Author Topic: 401k Fidelity "Trust" a little confusing  (Read 7564 times)

FrugalFisherman10

  • Bristles
  • ***
  • Posts: 310
    • Fly Fishing Photo Project
401k Fidelity "Trust" a little confusing
« on: September 10, 2014, 12:47:18 PM »
Hello

I have a few questions about my 401k. (I've done some research about it but plan on doing more. In fact, I just got off the phone with a Fidelity representative.)

I'm investing pre-tax in my 401k in the Vanguard Target Retirement 2055 Trust Fund. This is a "Trust" that invests in Vanguard's Target Retirement 2055 mutual fund I guess. The expense ratio as stated by Fidelity is sufficiently low I would say at 0.07%. I get a little bit of a match in the 401k so that's why I'm putting money there. I'm also going to open up an IRA (probably Roth) this year.

My question is really to anyone that knows a lot about the details of this "trust investing in a mutual fund" kind of relationship. And also for anyone who knows alot about how mutual funds work.
Can I trust that the only expenses I'm being charged are the ones captured in that 0.07% number?
I've started to catch wind in my research of some potential other expenses incurred by the mutual fund itself as it does rebalancing...and that these costs are usually just a reduction in your reported return, not shown as an expense. Does anyone know if that type of thing could be going on here?

I would like to just invest in index funds myself but that doesn't seem to be an option in a 401k. And then I would have to deal with the asset allocation picture in more detail than I maybe want to take on. To some extent I plan on dealing with asset allocation throughout life already as that seems to be a big part of this whole picture, (how much I have invested in stocks, bonds, my home, etc.), but I don't know if I would want to become someone who has to constantly concern themselves with moving/"trading" in a more detailed asset allocation mindset.

Thank you for any knowledge sharing!

sirdoug007

  • Pencil Stache
  • ****
  • Posts: 587
  • Age: 39
  • Location: Houston, TX
Re: 401k Fidelity "Trust" a little confusing
« Reply #1 on: September 10, 2014, 01:31:25 PM »
Here is a decent, although still complicated explanation of the difference between a mutual fund and a trust holding the mutual fund.

https://institutional.vanguard.com/VGApp/iip/site/institutional/researchcommentary/article/InvComCollectiveTrustsVsFunds

The bottom line is there is no difference for you and the expense ratio is the same either way.

seattlecyclone

  • Magnum Stache
  • ******
  • Posts: 4986
  • Age: 34
  • Location: Seattle, WA
    • My blog
Re: 401k Fidelity "Trust" a little confusing
« Reply #2 on: September 10, 2014, 01:39:33 PM »
I think the biggest difference you'll generally see with these is that income from dividends, interest, etc. is used to increase the NAV of shares you already own behind the scenes, rather than being distributed to you and appearing as a "reinvested dividend" transaction in your account. The growth of your investment is the same either way.

ZiziPB

  • Magnum Stache
  • ******
  • Posts: 3276
  • Location: The Other Side
Re: 401k Fidelity "Trust" a little confusing
« Reply #3 on: September 10, 2014, 02:20:51 PM »
I think the biggest difference you'll generally see with these is that income from dividends, interest, etc. is used to increase the NAV of shares you already own behind the scenes, rather than being distributed to you and appearing as a "reinvested dividend" transaction in your account. The growth of your investment is the same either way.

That is how I understand it as well. 

Also, it looks like you are getting a break on the ER (your company's 401k is likely large enough to be able to negotiate it).  I think the standard ER of the Vanguard Target Funds is something like 0.18%, so at .07% it is definitely a bargain. 

FrugalFisherman10

  • Bristles
  • ***
  • Posts: 310
    • Fly Fishing Photo Project
Re: 401k Fidelity "Trust" a little confusing
« Reply #4 on: September 11, 2014, 08:46:07 AM »
Also, it looks like you are getting a break on the ER (your company's 401k is likely large enough to be able to negotiate it).  I think the standard ER of the Vanguard Target Funds is something like 0.18%, so at .07% it is definitely a bargain. 

ZiziPB - I think you are correct. And I also saw something on the Fidelity website saying "certain expenses have been reimbursed by your employer. Otherwise, expenses would be higher." It was somewhere in the fine print and now I can't find it :/

seattlecyclone - Thanks for pointing that out. The fine print says that is the case.

sirdoug007 - Thanks I just read that article. It seems to make out collective trusts as not a very good option for most companies, but I guess my employer is big enough for it to work.(which doesn't surprise me, it is very large.)

