Fidelity Freedom 2040 Fund? (FFFFX)

[ScrimpAndSave]

I'm looking into having my 403b invested in Fidelity Freedom 2040 Fund. Do you think this is a good idea? Would it be a better idea to have my Roth IRA invested here and my 403b diversified elsewhere?

Thanks!

[Broken Arrow]

If you want to, you can have the fund in both accounts.

Nothing wrong with that, and depending on your preferences, it would even be ideal.

[ScrimpAndSave]

Really? I can put both my Roth IRA and 403b into this fund? I know nothing about investing (well, not much). I'm so afraid it will tank and it will have like - ALL my savings in it. Hmm.

[disneysteve]

The target funds are actually diversified portfolios made up of multiple other funds. They are designed to automatically adjust to be more conservative as the target date approaches. If you check this page you'll see the top 25 funds that make up FFFFX: Fidelity Freedom 2040 Report (FFFFX) | Portfolio

As you can see, it includes both domestic and foreign investments, stocks and bonds, growth and value, large cap and small cap.

One word of caution, though. Not all target funds are created equally. The offerings from Fidelity, Vanguard and T.Rowe Price (the 3 of them comprise over 80% of the target fund market) can have very different allocations and glide paths even with the same stated target date, so it is a good idea to compare all 3 before picking one. Some are more aggressive. Some are more conservative. You may find you want to pick the Fidelity Fund in your 403b and a different one in your Roth.

[ScrimpAndSave]

Thanks Disneysteve...are you saying to maybe choose a the fidelty target fund for my roth and another target fund (T. Roe. Price or Vanguard) for my 403b?

Thanks!

[disneysteve]

You could do that. Even thought they are both called target 2040 funds, they may not invest the same way. One may be more aggressive, one less. What is also important is what happens in retirement. Some stay more in stocks, some move more into bonds. It could be reasonable to hedge your bets by blending 2040 funds from 2 companies with different allocation plans.

[jIM_Ohio]

I know nothing about investing (well, not much). I'm so afraid it will tank and it will have like - ALL my savings in it. Hmm.

SnS-

If you are new to investing, check out this questionaire

my blog
jIM_Ohio is Investing to retire early - Real People, Real Finances
or in this thread

http://www.savingadvice.com/forums/investing-banking/50669-questionaire-people-starting-retirement-planning.html

I know some of the questions are well past where you are at now... but post any questions on that which you do not know to this thread.

Short answer to your specific question- if you use a target date fund (freedom funds are fidelity's target date funds) it should be the only investment you have anywhere in portfolio (IMO).

[ScrimpAndSave]

Jim,

I just went through your questionaire and there is a LOT that I need to learn. Your short answer to my specific question being "If you use a target date fund, it should be the only investment you have anywhere in your portfolio." - Do you mean that both Roth IRA and 403b would be in the SAME target fund? (FFFFX) for example.

Thanks so much...

[jIM_Ohio]

SnS- yes put all monies from all accounts into the one fund. More than likely that fund owns 5000-7000 stocks and some bonds too- you do not need to own anything else- it is well diversified already -large caps, mids caps, small caps, domestic and foreign.

My suggestion is that before you start picking individual mutual funds, you go thru that questionaire and learn about asset allocation and risk. Focus on those 2 places and your expectations and ability to make these decisions yourself will be much better.

[ktmarvels]

DH and I (both 27) have each of our Roth IRAs and his TSP in target funds. I'm not really that interested in managing our funds or making sure they are balanced so I think target funds are the right choice for us. I like the fact that I can just set it and forget it.

However I'm wondering if that is really true. We currently have the majority of our funds in a 2045 fund, but some are in a 2040 (based on fund availabilities). When they reach their "maturity" DH and I will be 58 or 63. Will target funds still have enough growth to last us into our 70s, 80s and beyond? If not, would it be appropriate for us to buy later-date target funds (when they become available)? Would it make us too heavy in any one area? Should we stop contributing entirely to one fund? split it evenly? Split it based on a certain percentage?

Thanks for your thoughts and input!!

