Fidelity 401k what to invest in?

[barf_jay]

Good afternoon everyone. I am 10 years out from retirement and looking for advice on best way to rebalance my current Fidelity 401K. Looking for other options than target date fund. However, the current investments are not performing as well as the 2035 target date fund. I am right at 6.58% YTD. Below are the funds along with expense ratios. Any additional information just let me know. Thanks.

Emergency funds: Yes have $19,500 in savings and money market
Debt: No debt. Own house. Credit card (1) with no balance pay off each month
Tax Filing Status: Married Filing Jointly
Tax Rate: 24% Federal, 5.75% State

State of Residence: Georgia

Age: 55

Desired Asset allocation: 75% stocks / 25% bonds
Desired International allocation: 15% of stocks

401K Contributions: 15% Roth , 11% Traditional

Please provide an approximate size of your total portfolio: $260,000

Contributions

New annual Contributions
$30,000 his 401k (3% employer matching contributions)

Name/Inception Date Category Gross Expense Ratio**
BARON PARTNERS INST (BPTIX)05/29/2009   Large Cap 1.44%
 FID 500 INDEX (FXAIX)02/17/1988   Large Cap 0.02%
 FID BLUE CHIP GR K (FBGKX)12/31/1987   Large Cap 0.68%
 PUTN LG CAP VAL R6 (PEQSX)06/15/1977   Large Cap 0.55%
 AS SPL MID CP VAL R6 (WFPRX)04/08/2005   Mid-Cap 0.69%
 FID MID CAP IDX (FSMDX)09/08/2011   Mid-Cap 0.03%
 JPM MID CAP GRTH R6 (JMGMX)03/02/1989   Mid-Cap 0.75%
DLWR SM CAP VAL INST (DEVIX)06/24/1987   Small Cap 0.86%
FID SM CAP IDX (FSSNX)09/08/2011   Small Cap 0.03%
 TRP QM US SM-CP GR (PRDSX)06/30/1997   Small Cap 0.80%
 FID INTL INDEX (FSPSX)11/05/1997   International 0.04%
 MFS INTL DIVRSN R6 (MDIZX)09/30/2004   International 0.73%
VT INTL SM CAP I (MISIX)08/17/2007   N/A 1.18%
FID BALANCED K (FBAKX)11/06/1986   N/A 0.43%
 FID FREEDOM 2035 K (FSNUX)11/06/2003   N/A 0.61%
 FID FREEDOM INC K (FNSHX)10/17/1996   N/A 0.42%
MIP CL 109/07/1989  7 day yield as of04/30/2023   1.46% Stable Value 0.69%
 DODGE & COX INCOME X (DOXIX)01/03/1989   Income 0.36%
 FH IS HIGH YLD BD IS (FIHBX)11/01/2002   Income 0.55%
 PIM INTL BD US$H I (PFORX)12/02/1992   Income 0.51%

[FiveK]

barf_jay, welcome to the forum.

1) Looking at YTD results, even on 31-Dec, is too short a time period. E.g., see Callan periodic table of investment returns

2) What do you think of a Fidelity example three-fund portfolio, either using the S&P 500 index as a proxy for the total market or Approximating the total stock market with three Fidelity funds?

[Johm221122]

Is $260,000 you and your spouses total retirement savings? Do you have pension or other income?

Your in 24% tax bracket, what tax effective tax rate will will you be in retirement?

[barf_jay]

My personal rate of return for 5/21/22 thru 5/22/23 is 4.3%.

So for a 3 fund portfolio:
FID 500 INDEX 60%
FID INTL INDEX 15%
FH IS HIGH YLD BD 25%

Or
FID 500 INDEX 83%
FID MID CAP IDX 8%
FID SM CAP IDX 9%

[barf_jay]

Is $260,000 you and your spouses total retirement savings? Do you have pension or other income?

Your in 24% tax bracket, what tax effective tax rate will will you be in retirement?

