thoughts on Fidelity Freedom fund

[crabbypatty]

Aftre years of neglect I am hoping to get back into retirement savings. We increased contribution up to and a little over employer match (employer match is very measly) Now I want to open a Roth.

But I feel paralyzed by indecision. I talked to somene at Fidelity and they suggested looking at the Freedom funds. I am in no position to actively manage an acct at this time. And I was a bit confused with their asset manager funds. Since I do not have 10k to open the account, I am not eligible for index funds.

The cs rep told me I could switch out of it (to a different Fidelity fund) w/no penalty if I later found that it wasn't what I wanted.

Does anyone have thoughts opinions on the Freedom funds? Any other suggestions for beginners?

Does anyone remember this fear of choosing the wrong thing and the resulting lack of action.

[sweeps]

Fidelity Freedom funds are a good simple choice. Good diversification, low expenses, very hands-off.

I prefer the Target Retirement funds at Vanguard, but there's no difference really.

[tabbycat31]

I have accts in Fidelity Freedom Funds (2040, 2045, and 2050). My first Roth (2005 dated, opened 2006) gained about 10% in value it's first year. I had the dividends reinvested. Suprirsingly when the market went down yesterday, the fund was unchanged (I was shocked too).

I like them.

[jIM_Ohio]

You could do much worse than a Freedom fund from Fidelity or target date fund from T Rowe Price or Vanguard.

The T Rowe offerings tend to be slightly more aggressive for the same retirement year. There are studies on the various offerings if you want to research further (this research is how I learned T Rowe was more aggressive).

[pearlieq]

I have the 2045 for my 401k. We're restricted to Fidelity, so I didn't need to choose between brokerage houses. It's not exactly a thrilling investment, but it gets the job done with a nice "set it and forget it" factor.

Where I did have a choice among brokerage houses I went with T Rowe Price's targeted funds. I found the allocation to be closest to what I was looking for with the most reasonable fees.

[Nic]

I have the Fidelity Freedom 2010 in my IRA. In the 6 months I've held this fund, i've gained 9.79%. Morningstar has given it a 5 star rating.
Here is a list of their holdings as of 12/31/2006
Equity Funds
Fidelity Growth & Income Portfolio 6.56%
Fidelity Equity-Income Fund 6.31%
Fidelity Disciplined Equity Fund 6.11%
Fidelity Blue Chip Growth Fund 6.00%
Fidelity Growth Company Fund 4.10%
Fidelity Mid-Cap Stock Fund 4.08%
Fidelity Europe Fund 3.59%
Fidelity OTC Portfolio 3.26%
Fidelity Value Fund 3.20%
Fidelity Overseas Fund 2.59%
Fidelity Diversified International Fund 2.57%
Fidelity Japan Fund 1.00%
Fidelity Small Cap Independence Fund 0.81%
Fidelity Southeast Asia Fund 0.55%
Fidelity Small Cap Growth Fund 0.30%
Fidelity Small Cap Value Fund 0.30%
Fidelity Fund 0.29%
Fixed-Income Funds
Fidelity Investment Grade Bond Fund 11.75%
Fidelity Government Income Fund 8.43%
Fidelity Strategic Real Return Fund 6.89%
Fidelity Intermediate Bond Fund 6.72%
Fidelity High Income Fund 2.50%
Fidelity Capital & Income Fund 2.46%
Short-Term Funds
Fidelity Money Market Trust: Retirement Money Market Portfolio 4.72%
Fidelity Short-Term Bond Fund 4.71%

[Scanner]

I never much cared for Mutual Fund Funds.

The way I see it, for all those funds you are paying an expense fee and then piling another expense fee on top of that.

That being said, for college, since the savings time can be so short, it's good to have a fund that automatically rebalances. I can't beleive my son is 9 y.o and yes, it's good we have a fund that has automatically gone a little more conservative.

But for retirement. . . that breakdown looks way over-diversified to me.

[sweeps]

Originally Posted by Scanner

The way I see it, for all those funds you are paying an expense fee and then piling another expense fee on top of that.

A common misconception. The 3 main companies (Vanguard, Fidelity, T.Rowe Price) do not charge expenses on top of the underlying expenses.

[TBH]

I have Fidelity Freedom Funds (the 2045 and the 2050) in my 403b. In my Roth I wanted to try to see if I could develop and maintain a good asset allocation, but in my 403b I just didn't want to think about it.

I agree that the differences are insubstantial between Fidelity, T.Rowe, and Vanguard target-date funds. If you're trying to get your feet wet and don't want the pressure of choosing your own investments, I think this is a great solution. If you already have other accounts at one of the 3 discount brokerages, I'd go with that one. Otherwise, I know die-hard fans of each of the 3 firms. Fidelity suits me just fine but I think the other two are just as good.

Congratulations on taking the plunge!

[meaghanchan]

I think the Fidelity Freedom funds are a great choice for beginners or for people with relatively low account balances. My retirement money is in a similar fund (Vanguard Target Retirement 2050). You can get a lot of diversification with one fund, plus you never need to worry about changing your allocation or rebalancing.

