Opinons on "Fidelity Freedom Fund"?

[jerseyguy]

Was just advised to look into them. Recommended for IRA as well. They were very pleasant and informative, with no hard sell, on the phone. I opened an account but haven't transferred money yet. Wanted to see what you all thought.
Thanks, Jeff

[Ima saver]

is it a no load? I looked it up and it is no load. What year did you chose? They are fairly new funds.

[sweeps]

Good performance for last year. Expense ratio is higher than Vanguard's lifecycle funds though (.78% vs. .21%).

[Ima saver]

Vanguard is almost always lower, that is why I have my ira's and roths at Vanguard.

[jerseyguy]

I was going to choose the 2025. Was told it was no load and would not cost me anything. This was from the Fidelity person on the phone. Can I trust him on his word.

[jerseyguy]

Sweeps.. what do you mean by "expense ratio" lower than Vanguards "lifecycle funds"...Sorry but new to all this. Does your reference mean Vanguard is better?

[kristinecfp]

The Fidelity Freedom funds are no load, so you will not pay a commission. They do however, have an annual expense ratio (all mutual funds do). The expense ratio is higher than Vanguard's but that doesn't necessarily mean that Vanguard's Lifecycle funds are better (I like Vanguard and Fidelity - not bashing Vanguard by any means).

In addition to annual expense ratios, you also need to compare fund minimums, performance (for similar funds), etc. If the Vanguard funds and Fidelity funds are very similar, then you would want to pick the fund with the lower annual expense ratio.

Hope this helps,

[sweeps]

Kristine is right on, jerseyguy. The expense ratio is the annual fee you pay the company to manage the mutual fund. Anything under 1% is good. Under 0.5% is great.

Lifecycle funds haven't been around enough to really gauge their performance, so it's hard to say which will do better in the long run. I personally prefer Vanguard but you'll do just fine with the Fidelity Freedom funds too.

[jerseyguy]

Thank you all for your input.

[Ima saver]

According to the recent money magazine, the fund you are interested in is pretty new and had an expense of 8/10 of one percent. Life stagety growth fund has an expense of less than 3/10 of one percent. I would go with Vanguard's LifeStrategy Growth, if it was me.

[CRFSaver]

So the thing with lifestyle funds to be careful with is to make sure you arent double dipping. Normal "llifestyle" funds, actually just invest in other mutual funds based on certain percentages. So not o nly are you paying a fee to the lifestyle fund, but that fund is then paying the fees into the other mutual funds it invests in so the expense ratio is misleading. If you look at the prospectus you can actually look at where the fund puts its money and do it yourself without the extra fee. Of course it is easier if they do it for you. Trade offs right?

I have had good experiences with Fidelity. My company's 401k is administered by them and their technology is right on. Just my two cents.

[jerseyguy]

These opinions are great I'm embarrased to say that some of this speak is way over my head. I'm not sure what the percentage expenses are that are being detailed. Fidelity says it's not costing me anything, so I'm not how these expenses occur. I'm assuming these are like hidden fees? Thanks again.

[CRFSaver]

That Fidelity fund charges a management fee of .75%. You will not see that as it gets taken off the top (like all mutual funds). That fund then invest in:

Fidelity Growth and Income Portfolio: 9.83% of your money
Fidelity Equity Income: 9.20% of your portfolio.
Etc.
http://personal.fidelity.com/product...html?315792663

Each of those funds charges between .5% and 1.5% of fund assets as a management fee. You could invest in those funds yourself and cut out the .75% management fee. Thats why I said to be careful. Fidelity loves those funds cause essentially its free money for them.

[jerseyguy]

It seems as I take one step forward in my learnings of investing, I take nine steps back with what I don't know. Would you still say this is a good place for an IRA or should I go back to the Vanguards of the world. Thanks

[sweeps]

I looked briefly at the prospectus and CRFSaver may be right. This statement also concerns me:

The fund's investment adviser has voluntarily agreed to limit expenses. Without the adviser's reimbursement of some expenses, the fund's total return and yield would be lower. A fund's expense limitation may be terminated at anytime, unless otherwise stated.

I'd definitely go with a Vanguard Fund then. One note: Vanguard's lifecycle funds tend to be more conservative than the equivalent lifecycle fund at other companies. If you plan on retiring around 2025, you may want to look at Vanguard's 2035 fund to increase your stock exposure. Just a thought.

[CRFSaver]

Again with the lifestyle funds you are paying someone to do the work you could do yourself. While Vanguard is cheaper you are still paying them to invest in other funds for you. Why not look at the prospectus and divy it up yourself? Fund companies love these lifestyle funds as it allows them to charge a premium on something that costs them nothing to do.

[sweeps]

CRF, if Vanguard is charging an extra fee, it's miniscule. Using the 2035 retirement fund as an example, when I calculate a weighted average of the underlying funds' expense ratios, I come up with 0.207%. The 2035 fund is charging 0.21%. That's a difference of 0.003%, and that difference could easily be due to Vanguard rounding the number.

And there certainly are reasons someone would want to invest in a lifestyle fund rather than the individual funds. First, the rebalancing is done for you automatically. It's completely hands-off for those who prefer that approach. Second, some people may not be able to afford the minimum investment for each of the underlying funds, whereas they can afford the one $3000 minimum investment.

[Ima saver]

I know you are getting confused. Just go with the vanguard fund and you will do fine.

[CRFSaver]

I would check your prospectus quite closely as I would bet you the .21% Vanguard is charging you is on top of the Weighted Average .207% in all the funds. As for someone retiring in 19 years finding a single good (Vanguard or Fidelity) fund to invest in is what I would advise people. That extra .21% can add up to real money over 17 years. I remember seeing an article about people spending more time researching car purchases then they do their own investments that are a lot larger dollars and mean a whole lot more in the long run. Of course everyone has their own preferences on what they should do and why and as long as you are comfortable with what you have then go for it. I am greedy and want the extra .21%...

[Ima saver]

Jersey, you can't learn everything in one month. Start out with the lower expense vanguard fund and keep learning. These funds (and fidelitys) are no load, meaning no commission, but all funds have expenses. They are taken off the top, so you do not notice them. simple example. Your fund share price goes up 2.00 per share over a year. They take about 6 cents off the top, so the price only goes up $1.94 that year.
They have to make something in order to do this. When you handle billions, cents makes a good profit for them.
But vanguard has the lowest expenses around, usually. I hope that helps. (and I hope I am telling the expense thing right)