Advice please: Roll-over 403(b) to IRA

[Bram]

Well, finallllly my Variable Annuity cancellation has gone thru & the $100K is back in the 403(b) Ameriprise MF account! I "gained" over 250 shares in the process due to a change in share prices. However, I lost out on the gain that the VA had, as well as lost the dividends that would have been posted on the MF account if I hadn't stupidly purchased the VA. Oh, well...... water under the bridge & all that.

So, I have been reading a lot here on the FIRE forum, following tangential links, as well as other investing/financial information sources trying to gain some level of confidence in taking the next step. That next step is rolling over all of my retirement next egg (~$235K) from the 403(b) Ameriprise account to an IRA "somewhere else".

I am 59 (for a few more months), DH still working, but I am not. We don't plan to offically retire until age 65, so I won't be using any of this money for at least 5 years & possibly even longer, as we'll both have SS + pensions.

I have the perception from many here that Fidelity & Vg both have reputable products. I think I would like to put some (?all) of this money in either a Fidelity Freedom Fund 2010 vs a Vanguard Target Retirement Fund 2010. I am strongly leaning towards Fidelity's, because it has a longer history (10/96) & a M* rating of 5, compared to Vg's 6/06 inception with no M* rating.

This is probably an stupid question (can you tell I'm *such* a novice!), but is that enough info to make a decision between the 2? I mean, I've looked @ R2, beta, SD, turnover rate and have some understanding (WOW!) of what those #'s mean & Fido numbers seem acceptable to me. I've really crammed a lot of new info into my brain (ouch!) in the last few weeks, but that "education" doesn't necessarily = confident decision making.

Second, is it a good, bad, or neutral to put all my eggs in one basket (Fido) with regards to this roll-over? I read something about if you split it between 2 like-funds you'll get duplication or overlap of your diversification. So this made me think I should probably just go with just one.

I hope I have made sense here. I would really, really appreciate any feedback, opinions, suggestions, or questions you care to give. THANKS!

 

[LOL!]

I don't think you can go by the M* ratings nor history for target retirement funds. The return will be the weighted return of the underlying funds which have a long history by themselves. I think you just need to decide which asset allocation you like and go with the fund that matches the closest. Also consider the total overall fees and which fund family web site you like the best.

 

[jazz4cash]

I think both Fido and Vanguard are very good companies that should meet your desire for a "target" type fund about equally well. This type of fund has built-in diversification and allocation models. Both companies are very reputable and large enough to put the full amount into without concern.

I believe the difference between Fido and VG is somewhat cultural. I prefer VG as they are investor-owned (sorta) and have a low-fee, index fund culture. On the other hand, Fidelity has all my 401k funds and I am very very satisfied (since they removed the sales load on most of thier funds).

So, I would say explore the websites of each company and maybe contact customer service and choose whichever one is more comfortable to you.

 

[2B]

Rather than just putting everything in one fund, I'd suggest you consider managing your own asset allocation. Google Scott Burns and look at the variations he has on the Couch Potato Portfolio. If you just go with a "target retirement" fund you won't get the same kind of diversification. There is only a small foreign exposure in the Vanguard 2010 plus you are paying a .20% fee on top of the fees in the other funds. I suspect FIDO is the same.

At the risk of another violent discussion, I avoid bond/fixed income mutual funds because the principal value varies with interest rates and there is no fixed maturity date. A bond mutual fund rises and falls and may not be worth what you paid for it when you want the cash. A CD or bond will mature on a given date and you will receive a certain amount of cash. You can also avoid the management fees by buying your own CDs and bonds. Your return is then higher.

Some don't think the higher return is worth the trouble of finding their own investments and/or don't mind the varying redemption values.

Yes, bonds will go up and down with interest rate changes but on their redemption date they are worth a known amount.

 

[LOL!]

... Vanguard 2010 plus you are paying a .20% fee on top of the fees in the other funds. I suspect FIDO is the same.

No, you are not paying a fee on top of the fees in the other funds. The 0.20% expense ratio is the weighted average expense ratio of the underlying funds.

 

[renferme]

[ quote from 2B
A CD or bond will mature on a given date and you will receive a certain amount of cash. You can also avoid the management fees by buying your own CDs and bonds. Your return is then higher.

[/quote]

I would avoid buying CD's and bonds from your 403 account money. If you do that, you will have to pay taxes on the monies withdrawn from the 403 in order to buy the CDs and bonds.
Just roll the entire amount into an IRA. If you don't like bond funds, put that money into a money market account; they are paying around 5% right now. The rest could be put into the Target Retirement fund.

 

[2B]

Bram --

Congratulations on a positive outcome. You saved yourself a pile of cash. My personal experiences in dealing with annuities are far less positive. If you hang around here long, you'll soon find out the depth of my hatred and disgust with anything related to annuities. I will, however, agree that in a very few instances they might make sense.

No, you are not paying a fee on top of the fees in the other funds. The 0.20% expense ratio is the weighted average expense ratio of the underlying funds.

I went back and checked and I agree with you. The "blended" management fee is 0.20% but 85% of the holdings are Total Stock Market and Total Bond Market Indexes which have fees just under 0.20%. She can just about cut her costs in half by buying the Vanguard Admiral shares and not the Target Retirement since she's got over $100K for the Total Stock Market Index. The total IRA is about $235K from her post.

I also believe she can get a better diversification and total return by creating her own portfolio.

I would avoid buying CD's and bonds from your 403 account money. If you do that, you will have to pay taxes on the monies withdrawn from the 403 in order to buy the CDs and bonds.
Just roll the entire amount into an IRA. If you don't like bond funds, put that money into a money market account; they are paying around 5% right now. The rest could be put into the Target Retirement fund.

You can readily buy fixed income instruments like CDs and bonds through Vanguard and the money stays inside the IRA. I think FIDO is the same. I am also assuming that the 403b will soon just be a bad memory.

A money market will get you within 1/2% of high quality bonds so I agree that the delta may not be worth committing at current rates. 1/2% isn't anything to sneeze at though so I would personally go for short term opportunities that wouldn't be hurt too badly if rates rose significantly.