12/1969, MSCI EAFE 1/1970 - 11/2000, MSCI ACWI Ex USA GR USD 12/2000-12/2023; US Intermediate -Term Government Bond Index from 1/1926 - 12/1975, Barclays Aggregate Bond from 1/1976 - 12/2023; and IA SBBI US 30-Day T-Bills 1/1926 - 12/2023. Past performance is no guarantee of future results. Investing involves risk, including risk of loss. The municipal market can be affected by adverse tax, legislative, or political changes, and by the financial condition of the issuers of municipal securities. Tax-smart (i.e., tax-sensitive) investing techniques, including tax-loss harvesting, are applied in managing certain taxable accounts on a limited basis, at the discretion of the portfolio manager, primarily with respect to determining when assets in a client's account should be bought or sold. Assets contributed may be sold for a taxable gain or loss at any time. There are no guarantees as to the effectiveness of the tax-smart investing techniques applied in serving to reduce or minimize a client's overall tax liabilities, or as to the tax results that may be generated by a given transaction. Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. 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