Additionally, and somewhat related, I found the following two nuggets in the fine print on Fidelity's website:

"Total returns do not reflect the fund's [%] sales charge. If sales charges were included, total returns would have been lower."
I don't think this matters because I don't think there is a "sales charge" related to my fund. However sales charge seems to be a loosely defined word in that context. What do you think

"The product's returns may not reflect all its expenses. Any fees not reflected would lower the returns. Benchmark returns include reinvestment of capital gains and dividends, if any, but do not reflect any fees or expenses. It is not possible to invest in an index"

That last part about "it is not possible to invest in an index" is just perplexing to me. And they just throw it in there right after those other sentences! I just read about 15 articles reiterating the importance of investing in indexes (jlcollinsnh and http://www.streetsmartfinance.org/2013/07/07/that-mutual-fund-is-robbing-your-retirement/). Perhaps it means that I cannot invest in an index within my 401k? As in, it's not an available option?

sirdoug007

  • Pencil Stache
  • ****
  • Posts: 587
  • Age: 39
  • Location: Houston, TX
Re: 401k Fidelity "Trust" a little confusing
« Reply #5 on: September 11, 2014, 08:56:44 AM »
"The product's returns may not reflect all its expenses. Any fees not reflected would lower the returns. Benchmark returns include reinvestment of capital gains and dividends, if any, but do not reflect any fees or expenses. It is not possible to invest in an index"

That last part about "it is not possible to invest in an index" is just perplexing to me. And they just throw it in there right after those other sentences! I just read about 15 articles reiterating the importance of investing in indexes (jlcollinsnh and http://www.streetsmartfinance.org/2013/07/07/that-mutual-fund-is-robbing-your-retirement/). Perhaps it means that I cannot invest in an index within my 401k? As in, it's not an available option?

I think what they are saying is that it is not possible to invest in an index at zero fees.  The benchmarks they are using are the indexes at zero fees.  You can get pretty damn close with Vanguard at 0.05% though!

RichMoose

  • Pencil Stache
  • ****
  • Posts: 966
  • Location: Alberta
  • RiskManagement
    • The Rich Moose | A Better Canadian Finance Blog
Re: 401k Fidelity "Trust" a little confusing
« Reply #6 on: September 11, 2014, 12:20:42 PM »
"The product's returns may not reflect all its expenses. Any fees not reflected would lower the returns. Benchmark returns include reinvestment of capital gains and dividends, if any, but do not reflect any fees or expenses. It is not possible to invest in an index"

What they are saying is that you are not investing in the actual "index", you are actually investing in a fund that holds the same stocks as the index in the same proportion as the index so that it tracks the index almost identically.

Hopefully that made sense. :/

FrugalFisherman10

  • Bristles
  • ***
  • Posts: 310
    • Fly Fishing Photo Project
Re: 401k Fidelity "Trust" a little confusing
« Reply #7 on: September 22, 2014, 08:52:51 AM »
Yes - this makes sense to me I think

Here's my latest observance/question: I noticed the following within my "transactions" for my 401k that I have tied to the Personal Capital website.
(See attachment to this post)

Now, this fee that shows up as $5.85 is 0.1% (.001) of my current balance in there. Seems reasonable enough, although it is more than the .07%. For my own information though, does this "fee" seem to be the charge that is associated with the expense ratio?

seattlecyclone

  • Magnum Stache
  • ******
  • Posts: 4986
  • Age: 34
  • Location: Seattle, WA
    • My blog
Re: 401k Fidelity "Trust" a little confusing
« Reply #8 on: September 22, 2014, 12:44:30 PM »
My 401(k) charges a fixed fee (a few dollars a quarter) to cover plan expenses (not fund expenses). This is deducted from my fund balance. Could this be what is happening in your account?

FrugalFisherman10

  • Bristles
  • ***
  • Posts: 310
    • Fly Fishing Photo Project
Re: 401k Fidelity "Trust" a little confusing
« Reply #9 on: September 22, 2014, 04:12:39 PM »
Seattlecyclone - Yes, that could be the case. I think I will call to learn more about this charge.

Additionally, for anyone else who has advice to provide, I recently finished reading a lot of Jlcollinsnh articles and madfientist articles on index funds and 401ks. I noticed that the following is an option within my 401k plan, and is maybe a better option than the one I'm currently in

Spartan® 500 Index Fund - Fidelity Advantage Institutional Class
Symbol: FXAIX

 (so long as I'm ok with concerning myself with asset allocation calculations). Given that I'm currently in the Target Date fund, the asset allocation is "done for me".

