Fidelity Freedom Index Funds (F?IFX)

[Huston55]

Here's an alternative for those who may already have a 3 or 4 fund 'simple' or 'couch potato' portfolio but, might be looking for more simplicity.

Fidelity Freedom Index Funds: Hidden Gems For Your IRA, Solo 401k, or Brokerage Window

I know I'm always looking for simplicity, and lower cost (ER). So, I found this set of target date funds interesting; especially since it closely mirrors our current index fund portfolio (FSTVX, FSGDX & FSITX). Here's our situation:

- Three (index) fund portfolio described above (for the most part)
- Using G-K variable withdrawal methodology
- Retaining healthy cash buffer (4yr CD ladder with 4yrs expenses for market downturns)

However, I doubt that I will switch even though switching to F?IFX would save me from having to actively rebalance and would simplify things for my DW after I move on to the golf course in the hereafter. That's because:

- We would lose the ability to NOT sell equities in a downturn, and consume the CD ladder instead.
- If we used F?IFX AND kept the CD ladder, we'd be too cash heavy, since F?IFX has a cash component.

Who else uses or is considering a single target date fund?

[Closet_Gamer]

I use a Fidelity target date fund in my 401k. Avoids rebalancing and since I intend to retire before I could access a 401k anyways, it's an easy way to just set it and forget it.

I do look at the asset mix every 6 mos to ensure the fund manager hasn't gone psycho....when the '08 crash hit a lot of people discovered their target date funds were being horridly mis-managed from an AA perspective. So far Fidelity seems to be very rational & programmatic here.

[Al18]

I'm not very impressed by Fidelity's Target Date funds. I have a Fidelity 401K and about 3 years ago I started with equal amounts in their 2025 Target Date Fund (FKTWX) and the Fidelity Balanced Fund (FBAKX), and contributed equal amounts to these funds. As of today, the balance in my Balanced Fund is 4.5% higher than the 2025 Target Date fund. The expense ratio on the Balanced fund is 0.46% and it's actively managed. The expense ration on the 2025 Target date fund is 0.61% and it's passively managed. The Stock/Bond ratios are very similar between these two funds - so my advice would be invest in the Fidelity Balanced Fund and if you want to increase your bond holdings, add a bond index such as the PIM Total Return Fund.

[eta2020]

I am not into target funds:

7 Reasons I Don't Use Target Retirement Funds | The White Coat Investor- Investing And Personal Finance Information For Physicians, Dentists, Residents, Students, And Other Highly-Educated Busy Professionals

Problem # 5 – Life Cycle Providers Chase Performance
Lifecycle fund managers are just as guilty as the rest of us at chasing performance. Just before the 2008 bear market, mutual fund companies seemed to be competing to see who could get a more aggressive asset allocation and glide path into their lifecycle funds. Vanguard recently added international bonds to its target retirement funds. When you buy a lifecycle fund you’re getting some active management in your asset allocation, and like all active management, you may or may not come out ahead because of it. These funds are hardly the stable long-term allocations they market themselves as. Fund companies are also tempted to place their new mutual funds into their lifecycle funds. This gives the new funds “instant assets under management,” making them appear more successful than they would otherwise be.

And if the are Fidelity based....then even less.

[Huston55]

Quote:

Originally Posted by Al18 I'm not very impressed by Fidelity's Target Date funds. I have a Fidelity 401K and about 3 years ago I started with equal amounts in their 2025 Target Date Fund (FKTWX) and the Fidelity Balanced Fund (FBAKX), and contributed equal amounts to these funds. As of today, the balance in my Balanced Fund is 4.5% higher than the 2025 Target Date fund. The expense ratio on the Balanced fund is 0.46% and it's actively managed. The expense ration on the 2025 Target date fund is 0.61% and it's passively managed. The Stock/Bond ratios are very similar between these two funds - so my advice would be invest in the Fidelity Balanced Fund and if you want to increase your bond holdings, add a bond index such as the PIM Total Return Fund.

I'm not advocating one way or the other, as you can see my current plan is to remain with a 3-fund portfolio. However, the funds you cite must be 401k funds special to your employer or situation because, they don't show on Fidelity's sight and the ER data is not accurate for their 2025 Target Date fund. That fund is FQIFX, has an ER=0.16, and returned 10.12% AR for the the past 3 yrs. I think this might be related to the part of the article I linked which said Fido had just recently made their target "index" funds available to the public, outside of 401ks. So, it's likely what is now available is not what you had.

