I came across an article (see link below) not long ago and it really caught my attention. It seems that Fidelity, the mutual fund firm that oversees some $4 trillion in investments, has adopted a more aggressive investment approach in many of its target date retirement funds in order to improve returns. Is that being smart or exposing people to more risk than is appropriate for their age and circumstances?
First, remember the basic principle of a target date retirement fund. It estimates the year in which one intends or hopes to retire and invests their 401(k) account in the corresponding fund managed by Fidelity (or any other of the 50-60 firms who offer such funds). In the early years long before retirement, the fund is more heavily invested in stocks (80 percent or so) and less in fixed income and then changes that allocation gradually to a less stock/more fixed income mix as the retirement year approaches. This is quite common practice for most retirement plans.
According to the authors of this article (again, type into your browser to read for yourself), it seems that Fidelity has seen quite an outflow of money from their retirement funds going to funds of their competitors in this space. So, they decided to slow the reallocation process between stock and bonds, hoping to present customers with better returns given recent stock market versus bond market performance.
That isn’t necessarily bad if you are in your 40s or 50s and retirement is years away, but as you near or enter your 60s, the impact of a significant market downturn that takes years to recover from could be disastrous to your retirement dreams. When the market plunged in 2008/2009, it took until mid-2013 just to get back to even, let alone make up the five years of gains that might have happened had the downturn not occurred.
As I’ve said many times, the first person responsible for your retirement security is you; you can enlist the help of others, including Fidelity, but don’t just rely on them for your future. After all, if the market drops and you lose half your savings, they won’t be out of business, but you might be impacted for life. An easy way to avoid this situation is to select different funds in your 401(k), avoiding the target date funds if at all possible. That way, you choose how much to allocate to equities versus fixed income, a mix that you will change as you age.
Find a licensed independent financial fiduciary in your area, which by securities law must always put your best interest first.
It’s your future – don’t let others take the risk and you suffer the consequences.
Frederic “Ric” Schilling is a Florida native, born in Jacksonville, Fl. Ric is President of Senior Guardians of America, a local North Florida firm specializing in tax reduction, long term illness planning, asset protection, probate avoidance and life income planning. Ric is a National Speaker and Advocate on Senior Issues and has been featured by the Florida Times Union and WJXT, TV-4 in Jacksonville as an authority on Estate Planning and Retirement Issues. Senior Guardians has an A+ rating with the Better Business Bureau and is a member in excellent standing with the National Ethics Association. Contact Frederic: 904-371-3302 or 888-891-338. Please visit: www.seniorguardian.com
This article is not intended to give tax or legal advice. Securities offered through Center Street Securities, Inc. (CSS), a registered Broker-Dealer & member FINRA & SIPC. Investment Advisory Services offered through Center Street
Advisors, Inc. (CSA), a SEC Registered Investment Advisor. Schilling and Associates (d/b/a Senior Guardians of America) and CSA are independent of CSS.