Yes. No other income.
In retirement tax bracket goal 12% but most likely 22%.

[Johm221122]

Is $260,000 you and your spouses total retirement savings? Do you have pension or other income?

Your in 24% tax bracket, what tax effective tax rate will will you be in retirement?

Yes. No other income.
In retirement tax bracket goal 12% but most likely 22%.

But your effective tax rate will be lower than 24%, so why so much Roth

[barf_jay]

Good question. I was told that just in case I needed large sum for a purchase/remodel/vacation that could put me into higher tax bracket to have a sizeable Roth account? In addition, didn't want to chance getting any of my social security counted as taxable income?

[Johm221122]

Good question. I was told that just in case I needed large sum for a purchase/remodel/vacation that could put me into higher tax bracket to have a sizeable Roth account? In addition, didn't want to chance getting any of my social security counted as taxable income?

Having some in a Roth for large outlay is prudent but as far as paying taxes on social security specifically, I'd worry more about my total tax liability.
Are you delaying Social Security till 70?

[ruralavalon]

Your employer's plan offers good diversified funds with low expense ratios, you are fortunate.

Don't be so concerned about short-term performance, like just one year. Invest for the long-term.

In my opinion a target date fund is a good choice. Using an allocation fund, like a target date fund, seems to insulate the investor against behavioral errors and so produce higher investor returns. Morminstar, Mind the Gap 2019.

if you don't want a target date fund then my suggestion is a combination of these three funds:
1) FID 500 INDEX (80% of the U.S. stock market) (FXAIX) ER 0.02%;
2) FID INTL INDEX (developed markets only) (FSPSX) ER 0.04%; and
3) DODGE & COX INCOME (intermediate-term, investment-grade bonds (DOXIX) ER 0.36%

[FiveK]

Is $260,000 you and your spouses total retirement savings? Do you have pension or other income?

Your in 24% tax bracket, what tax effective tax rate will will you be in retirement?

Yes. No other income.
In retirement tax bracket goal 12% but most likely 22%.

But your effective tax rate will be lower than 24%, so why so much Roth

The effective rate is, unfortunately, irrelevant for Traditional versus Roth questions: "The approach that incurs a lower marginal tax rate will, in most cases, provide you more spendable income."

But there are many "it depends..." situations, such as "Traditional plus taxable" vs. Roth, theTaxation of Social Security benefits, etc., that might affect things.

[ruralavalon]

Will you be eligible for both a substantial pension and Social Security benefits? What is your profession or occupation?

For most people without a pension traditional tax-deferred contributions to the 401k are probably better. Most people will likely be in a lower tax bracket during retirement.

[Johm221122]

Is $260,000 you and your spouses total retirement savings? Do you have pension or other income?

Your in 24% tax bracket, what tax effective tax rate will will you be in retirement?

Yes. No other income.
In retirement tax bracket goal 12% but most likely 22%.

But your effective tax rate will be lower than 24%, so why so much Roth

The effective rate is, unfortunately, irrelevant for Traditional versus Roth questions: "The approach that incurs a lower marginal tax rate will, in most cases, provide you more spendable income."

But there are many "it depends..." situations, such as "Traditional plus taxable" vs. Roth, theTaxation of Social Security benefits, etc., that might affect things.

If he keeps at this pace his portfolio will be at best $1,000,000 and largely Roth (I would assume he will put fixed income in traditional).
If he delays social security to 70 he will have 5 years of low taxes compared to paying 24% now. In this case with no other income, I would want more traditional

[FiveK]

Yes [$260,000]. No other income.
In retirement tax bracket goal 12% but most likely 22%.

If he keeps at this pace his portfolio will be at best $1,000,000 and largely Roth (I would assume he will put fixed income in traditional).
If he delays social security to 70 he will have 5 years of low taxes compared to paying 24% now. In this case with no other income, I would want more traditional

As would I.

barf_jay, even if all $260K is in traditional now, you might expect income from traditional withdrawals of something like $260K * (1.05)^10 * 10% = $42,350/yr. See the Simple method for estimating your future marginal tax rate for details, and note that the 10% withdrawal rate would accommodate some Roth conversion in those pre-SS years.