[Huston55]

Quote:

Originally Posted by eta2020 I am not into target funds: 7 Reasons I Don't Use Target Retirement Funds | The White Coat Investor- Investing And Personal Finance Information For Physicians, Dentists, Residents, Students, And Other Highly-Educated Busy Professionals Problem # 5 – Life Cycle Providers Chase Performance Lifecycle fund managers are just as guilty as the rest of us at chasing performance. Just before the 2008 bear market, mutual fund companies seemed to be competing to see who could get a more aggressive asset allocation and glide path into their lifecycle funds. Vanguard recently added international bonds to its target retirement funds. When you buy a lifecycle fund you’re getting some active management in your asset allocation, and like all active management, you may or may not come out ahead because of it. These funds are hardly the stable long-term allocations they market themselves as. Fund companies are also tempted to place their new mutual funds into their lifecycle funds. This gives the new funds “instant assets under management,” making them appear more successful than they would otherwise be. And if the are Fidelity based....then even less.

I like The Whitecoat Investor but, I found most of his arguments on this subject lacking. My summary responses are below in bold. BTW, pretty much the same response is contained in a good 'comment' by "EMResident" on The Whitecoat Investor's site that contains his article on this subject.

Problem # 1 – Not Available In All Accounts

I have a complex portfolio because I have three 401Ks, two Roth IRAs, an HSA, a Defined Benefit Plan, and 529s for all the kids. No single lifecycle fund is available in all of these accounts. What is the point of a one-stop mutual fund solution if you have to mix it with other funds? There is none. I could hold lifecycle funds in some accounts, but balanced funds in general and lifecycle funds with their ever-changing asset allocation in particular don’t mix well with other mutual funds in an asset allocation. Even if you can get to an overall asset allocation you like, rebalancing involves much more complex calculations when you toss in some lifecycle funds. This applies to me, and is likely valid for many who are older and have multiple accounts. However, it's not applicable to all, including one of the 'commenters' on The Whitecoat Investor's site. Just have to decide if it's a fit for your situation.

Problem # 2 – The Dates Are Misleading

Albert Einstein said “Make things as simple as possible, but not simpler.” I think lifecycle funds fall into the trap of making things simpler than they should be. The idea of choosing an asset allocation based on just one factor, the date you plan to retire, doesn’t necessarily account for your unique ability, need, and desire to take risk. For example, the Vanguard Target Retirement 2045 fund has an asset allocation of 90% equity. In a big bear market, that fund may lose about 45% of its value. Not everyone who plans to retire in 2045 can psychologically handle a 45% drop in their retirement account value without bailing out and selling low, resulting in an investment catastrophe.

To make matters worse, every fund company has a different asset allocation for any given date. For example, Fidelity’s Freedom 2020 fund is 49% equity, Vanguard’s Target Retirement 2020 fund is 62% equity, and the TSP L 2020 Fund is 54% equity. If you’re going to use a lifecycle fund, choose it based on the asset allocation (and change funds depending on your desired asset allocation periodically). If you’ve got to understand asset allocation anyway, what’s the point of a date-based lifecycle fund? The only argument its proponents can really make is, “Well, it’s better than lots of stupid asset allocations people come up with either on purpose or on accident.” That’s true, but it doesn’t take a whole lot of sophistication to come up with your own desired asset allocation and implement it. This is just silly. Certainly someone smart enough to invest and investigate funds is smart enough to pick a fund based on its underlying AA.

Problem # 3 – I Want A Different Glide Path

I’m a little bit of a control freak and like to be in control of my investments as much as possible. A lifecycle fund changes my asset allocation automatically. Automatic investing can be a great thing, but I prefer to have more control over my asset allocation. For example, I have had a 75/25 asset allocation for the last decade. It works for me in both bull and bear markets. I may take less risk as I get older, but to me it makes a lot more sense to decrease equity allocation after a big run up in stocks, rather than just doing it automatically at 1% or so per year. A gradual decrease is better than dumping stocks after they’ve had a bad year or two, but I don’t feel like I need to protect myself from this behavioral error by using a lifecycle fund. Some call this "tilting", most others call it "market timing." Enough said.

Problem # 4 – I Want A Different Asset Allocation



Did I mention I’m a control freak? I also like to tinker. Vanguard’s Target Retirement 2020 Fund holds only 4 asset classes. My portfolio contains 12. Do you need 12? Of course not. There is little benefit at all to having more than 10, but there are lots of benefits to having more than 4. I also buy into the idea that “tilting” a portfolio toward asset classes with higher expected returns (like small and value stocks) is likely to result in higher long-term returns. Lifecycle funds don’t generally have small value tilts, nor do they include REIT allocations, microcap allocations, Peer 2 Peer Loan allocations etc. If you enjoy debating the merits of short term TIPS vs intermediate term TIPS you’re not going to be happy with a lifecycle fund. Is it possible I’d be better off with a simpler total market based portfolio? Of course. In fact, Mike Piper, a very sophisticated investor, has a Life Strategy fund as his only investment holding. But I’m willing to bet my life savings that I can do better than a lifecycle fund, and so far, I’m winning that bet. Similar to comment #3 above. If you want to continuously tweak your portfolio, then a single fund strategy is not for you. But, this is choice based on "preference" not underlying fund "quality."

