Quote:
Originally Posted by RunKC
So I use Fidelity and they sold me their target managed fund for my Roth IRA.
My question is, why would I do that and not just get an S&P low cost Index Fund, specifically the Fidelity version FXAIX?
Here’s the comparison:
Fidelity managed target fund-average life of return to date is 7.70%. It’s got an expense ratio of 0.75%
Fidelity S&P FXAIX-average life of return to date is 13.22%. It’s expense ratio is 0.02%
It also seems like a large portion of the target fund is made up of the S&P anyway.
That seems like one hell of a huge difference. Any downside to this in your minds?
|
The target fund is a mix of stocks, bonds and cash. The asset allocation is proportionate to what they deem is "right" for your current age. As you get closer to retirement the fund will become more and more conservative.
The SP500 fund is just that. It's 100% stocks. Most people fall in love with the return of the SP500 and lose site of proper asset allocation.
The downside is if you go 100% SP500 you are in nothing but stocks. So if the SPX goes down 20% you go down 20% because you have nothing else to cushion or otherwise stabilize your portfolio.
I will give you a hint: 90% of people with proper asset allocation will rarely outperform the SP500 unless you are very young and pretty much in all stocks.