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Retirement Planning – Long Term Retirement Strategies

Q: This question is for my daughters retirement account. She is 34. We have all her Roth money in Fidelity Four in one index fund – FFNOX. We want an auto pilot set it and forget it approach. She is well invested in TSP account – six figures-also. She has an adequate emergency fund for over 12 months. Is there an index fund for this situation you could recommend that is better than FFNOX?

 

A: You mention that your daughter is 34 and you have all of her Roth money in the Fidelity FFNOX four-in-one fund. While it is aggressive 85% Large Cap / 15% High Credit Bond fund and risk appropriate given your daughter’s age it lacks the one key ingredient you say that you want, “set it and forget it.”

 

This fund makes sense when your daughter is 34 given her investment horizon, but this same allocation would not make sense as your daughter gets older, say 54, 64 and beyond. Meaning, it would not be a good idea to “set it and forget it” with this particular fund.

 

There are target funds which, as their name implies, target a given retirement year and re-allocate each year from a higher risk to a more conservative allocation which provides that set it and forget it convenience you may be seeking.

 

Let’s say for example your daughter tentatively plans to retire at 65 (in 14 years). She might want to consider the Fidelity Freedom 2045 Fund (FFFGX). The target retirement date for this fund is 2041-2045. The asset allocation of this fund will become increasingly conservative as it approaches the target date and beyond. While the FFFGX fund has a slightly higher expense ratio (0.82%) compared to the FFNOX fund (0.24%), that is because the 2045 Fund automatically re-allocates every year as opposed to you rebalancing the fund on your own. You are paying a premium for the convenience factor and for someone who wants to “set it and forget it”, it may be well worth it but that is a decision you all need to make.

 

Depending on the size of the Roth (and other retirement accounts), you could always acquire the services of a registered investment adviser to manage the investments for you. While this might come at a slightly higher expense than a target fund, you will have a personal adviser who manages all of your investments for you who is constantly looking out for your best interests as your fiduciary.

 

If you have any other questions, please feel free to call. I’m happy to help.


 

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