[jIM_Ohio]

Originally Posted by Scanner

But for retirement. . . that breakdown looks way over-diversified to me.

Funds like this allow the fund companies to start new funds and channel money into them.

For example T Rwoe Price has new global funds, mid cap funds and small cap funds, plus a new tech fund. Including a small position in these allows TRP to establish an asset base for these funds.

I know what I'm doing (or atleast I've convinced myself I know what I'm doing (LOL)). So no need for a one size fits all approach.

But people which want an autopilot can do much worse than using a target fund.

[kv968]

Originally Posted by jIM_Ohio

Funds like this allow the fund companies to start new funds and channel money into them.

For example T Rwoe Price has new global funds, mid cap funds and small cap funds, plus a new tech fund. Including a small position in these allows TRP to establish an asset base for these funds.

Actually these funds serve a better purpose by letting you get into funds that are CLOSED to new investors. T Rowe's mid-cap and small-cap funds are currently closed to any new investors. The only way to access them, unless you already own them, is through their target retirement funds.

[Nic]

There's no fee as long as I have Fidelity Funds in my IRA.
And KV is right, you're able to invest in closed funds. It's also diversified enough so that yesterdays hiccup didn't affect me much.

[kv968]

Originally Posted by Nic

There's no fee as long as I have Fidelity Funds in my IRA.

There may be no load fees, but there are still expense fees incurred by all funds which include management and 12b-1 fees. The amount of which is shown in the expense ratio of the fund.

[Nic]

Originally Posted by kv968

There may be no load fees, but there are still expense fees incurred by all funds which include management and 12b-1 fees. The amount of which is shown in the expense ratio of the fund.

Nope,not for me. The company I retired from paid and continues to pay ALL maint.fees as long as I hold some of their stock and continue to utilize Fidelity. It was all part of our union bargaining "back in the day" to assist retirees and to encourage participation amongst the "youngsters." Sorry I didn't clarify in previous post.

[jIM_Ohio]

Originally Posted by kv968

There may be no load fees, but there are still expense fees incurred by all funds which include management and 12b-1 fees. The amount of which is shown in the expense ratio of the fund.

Know what you are talking about, please... this is factually incorrect at T Rowe Price.

NO 12b-1 fees
NO Loads
No wrapper on fund of funds (this is same for Spectrum funds, Target retirement funds and other fund of funds offered by T Rowe).

Not all mutual fund companies charge high expenses.

[kv968]

Originally Posted by jIM_Ohio

Know what you are talking about, please... this is factually incorrect at T Rowe Price.

Sorry about "not knowing" what I'm talking about. How much are the expense ratios on your T Rowe funds, 0%? I know mine are about .75%. I know there aren't any load or 12b-1 fees but there are operating expenses and management fees hense the expense ratio. It may not actually be considered a "fee" (sorry if I used that term wrongly), but it is an expense and that's what I was trying to point out.

And I didn't say ALL mutual fund companies charge high expenses. There are some that do but most are really keeping them down. I own funds with T Rowe myself and I think they're great.

[Scanner]

T. Rowe Price

It does appear I was right - there is an expense fee of .76% associated with this Retirement 2050 Fund.

So, now, there's the normal mutual fund fees and pile on that another .76%.

I guess it's nice to have one place to send your money but I don't know, that .75% could add up IMO. I don't think you need to hold a lot of mutual funds to be diversified and have to rebalance that often (once/year maybe).

I don't know. . .like I said. . .I do use a mutual fund of mutual funds for our college 529 because that time seems to fly but retirement. . .anyone should be able to rebalance 1x/year.

[jIM_Ohio]

Originally Posted by Scanner

T. Rowe Price

It does appear I was right - there is an expense fee of .76% associated with this Retirement 2050 Fund.

So, now, there's the normal mutual fund fees and pile on that another .76%.

I guess it's nice to have one place to send your money but I don't know, that .75% could add up IMO. I don't think you need to hold a lot of mutual funds to be diversified and have to rebalance that often (once/year maybe).

I don't know. . .like I said. . .I do use a mutual fund of mutual funds for our college 529 because that time seems to fly but retirement. . .anyone should be able to rebalance 1x/year.

I believe the .76% is the average expenses based on fund holdings, not a wrapeer of each fund.

But in looking at link provided, no way to know for sure.

My experience with T Rowe Spectrum funds is the expense ratio of "fund of funds" is a weighted average of the underlying funds and not a wrapper.

page 20 of prospectus suggests this



But it is still not as clear, I will give you that.

pg 39 suggests there might be a .25% retirement fund fee, which is not the .76% mentioned above.

[kv968]

Originally Posted by jIM_Ohio

I believe the .76% is the average expenses based on fund holdings, not a wrapeer of each fund.

That's basically what it is...an average expense of the underlying funds. The underlying funds presumably save money with a "fund of funds" since instead of having all individual accounts holding those funds (incurring more cost), they're all bought instead under the "fund of funds". Does that make sense? In other words, the expenses are basically offset and there are no extra fees associated with the "fund of funds". At least that's the way it is with T Rowe.