help with expense ratio

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r21emember
Posts: 7
Joined: Wed Jun 13, 2018 5:23 pm

help with expense ratio

Post by r21emember » Wed Jun 13, 2018 5:53 pm

hello everyone,

I have a ROTH-IRA with fidelity-FFFFX-FIDELITY FREEDOM 2040 with expense ratio of 0.75%--over 11k
I also have a 403b also with fidelity-FFFGX FID FREEDOM 2045, expense ratio of 0.75%--over 37k

Should I switch the boths to index funds and bonds-FSTVX and FSITX with expense 0.035 and 0.045? if possible
Any pro and cons to this plan?
Am in high fed income tax bracket and high state income tax
Am a new investor so I greatly appreciate your thoughtful response and suggestions.

dbr
Posts: 27207
Joined: Sun Mar 04, 2007 9:50 am

Re: help with expense ratio

Post by dbr » Wed Jun 13, 2018 6:19 pm

You should not spend 0.7% extra for a target retirement fund, or for any fund for that matter.

I didn't realize their costs are that high.

MotoTrojan
Posts: 2293
Joined: Wed Feb 01, 2017 8:39 pm

Re: help with expense ratio

Post by MotoTrojan » Wed Jun 13, 2018 6:22 pm

r21emember wrote:
Wed Jun 13, 2018 5:53 pm
hello everyone,

I have a ROTH-IRA with fidelity-FFFFX-FIDELITY FREEDOM 2040 with expense ratio of 0.75%--over 11k
I also have a 403b also with fidelity-FFFGX FID FREEDOM 2045, expense ratio of 0.75%--over 37k

Should I switch the boths to index funds and bonds-FSTVX and FSITX with expense 0.035 and 0.045? if possible
Any pro and cons to this plan?
Am in high fed income tax bracket and high state income tax
Am a new investor so I greatly appreciate your thoughtful response and suggestions.
Tax bracket won't matter at all for the Roth, and will only matter when you ultimately withdraw (receive cash) from the 403b.

You should absolutely come up with your own AA and manage it yourself if that savings in ER are that extreme. I'd start with a 3-fund portfolio of Total US Stock Market (or S&P500), Total International (or similar), and Total Bond, but there is tons of info on that.

Most would keep the Roth all in equities and bonds ideally in the 403b.

emlowe
Posts: 90
Joined: Fri Jun 01, 2018 2:57 pm

Re: help with expense ratio

Post by emlowe » Wed Jun 13, 2018 6:30 pm

Fidelity has this unfortunate setup where they offer both Managed and Index Target Date Funds eg:

FBIFX Fidelity Freedom® Index 2040 Fund Investor: ER 0.15
vs
FFFFX Fidelity Freedom 2040: ER: 0.75

and

FIOFX Fidelity Freedom Index 2045 Investor: ER 0.15
vs
FFFGX Fidelity Freedom 2045: ER 0.75

They make one very easy to find - guess which

-Earle

dbr
Posts: 27207
Joined: Sun Mar 04, 2007 9:50 am

Re: help with expense ratio

Post by dbr » Wed Jun 13, 2018 6:31 pm

So that is the solution. I wondered how that ER could be so high.

mcraepat9
Posts: 967
Joined: Thu Jul 16, 2015 11:46 am

Re: help with expense ratio

Post by mcraepat9 » Wed Jun 13, 2018 6:36 pm

emlowe wrote:
Wed Jun 13, 2018 6:30 pm
Fidelity has this unfortunate setup where they offer both Managed and Index Target Date Funds eg:

FBIFX Fidelity Freedom® Index 2040 Fund Investor: ER 0.15
vs
FFFFX Fidelity Freedom 2040: ER: 0.75

and

FIOFX Fidelity Freedom Index 2045 Investor: ER 0.15
vs
FFFGX Fidelity Freedom 2045: ER 0.75

They make one very easy to find - guess which

-Earle
+1 - switch to the Freedom INDEX fund and move on. Moving to individual funds usually makes sense once you spill over into taxable accounts. If tax advantaged accounts are all you had, use the Freedom INDEX fund and get auto rebalancing for a mere 10-12 bps.
Last edited by mcraepat9 on Wed Jun 13, 2018 6:38 pm, edited 1 time in total.
Amateur investors are not cool-headed logicians.

retiredjg
Posts: 33894
Joined: Thu Jan 10, 2008 12:56 pm

Re: help with expense ratio

Post by retiredjg » Wed Jun 13, 2018 6:37 pm

If you want to use a target fund from Fidelity, I suggest using the Index Target funds. They are both named Fidelity Freedom. One has the addition of Index in the name and one does not.