[parafly]

DH and I (both 27) have each of our Roth IRAs and his TSP in target funds. I'm not really that interested in managing our funds or making sure they are balanced so I think target funds are the right choice for us. I like the fact that I can just set it and forget it.

However I'm wondering if that is really true. We currently have the majority of our funds in a 2045 fund, but some are in a 2040 (based on fund availabilities). When they reach their "maturity" DH and I will be 58 or 63. Will target funds still have enough growth to last us into our 70s, 80s and beyond? If not, would it be appropriate for us to buy later-date target funds (when they become available)? Would it make us too heavy in any one area? Should we stop contributing entirely to one fund? split it evenly? Split it based on a certain percentage?

Thanks for your thoughts and input!!

The funds are designed for people who will retire around the target date. Even though they get more conservative over time, they will still be "aggressive" enough to grow while you are in your 70's, 80's, and beyond. You do not want to invest in later target funds as it will mess with your asset allocation and risk tolerance.

They truly are designed as "set it and forget it" type of funds. You should have no worries about growth before AND after retirement.

[disneysteve]

Will target funds still have enough growth to last us into our 70s, 80s and beyond?

You should have no worries about growth before AND after retirement.

This really needs to be qualified with what I said above. Not all target funds are the same. Their allocation varies both before and after the target date. Some stay more heavily in stocks. Some trim the stock allocation more. You need to look at the details of your fund, particularly the glide pattern after the target date, and see if that matches your desired allocation.

[jpg7n16]

Really? I can put both my Roth IRA and 403b into this fund? I know nothing about investing (well, not much). I'm so afraid it will tank and it will have like - ALL my savings in it. Hmm.

Jim,

I just went through your questionaire and there is a LOT that I need to learn. Your short answer to my specific question being "If you use a target date fund, it should be the only investment you have anywhere in your portfolio." - Do you mean that both Roth IRA and 403b would be in the SAME target fund? (FFFFX) for example.

Thanks so much...

I'm taking this to be you asking "should I put my money from both accounts into this fund" not "can I" -- is that correct?

If you literally mean can - then yup. Both the Roth and 403b are accounts that are just holding your money, and if the same fund is an option for both accounts, you can absolutely invest money in both accounts into the same fund if you want. Think of it as though you've got 2 checking accounts at different banks. It's all your money, and you can invest it however you please.

Now should you? That's a better question, and my answer is like those above: it doesn't really matter 1 target date fund or 2 target date funds is really splitting hairs, and it will be impossible to tell if it will make a large difference one way or another. Beyond a certain point, extra diversification does very little if any.

For your own sanity's sake though, go with 2 target funds. It won't help much (or hurt anything), but at least you'll feel better about it all!


I think you've got a slight misunderstanding about diversification though. Just because you "only" own 1 fund does not mean you aren't well diversified. Funds are different than individual stocks. Like Steve points out above, a target fund is actually made up of multiple mutual funds, which are then made up of 1000's of stocks. In order for you to lose all your money, that would mean that all those funds and companies would have to lose all their money too. And if that happens, you would have lost all your money no matter what you invested in! The whole world would have gone bankrupt.(my point is - it's not gonna happen)

If it makes you feel better, putting everything you own into even only 1 target date fund is actually more diversified than putting everything you own into 10 or 20 or 100 different stocks. And that's not a mind trick, it's reality.


For checking your stock diversification ask yourself 2 questions:

1. What is my average investment per company? (not fund, the actual companies involved)
2. What is my risk if 1 company goes bankrupt?

You'll clearly see that $100,000 in a single fund with 1000's of companies is much more diversified than $100,000 in say.... 20 companies. Or in 5.


Then you could get into "asset class diversification" - but that's more than you need to know right now. Just know that the more spread out your money is, the lower the risk (in general). And the target fund will take care of all of that for you.

[pikey412]

I've had my Fidelity Freedom Fund IRA for over 12 months. Adding $420 every month.

I'm in the negative.

[Broken Arrow]

I've had my Fidelity Freedom Fund IRA for over 12 months. Adding $420 every month.

I'm in the negative.

You sure? The one year chart is showing a gain of 19.9%.