Happy With My New Fidelity IRA

On February 3, 2010, Fidelity Investments offered commission-free trades on 25 iShares ETFs. As a small investor and a die-hard, dollar-cost averager, this intrigued me. My biggest obstacle to dollar-cost averaging ETFs was brokerage firms' commission fees. Even at low-commission fee Scottrade, I would need to buy $700+ of any one ETF in order to limit my commissions to 1%.

If I had $700+ to invest monthly, I wouldn't care too much about brokerage commission fees. But alas, since most of my income is going towards paying down student loans and my 401k, I don't have that kind of money to play with invest. (Some day, though, some day.)

Anyhow, I was happy to see that Fidelity was offering TIP commission-free. (I currently have 10 shares of TIP in my Scottrade accounts.) I was even more excited that EEM (MSCI emerging market fund), IVW (S&P500 growth fund), LQD (investment grade corporate bond fund) and EMB (emerging markets bond fund) were also offered commission-free. I was sold.

Traditional v. Roth?
I chose to open a Traditional, non-deductible IRA. Although I expect my 2010 AGI to be below the $105,000 - $120,000 threshold, it may not be if I get laid off at the end of the year and am given my lump-sum severance. In order to avoid the headaches of a potential re-characterization from a Roth to a Traditional IRA and coverting it back to a Roth, I just chose to open a Traditional IRA and convert it a Roth next year.

Open Account With $2,500 or $200/month?
Since I intend to dollar cost average over the year, I chose the SimpleStart IRA process which waives the usual $2,500 minimum investment in lieu of $200 monthly automatic contributions.

I chose to invest $220/month and keep the rest of the money in my numerous "high" interest-bearing savings accounts. Fidelity offers an FDIC-insured, deposit sweep, but it's currently earning 0.10%. That's pretty much close to nothing.

DRIP Feature
I've currently elected to invest solely in income funds in my IRAs to create a source of tax-free, passive income stream in my retirement. I figure that since I'm not presently investing much money in my IRA (in comparison to my 401k), I'm not sacrificing that much potential growth for safety.

For the first two months, I bought couple shares each of LQD and EMB. They both pay out about $.40/share in dividends per month. I was delighted to learn that my Fidelity account also has a DRIP feature which would reinvest my dividends into the ETFs. (I don't think my Scottrade accounts have this feature.)

With the DRIP, I earned an extra 0.005 share of EMB and an extra 0.004 share of LQD and should be getting more at the end of the month. Woo hoo!!

All in all, I'm happy with my new Fidelity account. I'll be the first to admit that the iShares ETFs aren't my first choice, but if I want to dollar-cost average, this is currently my best option. If I can find additional monies to invest, I'd also eventually like to add growth fund ETFs into the mix. My 401k is woefully lacking in growth funds and this may be a great way for me to diversify.