The difference of .15% and .7% (or thereabouts) will mean something over the years in my opinion.

emlowe
Posts: 90
Joined: Fri Jun 01, 2018 2:57 pm

Re: help with expense ratio

Post by emlowe » Wed Jun 13, 2018 6:41 pm

This fund screen link for Fidelity should show you all the INDEX Freedom Funds:

https://www.fidelity.com/fund-screener/ ... pe&idxFd=Y

-Earle

Nate79
Posts: 3503
Joined: Thu Aug 11, 2016 6:24 pm
Location: Portland, OR

Re: help with expense ratio

Post by Nate79 » Thu Jun 14, 2018 12:20 am

When labeled as index they are passive index funds. Otherwise the examples given are actually active managed funds hence the higher ER.

r21emember
Posts: 7
Joined: Wed Jun 13, 2018 5:23 pm

Re: help with expense ratio

Post by r21emember » Sat Jun 23, 2018 8:11 pm

Thank you so much everyone! I did not realize the ER was that high as well until recently. I will make the appropriate changes

inbox788
Posts: 5528
Joined: Thu Mar 15, 2012 5:24 pm

Re: help with expense ratio

Post by inbox788 » Sat Jun 23, 2018 8:19 pm

emlowe wrote:
Wed Jun 13, 2018 6:30 pm
Fidelity has this unfortunate setup where they offer both Managed and Index Target Date Funds eg:

FBIFX Fidelity Freedom® Index 2040 Fund Investor: ER 0.15
vs
FFFFX Fidelity Freedom 2040: ER: 0.75

and

FIOFX Fidelity Freedom Index 2045 Investor: ER 0.15
vs
FFFGX Fidelity Freedom 2045: ER 0.75

They make one very easy to find - guess which

-Earle
IMO, it's not unfortunate, but DELIBERATE! They are using this confusion to sucker a good percentage of folks into higher fees. It's one of the main reasons I avoid Fidelity if at all possible.

Supermarkets are doing the same thing with "organic" products near regular products taking advantage of those not paying attention.

Caveat emptor!

https://en.wikipedia.org/wiki/Caveat_emptor

r21emember
Posts: 7
Joined: Wed Jun 13, 2018 5:23 pm

Re: help with expense ratio

Post by r21emember » Mon Jun 25, 2018 10:06 am

emlowe wrote:
Wed Jun 13, 2018 6:30 pm
Fidelity has this unfortunate setup where they offer both Managed and Index Target Date Funds eg:

FBIFX Fidelity Freedom® Index 2040 Fund Investor: ER 0.15
vs
FFFFX Fidelity Freedom 2040: ER: 0.75

and

FIOFX Fidelity Freedom Index 2045 Investor: ER 0.15
vs
FFFGX Fidelity Freedom 2045: ER 0.75

They make one very easy to find - guess which

-Earle
Thanks again everyone. Update: I tried to exchange the managed funds into the index fund, but i could not. I called Fidelity, they said i have to do a rollover distribution for the 403b.
First, i need to avoid any tax issue, so is rolling to a rollover IRA the best way to avoid early distribution tax penalty?
I will then move the rollover money to their index fund
Second, should I just move both accounts to Vanguard since am doing a rollover anyway? which index funds at Vanguard do you all recommend?
I appreciate your thoughtful advice and suggestions.

retiredjg
Posts: 33894
Joined: Thu Jan 10, 2008 12:56 pm

Re: help with expense ratio

Post by retiredjg » Mon Jun 25, 2018 10:13 am

r21emember wrote:
Mon Jun 25, 2018 10:06 am
Thanks again everyone. Update: I tried to exchange the managed funds into the index fund, but i could not.
Could you do it in the Roth IRA?

I called Fidelity, they said i have to do a rollover distribution for the 403b.
Is this a current 403b? If yes, does it have a "brokerage window" that would allow you use the lower cost fund?

First, i need to avoid any tax issue, so is rolling to a rollover IRA the best way to avoid early distribution tax penalty?
If this is an old 403b, not a current one, you can roll it to IRA with no taxes.

Second, should I just move both accounts to Vanguard since am doing a rollover anyway? which index funds at Vanguard do you all recommend?
Only if you want to. The Fidelity version of the index target fund is a perfectly fine investment and the costs are similar. You would not be getting a significantly better product at Vanguard.

