I originally picked FA FREEDOM 2040 I (FIFFX) for investment. After talking with a co-worker I learned this is a poor choice and only has 3 stars. The 10 YR performance 6.37%. Anyway, I have altered my elections and picked below (Effective 12/15/2013). Let me know what you think? Should I left it alone with FA Freedom 2040 I?

Current Investment Elections

Asset Class     Subclass    Fund Name   Current % 
Stock Investments   LARGE CAP   FA LARGE CAP I FALIX    10%
Stock Investments   LARGE CAP   FA NEW INSIGHTS I FINSX     15%
Stock Investments   LARGE CAP   INVS EQL WT S&P500 Y VADDX  20%
Stock Investments   LARGE CAP   INVS GRTH & INC Y ACGMX     10%
Stock Investments   LARGE CAP   SPTN 500 INDEX ADV FUSVX    15%
Stock Investments   MID-CAP     IVY MID CAP GROWTH I  IYMIX     10%
Stock Investments   SMALL CAP   FA SMALL CAP I  FSCIX  FSCIX    10%
Total: 100%

The best predictor of mutual fund performance is low expense ratio, as reported by Morningstar despite the fact that it produces the star ratings you cite. Most of the funds you list are actively managed and thus have high expense ratios. Even if you believe there are mutual fund managers out there that can pick investments intelligently enough to offset the costs versus a passive index fund, do you trust that you will be able to select such a manager? Most people that aren't trying to sell you something will advise that your best bet is to stick with low-cost, passive index funds.

I only see one of these in your options, which is FUSVX (Fidelity Spartan 500 Index Fund Fidelity Advantage Class) with an exceptionally low expense ratio of 0.05%. Do you have other investment accounts with more choices, like an IRA? If so you might consider putting a major chunk of your 401(k) money into FUSVX, and use your IRA to balance your overall porfolio with small- and medium-cap domestic stock, international stock, and bond funds.

As an aside, I remember seeing a funny comment on this site once that is applicable here, something along the lines of "don't take investment advice from coworkers unless they're Warren Buffett or Bill Gross".

  • 1
    +1 for seeking funds with low expense ratios. High fees can easily kill a portfolio's long term performance. I'd take low fees and a passive index fund over high-star fund ratings any day of the week. Dec 12 '13 at 19:06
  • I also use index funds, but I wasn't sure how far afield I wanted to go in my answer. I'm also voting you up for the low fees commentary. Dec 12 '13 at 20:02

The target date investment will automatically reduce equity exposure and increase bond exposure as it approaches retirement date. If you are unlikely to make adjustments as you get older, you may be setting yourself up for more risk down the road. Only you can decide what level of risk you can tolerate as you chase higher gains.

  • I am only 30 and I can revisit and re-adjust. Do you think these elections are good for next 5 years?
    – Axiom
    Dec 12 '13 at 17:00
  • At 30, I was already up to a 30% bond allocation, but as long as you hold instead of selling when the market drops, you're probably okay with a high risk portfolio. Only you know whether you're likely to be spooked by large market swings. Dec 12 '13 at 17:04

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.