For MFJ, $42,350/yr AGI is still in the federal 10% bracket. Saving 24% now and paying 10% later would be a good deal for you.

What approach did you use to arrive at "most likely 22%"?

[AspirationalBH]

My only recommendations would be:

FXAIX (S&P500)
FSMDX (Midcap index)
FSSNX (Smallcap index)
FSPSX (Developed International index)
and bonds

If you decide to rollover to IRAs after you retire, you won't need to decide which funds to rebuy after liquidating the insitutional-only funds (including any Fidelity "K" funds).

You have no choice with the bond fund, DOXIX, but I might consider FBAKX for a portion of bond allocation (if it's like FBALX it uses some leverage to outperform other 60/40 funds). Over the next 10 years I could then use FBAKX to rebalance into the other funds and eventually liquidate before a rollover.

A possible alternative is to ask your HR dept whether Brokeragelink is available for your 401k plans so that you can choose your own funds.

Good luck!

[telemark]

In cases like this I find that it clarifies things to arrange the choices by expense ratio:

FID 500 INDEX (FXAIX)02/17/1988 Large Cap 0.02%
FID MID CAP IDX (FSMDX)09/08/2011 Mid-Cap 0.03%
FID SM CAP IDX (FSSNX)09/08/2011 Small Cap 0.03%
FID INTL INDEX (FSPSX)11/05/1997 International 0.04%
DODGE & COX INCOME X (DOXIX)01/03/1989 Income 0.36%
FID FREEDOM INC K (FNSHX)10/17/1996 N/A 0.42%
FID BALANCED K (FBAKX)11/06/1986 N/A 0.43%
PIM INTL BD US$H I (PFORX)12/02/1992 Income 0.51%
PUTN LG CAP VAL R6 (PEQSX)06/15/1977 Large Cap 0.55%
FH IS HIGH YLD BD IS (FIHBX)11/01/2002 Income 0.55%
FID FREEDOM 2035 K (FSNUX)11/06/2003 N/A 0.61%
FID BLUE CHIP GR K (FBGKX)12/31/1987 Large Cap 0.68%
AS SPL MID CP VAL R6 (WFPRX)04/08/2005 Mid-Cap 0.69%
MIP CL 109/07/1989 7 day yield as of04/30/2023 1.46% Stable Value 0.69%
MFS INTL DIVRSN R6 (MDIZX)09/30/2004 International 0.73%
JPM MID CAP GRTH R6 (JMGMX)03/02/1989 Mid-Cap 0.75%
TRP QM US SM-CP GR (PRDSX)06/30/1997 Small Cap 0.80%
DLWR SM CAP VAL INST (DEVIX)06/24/1987 Small Cap 0.86%
VT INTL SM CAP I (MISIX)08/17/2007 N/A 1.18%
BARON PARTNERS INST (BPTIX)05/29/2009 Large Cap 1.44%

You have some great choices for stock funds, not so good for bonds, but the Dodge & Cox is not too bad.

[dogagility]

As others have indicated, the first point to examine is the expense ratio. Then, look for index funds. These two aspects will be linked.

Out of your choices, these are the best funds:
FID 500 INDEX (FXAIX) Large Cap 0.02%
FID MID CAP IDX (FSMDX) Mid-Cap 0.03%
FID SM CAP IDX (FSSNX) Small Cap 0.03%

The Dodge and Cox bond fund has an expense ratio of 0.36%. I'd hold my nose and invest in this, if this was the only fixed income option in my entire retirement portfolio. However, do you have funds in a IRA? If so, you will have better bond choices there.

[barf_jay]

Good question. I was told that just in case I needed large sum for a purchase/remodel/vacation that could put me into higher tax bracket to have a sizeable Roth account? In addition, didn't want to chance getting any of my social security counted as taxable income?