Dottie57
Posts: 4506
Joined: Thu May 19, 2016 5:43 pm

Re: help with expense ratio

Post by Dottie57 » Mon Jun 25, 2018 10:16 am

r21emember wrote:
Mon Jun 25, 2018 10:06 am
emlowe wrote:
Wed Jun 13, 2018 6:30 pm
Fidelity has this unfortunate setup where they offer both Managed and Index Target Date Funds eg:

FBIFX Fidelity Freedom® Index 2040 Fund Investor: ER 0.15
vs
FFFFX Fidelity Freedom 2040: ER: 0.75

and

FIOFX Fidelity Freedom Index 2045 Investor: ER 0.15
vs
FFFGX Fidelity Freedom 2045: ER 0.75

They make one very easy to find - guess which

-Earle
Thanks again everyone. Update: I tried to exchange the managed funds into the index fund, but i could not. I called Fidelity, they said i have to do a rollover distribution for the 403b.
First, i need to avoid any tax issue, so is rolling to a rollover IRA the best way to avoid early distribution tax penalty?
I will then move the rollover money to their index fund
Second, should I just move both accounts to Vanguard since am doing a rollover anyway? which index funds at Vanguard do you all recommend?
I appreciate your thoughtful advice and suggestions.
Doing so at Fidelity would be easiest. I like the Fidelity web site much better. I also think Fidelity customer service is better.
There have been many instances of problems at VG reported on this forum.

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oldcomputerguy
Posts: 3344
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Location: In the middle of five acres of woods

Re: help with expense ratio

Post by oldcomputerguy » Mon Jun 25, 2018 11:36 am

dbr wrote:
Wed Jun 13, 2018 6:19 pm
You should not spend 0.7% extra for a target retirement fund, or for any fund for that matter.

I didn't realize their costs are that high.
Fidelity Freedom target-date funds come in two flavors. One flavor (Fidelity Freedom Funds) is actively managed, holds a staggeringly complicated (by Bogleheads standards) mix of actively-managed funds, and has an expense ratio of around 0.75%. The other (Fidelity Freedom Index Funds) is passively-managed, holds a small number of Institutional-class index funds (a la Three-Fund Portfolio), and has an expense ratio in the neighborhood of 0.15%.

The OP quoted the non-index versions of the funds (FFFFX and FFFGX) rather than the index versions (FBIFX and FIOFX).
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

rgs92
Posts: 2168
Joined: Mon Mar 02, 2009 8:00 pm

Re: help with expense ratio

Post by rgs92 » Mon Jun 25, 2018 11:48 am

Factoid: Fidelity just reduced its Freedom Index Funds' ER to .14%, (down 1 whole basis point!).

retiredjg
Posts: 33894
Joined: Thu Jan 10, 2008 12:56 pm

Re: help with expense ratio

Post by retiredjg » Mon Jun 25, 2018 12:58 pm

oldcomputerguy wrote:
Mon Jun 25, 2018 11:36 am
Fidelity Freedom target-date funds come in two flavors.
To further the confusion, there is about to be a third flavor (although I don't remember just what it is....) :oops:

r21emember
Posts: 7
Joined: Wed Jun 13, 2018 5:23 pm

Re: help with expense ratio

Post by r21emember » Mon Jun 25, 2018 6:02 pm

retiredjg wrote:
Mon Jun 25, 2018 10:13 am
r21emember wrote:
Mon Jun 25, 2018 10:06 am
Thanks again everyone. Update: I tried to exchange the managed funds into the index fund, but i could not.
Could you do it in the Roth IRA?

I called Fidelity, they said i have to do a rollover distribution for the 403b.
Is this a current 403b? If yes, does it have a "brokerage window" that would allow you use the lower cost fund?

First, i need to avoid any tax issue, so is rolling to a rollover IRA the best way to avoid early distribution tax penalty?
If this is an old 403b, not a current one, you can roll it to IRA with no taxes.

Second, should I just move both accounts to Vanguard since am doing a rollover anyway? which index funds at Vanguard do you all recommend?
Only if you want to. The Fidelity version of the index target fund is a perfectly fine investment and the costs are similar. You would not be getting a significantly better product at Vanguard.
Thanks again everyone. I was able to move the Roth-IRA into the index funds within 1-2 minutes. The 403b is from my old job. So i have to send the rollover distribution form to Michigan first then back to Fidelity. I should be able to covert the 403b managed funds to index funds, hopefully in 1-2 weeks. I agreed with Fidelity great customer service and great website, so i will stay put for now.
Thanks much for all the suggestions. You guys are the best!

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