Problem # 5 – Life Cycle Providers Chase Performance

Lifecycle fund managers are just as guilty as the rest of us at chasing performance. Just before the 2008 bear market, mutual fund companies seemed to be competing to see who could get a more aggressive asset allocation and glide path into their lifecycle funds. Vanguard recently added international bonds to its target retirement funds. When you buy a lifecycle fund you’re getting some active management in your asset allocation, and like all active management, you may or may not come out ahead because of it. These funds are hardly the stable long-term allocations they market themselves as. Fund companies are also tempted to place their new mutual funds into their lifecycle funds. This gives the new funds “instant assets under management,” making them appear more successful than they would otherwise be. An ironic objection for someone who just advocated market timing in a previous comment. I know there's some 'management' around the edges in some target date funds (like with small amounts of commodities) but, the vast majority of the target fund contents underlying funds are in fact index funds.

Problem # 6 – Taxable Time Bomb

One of the biggest problems with lifecycle funds is that they are inappropriate for taxable accounts because they become increasingly tax-inefficient as the years go by. As a general rule, if part of your portfolio is in retirement accounts and part is in a taxable account, you want to preferentially place tax-efficient asset classes (like stocks) into the taxable account, leaving tax-inefficient asset classes (like bonds and REITs) in the tax-protected retirement accounts. If your only holding is a balanced fund, then you’re necessarily holding at least one asset class in a suboptimal location. To make matters worse, as you get closer to retirement a lifecycle fund gets more and more tax-inefficient as the bond allocation increases. Fixing the error becomes more expensive each year as the taxable capital gain in the fund increases. Lifecycle funds also don’t contain municipal bonds, which high earners forced to hold bonds in taxable should probably be using. This, I think, is a valid and potentially serious issue for anyone near or in retirement. I don't think it precludes using target funds but, does make it a little more complicated than just 'set and forget' a single fund.

Problem # 7 – Life Cycle Funds Are (usually) More Expensive

Many lifecycle funds add on an additional fee above and beyond the expense ratios of the underlying accounts. Even the providers that don’t do this, like Vanguard, may charge more in other ways. Vanguard offers cheaper “admiral” shares of most of its funds if you have at least $10K in the fund. However, the funds held by the Target Retirement funds are NOT the cheaper admiral shares, they are the more expensive investor shares. For example, the Vanguard Target Retirement 2020 Fund has an expense ratio of 0.16%. I can built it myself using admiral shares for 0.10%. Now, 6 basis points isn’t much I’ll admit, and the TSP DOES NOT charge more for its lifecycle funds, but some fund providers charge dramatically more. Always remember that investing expenses come directly out of your investment return. Not true. For example, the Fido 2025 Target fund is within 1 bp of what I'd pay to set up my own 'three fund portfolio.' So, perhaps his info is old.

Again, I'm not advocating "Target Funds" but, the analysis and comparison to other alternatives has to be balanced, and I didn't find this Whitecoat Investor analysis balanced.

[fritz]

I like Vanguard's Wellington and Wellesley funds. Admiral class is inexpensive and rebalancing is pretty much nonexistent with my mix (I run about 58% Wellington and 42% Wellesley to maintain a 52/48 Stock/bond ratio with the two funds). I've stayed away from Vanguard's Balanced Index fund as it has too much U.S. Govt. holdings. Wellington and Wellesley hold mostly corporate, and both funds pay a decent dividend all things considered (which we currently pull quarterly for retirement income off taxable and Roth accounts to maintain eligibility for the ACA subsidy). I can easily turn on/off payouts of dividends and capital gains and reinvest them if desired. I have a simple 3-page document of "what to do when I'm gone" telling wife (and daughters) what needs to be done up to age 70.5 and hitting RMD.

We are retired and my wife has zero interest in maintaining our investment portfolio, our only source of retirement income other than SS (and some part-time consulting work). This has led me to select Wellington and Wellesley for the bulk of our retirement investments. When I'm moved on, or no longer capable of watching over our investments - these funds should take care of her/our needs, and transferring them over to our daughters (avoiding probate) has already been done via beneficiaries. They should also continue to grow and provide future income with increases given the selected stock/bond mix. A lot of target date funds change their mix as they approach their target date and their mix is not what I prefer for long term retirement holdings. I find that these Wellington/Wellesley features - no rebalancing, decent quarterly dividends, long term growth with a manually fixed (but changeable if you allocate specific amounts in each fund) stock/bond mix are overlooked when considering them as potential retirement investment vehicles for retirees looking for a simplistic way to assure income from retirement investments. I look at it this way - all my rebalancing and holdings are professionally managed for under .2%.