Having some in a Roth for large outlay is prudent but as far as paying taxes on social security specifically, I'd worry more about my total tax liability.
Are you delaying Social Security till 70?

I planned on taking social security at 67. When the time comes to make that decision I can delay until needed.

[barf_jay]

After everyone's suggestions my first step was to modify my 401K % contribution.
Now it is:
Roth = 6%
Traditional - 14%

[ruralavalon]

You have some great choices for stock funds, not so good for bonds, but the Dodge & Cox is not too bad.

I would not hesitate to use Dodge & Cox Income I (DODIX) as my bond allocation in a 401k which lacked a good, diversified, low cost, Intermediate-term bond index fund. I would have been thrilled to find this fund in my mediocre 401k plan.

In my opinion although actively managed Dodge & Cox Income I (DODIX) ER 0.36% is a very good, diversified (14% government bonds, 39% corporate bonds, 43% securitized), intermediate-term (effective duration = 5.3 years), investment-grade (credit quality A+), bond fund with a below average expense ratio.

Dodge & Cox Income I (DODIX) has performed well compared to a total bond market index fund. Portfolio Visualizer, 1989-2023.

Dodge &Cox is an excellent fund company, "Last week, Morningstar published its semiannual Morningstar Fund Family 150 report. . . . The publication ranks the 150 largest U.S. fund companies from top to bottom. The current installment places Dodge & Cox first . . . ." "Every Dodge & Cox fund has outgained the average competitor over the past decade, mostly by large amounts."

Morningstar (9/6/2019), "Be Thankful That You Don't Compete Against Vanguard", link. "After reading this column, Morningstar's Russ Kinnel informed me that Jack Bogle told him that Dodge & Cox was his favorite fund family. "My God, they're boring," said Bogle. You can't ask for a higher fund-family compliment than that."

Morningstar (1/28/2020), The Best Fund Companies and Their Ratings. Only 5 companies were top rated. Dodge & Cox and Vanguard were 2 of the 5 top rated fund companies.

[barf_jay]

So if I rebalance my current 401k was thinking about the below:
1) FID 500 INDEX = 55%
2) FID INTL INDEX = 15%
3) DODGE & COX INCOME =30%

Thoughts? Suggestions?

[ruralavalon]

So if I rebalance my current 401k was thinking about the below:
1) FID 500 INDEX = 55%
2) FID INTL INDEX = 15%
3) DODGE & COX INCOME =30%

Thoughts? Suggestions?

At age 55, with no debt, that asset allocation is within the range of what is reasonable in my opinion.

[the_wiki]

if you don't want a target date fund then my suggestion is a combination of these three funds:
1) FID 500 INDEX (80% of the U.S. stock market) (FXAIX) ER 0.02%;
2) FID INTL INDEX (developed markets only) (FSPSX) ER 0.04%; and
3) DODGE & COX INCOME (intermediate-term, investment-grade bonds (DOXIX) ER 0.36%

+1

That is a solid portfolio.

[Johm221122]

I agree with your choices of funds and traditional/Roth but now the next step is fund placement
Two basic choices
1. Same allocation in both accounts
2. Put mostly fixed income in traditional and stocks in Roth

[barf_jay]

I agree with your choices of funds and traditional/Roth but now the next step is fund placement
Two basic choices
1. Same allocation in both accounts
2. Put mostly fixed income in traditional and stocks in Roth

Since this is a work 401k #1 is only option. I can't choose how the funds are distributed between Roth and Traditional.

[lobuc]

You might want to double check that. I am able to adjust investments, pretax, roth and future percentages on a daily basis it usually takes affect on the next pay period. Maybe that's not a common option? Very simple to to keep it balanced without selling.

[barf_jay]

Thanks everyone for your help. All the links, suggestions, and information got be on the right track. Now wait 10 yrs hope it pans out.