Investing for Retirement

[Michael]

An interesting article regarding Fidelity Freedom Target Date Funds.

Special Report: Fidelity puts 6 million savers on risky path to retirement

And yet client money has continued to flow out of the firm’s Freedom Funds as retirement plan sponsors shift workers’ savings to rivals in the target-date fund business.

While deposits in the trillion-dollar sector have surged, Fidelity has seen nearly $16 billion in net withdrawals over the past four years, according to research firm Morningstar Inc.

The exodus stems in part from unease with the way Boston-based Fidelity has boosted performance - by ramping up risk.

Since a strategy overhaul that took full effect in 2014, Fidelity has substantially increased exposure to stocks, including those from volatile emerging markets. The firm also scrapped a long-held belief of sticking to pre-set allocations of stocks, bonds and other assets in target-date funds.

Instead, Fidelity portfolio managers now try to time market shifts, for instance by moving billions of dollars out of money-losing commodities bets and into Chinese stocks and U.S. tech shares, regulatory filings show.

Today, many target-date fund managers have turned to riskier investments to boost returns, and Fidelity has gone further than its peers, said Ron Surz, president of research firm Target Date Solutions.

“These funds with high concentrations in stocks are a time bomb,” Surz said.

The sector is even riskier today than during the 2008 financial crisis, when some funds dropped more than 40 percent, he said.

Fidelity spokesman Vincent Loporchio said today’s American savers can handle more risk because they retire later and live longer, allowing more time to recover losses.

I'm going to pat myself on the back and say I felt a similar way In the other thread when I looked at a Fidelity target date fund for sigh:

I'm actually a bit surprised how aggressive the Fidelity fund is with the equities to bond ratio. I'm not saying they are wrong, but I just would have expected something a bit closer to Vanguard.

I have access to these Fidelity Freedom Target Date Funds, but I don't use them. They cost a lot and I don't like how actively managed they are. I just implement the 3 fund portfolio. I do like the Vanguard target date funds due to their lower cost and more passive nature.

[GeddyWrox]

My company's 401K is through Fidelity. Yikes.

[Michael]

I have a Fidelity 401k as well. They have a lot of good low cost index funds . However, I'm not a big fan of their target funds.

[Michael]

Vanguard's Prime Money Market is up to 1.63%. Last week I moved my emergency fund to it. Historically that's a pathetic return, but it's pretty good if you're looking at the last 10 years.

[a_smith]

How does a backdoor Roth work?

[greenback44]

How does a backdoor Roth work?

Roth IRAs have income limits for contributions, but traditional IRAs do not. There also are no limits on conversions from traditional IRAs to Roth IRAs. So you can contribute $5,500 to a traditional IRA on January 1st, and then on January 2nd convert your traditional IRA balance to a Roth IRA. Effectively it's the same thing as a Roth IRA contribution, which is the reason some tax advisors suggest waiting months between the traditional contribution and the Roth conversion. The gain between the date of contribution and the date of conversion is taxable (so I throw my IRA contributions into a money market fund). Also, if you have separate IRA balances somewhere (excludes inherited IRAs and 401k's), then your tax basis may not be basically the same thing as your IRA contribution.

[a_smith]

How does a backdoor Roth work?

Roth IRAs have income limits for contributions, but traditional IRAs do not. There also are no limits on conversions from traditional IRAs to Roth IRAs. So you can contribute $5,500 to a traditional IRA on January 1st, and then on January 2nd convert your traditional IRA balance to a Roth IRA. Effectively it's the same thing as a Roth IRA contribution, which is the reason some tax advisors suggest waiting months between the traditional contribution and the Roth conversion. The gain between the date of contribution and the date of conversion is taxable (so I throw my IRA contributions into a money market fund). Also, if you have separate IRA balances somewhere (excludes inherited IRAs and 401k's), then your tax basis may not be basically the same thing as your IRA contribution.

Thanks for the explanation.

[Michael]

The only thing I would add - most investing institutions like Vanguard have areas on their website that show how to complete a backdoor with their website/software. If you're still unsure how to do it you can call a customer support hotline to get your questions answers. The backdoor Roth very well known so it shouldn't be difficult to find expertise.

[Michael]

The Trinity Study (where the 4% rule comes from) was updated for 2018 with data through 2017. They also added failure rates up to 40 years and changed the analysis to use treasury bond rather than corporate bonds.

I think withdrawal strategies are a good starting point for retirement planning, but they are more of an ax than a scalpel. You have to weigh your own specific situation against these withdrawal rules. I think the 4% rule will help me to know when I'm getting close to the money I need, but when I actually retire I'll most likely use something closer to the variable percentage withdrawal methodology.

[go birds]

I just took a dive into the stock market because im a gambling man--nothing too serious, just dabbling to perhaps start to build a portfolio outside my 401K.

Do you guys have some good resources you use? Anyone's word you take as gospel etc? Good daily reading that you find to be pretty consistent?

This may not even be the appropriate thread.