[Huston55]

Quote:

Originally Posted by fritz I like Vanguard's Wellington and Wellesley funds. Admiral class is inexpensive and rebalancing is pretty much nonexistent with my mix (I run about 58% Wellington and 42% Wellesley to maintain a 52/48 Stock/bond ratio with the two funds). I've stayed away from Vanguard's Balanced Index fund as it has too much U.S. Govt. holdings. Wellington and Wellesley hold mostly corporate, and both funds pay a decent dividend all things considered (which we currently pull quarterly for retirement income off taxable and Roth accounts to maintain eligibility for the ACA subsidy). I can easily turn on/off payouts of dividends and capital gains and reinvest them if desired. I have a simple 3-page document of "what to do when I'm gone" telling wife (and daughters) what needs to be done up to age 70.5 and hitting RMD. We are retired and my wife has zero interest in maintaining our investment portfolio, our only source of retirement income other than SS (and some part-time consulting work). This has led me to select Wellington and Wellesley for the bulk of our retirement investments. When I'm moved on, or no longer capable of watching over our investments - these funds should take care of her/our needs, and transferring them over to our daughters (avoiding probate) has already been done via beneficiaries. They should also continue to grow and provide future income with increases given the selected stock/bond mix. A lot of target date funds change their mix as they approach their target date and their mix is not what I prefer for long term retirement holdings. I find that these Wellington/Wellesley features - no rebalancing, decent quarterly dividends, long term growth with a manually fixed (but changeable if you allocate specific amounts in each fund) stock/bond mix are overlooked when considering them as potential retirement investment vehicles for retirees looking for a simplistic way to assure income from retirement investments. I look at it this way - all my rebalancing and holdings are professionally managed for under .2%.

I think Wellington and Wellesley are excellent funds, and agree this is a good and simple strategy. I've owned both funds in the past. However, our funds are at Fidelity, where I cannot own Admiral shares. So, the ER is higher for me, making this not optimal for us.

[Al18]

Huston55,
I reviewed your reply and you are correct - the Fidelity Freedom INDEX funds are new, and I am enrolled in the regular Fidelity Freedom fund. The funds I mentioned in my previous post are K class (Institutional) - same as the standard funds, but a lower expense ratio and only available from a Fidelity 401K. Fidelity Balanced Fund is also available in K class (FBAKX), while the standard fund is FBALX. If you review the data for YTD, 1 yr, 3 yr and 5 yr - you'll see the Fidelity Balance fund consistently outperformed the 2025 Freedom Fund.

[mathjak107]

conservative investing takes on different meanings at different parts of a cycle in an asset.

when we fell 6000 points stocks were a whole less risky, today as an investment bonds can be very risky ,especially high yield which are at an equal of dow 20,000 in valuation.

target date funds load you up on investments based on time instead of what is happening around you and what part of the cycle an asset is in with no regard for your own risk tolerance.


not only do they not take risk tolerance in to the equation there is no standard format for what a fund should hold. it varys from fund family to fund family.


keep in mind there is noooooooooo standard as to how risky a target date should be even if you are at retirement .

the same 2010 target date fund from wells fargo in 2008-2009 lost 11.5% while the t.rowe price 2010 target fund lost 26.5%. that is a target fund that had 2 years to go before retirement. in fact the t.rowe target date fund didn't fall to below 45% equities until 5 years after the target date.

to make things worse after the downfall instead of buying more equities over the next 5 years as good investing tactics would dictate target funds actually shed their holdings further as they reduced down by design the equity side and sold while they really should be buying.

of course they replaced those equities with the most dangerous investment today for a retiree which is bonds. with no where else to go but up these retiree bond heavy portfolios are just waiting to send panic to those retirees who thought they were doing the conservative thing.

they are quite poor for dollar cost averaging in to . because markets are up 2/3's of the time and down only 1/3 you are buying fewer and fewer shares as time goes on coupled with them reducing equities as part of their plan. the end result is your own performance will lag the funds intention over time.

any method of investing that uses age or age to an event with disregard for the persons own pucker factor and what is happening in the world around them you can bet will not end well.

my vote is for retirement investing stay away from target funds , concentrate on a portfolio of funds where you have control over what to shed and what to keep as the big picture changes.