This index fund has the following stats:
Exp Ratio (Gross)
4/29/2014

0.025%
($0.25 per $1000)

Exp Ratio (Net)
4/29/2014
0.02%
($0.20 per $1000)

Turnover Rate
2/28/2014

4%

This seems to be a pretty solid "true" index fund choice, and it is in the Spartan shares which for fidelity is a good thing.

seattlecyclone

  • Magnum Stache
  • ******
  • Posts: 4986
  • Age: 34
  • Location: Seattle, WA
    • My blog
Re: 401k Fidelity "Trust" a little confusing
« Reply #10 on: September 22, 2014, 04:22:02 PM »
The Fidelity Spartan series is generally designed to compete with Vanguard's low-fee index funds. Your Fidelity Spartan 500 fund should be expected to perform about the same as the Vanguard 500 index fund.

As for deciding whether or not to move your money out of the Vanguard target date fund, what's your desired asset allocation? Your target date fund offers a reasonable allocation and the fees are quite low. You can certainly replicate this yourself by buying a few funds on your own, either in the same ratios as the target date fund or in a ratio that makes more sense for your own risk tolerance. Does your 401(k) provide low-cost options for the other asset classes that are part of the target date fund? If not, you may want to just keep the target date fund, and if you think it puts too low of a weight on certain asset classes, you can always buy more of that specific fund to supplement the target date fund.

FrugalFisherman10

  • Bristles
  • ***
  • Posts: 310
    • Fly Fishing Photo Project
Re: 401k Fidelity "Trust" a little confusing
« Reply #11 on: October 06, 2014, 08:34:19 AM »
So given everyone's responses I've basically decided to just stay in the target date fund for the 401k. When I get more money saving up in the future ( like outside of 401k and outside of IRA) then I will put that in index funds (Which is probably already obvious to you guys).
However, my most recent development/question with this is based off a discovery I made within my Mint account. Check out the attached picture. It is a screenshot of how Mint says my investment is performing. It shows that my investment doesn't seem to be matching the S&P 500 very well at all, and has missed out on alot of growth in just the last year! What's going on? Isn't the asset allocation and stocks that make up my target date fund supposed to also mimic the SP500?

Thanks

ZiziPB

  • Magnum Stache
  • ******
  • Posts: 3276
  • Location: The Other Side
Re: 401k Fidelity "Trust" a little confusing
« Reply #12 on: October 06, 2014, 09:29:50 AM »
A target fund doesn't mimic S&P500.  Target funds typically have some domestic stock, some international stock and some bonds in a ratio that gets adjusted as you get closer to the date of the fund.  Your particular fund consists of investments in 4 other Vanguard Funds (reflecting the fund's asset allocation) as follows:

Vanguard Total Stock Market Index Fund Investor Shares 63.1%
Vanguard Total International Stock Index Fund Investor Shares 26.9%
Vanguard Total Bond Market II Index Fund Investor Shares† 8.0%
Vanguard Total International Bond Index Fund 2.0%

FrugalFisherman10

  • Bristles
  • ***
  • Posts: 310
    • Fly Fishing Photo Project
Re: 401k Fidelity "Trust" a little confusing
« Reply #13 on: October 06, 2014, 12:30:35 PM »
ZiziPB, thanks for your input. So  is it basically the combination of the 27% International Stock Index fund and the two bonds funds that really impacts my return that much?

ZiziPB

  • Magnum Stache
  • ******
  • Posts: 3276
  • Location: The Other Side
Re: 401k Fidelity "Trust" a little confusing
« Reply #14 on: October 07, 2014, 08:03:47 AM »
Quote
So  is it basically the combination of the 27% International Stock Index fund and the two bonds funds that really impacts my return that much?

Yes, to a large extent.  International stocks have been down lately.  Also, your domestic stock component is a Total Stock Index Fund, which is much broader than (and performs differently from) S&P 500. 

Have a look at the perfomance of the 4 underlying funds to get a better sense of what impacted the overall performance of your Target Fund.

FrugalFisherman10

  • Bristles
  • ***
  • Posts: 310
    • Fly Fishing Photo Project
Hello - I am revisiting this thread as I have gone back to look at my investments again in my 401k. I recently went into Fidelity and identified this other fund that seemed like a better option than the Target Retirement 2055 I'm currently in. It was the Fidelity SPTN 500 IDX fund (FXAIX). I then came to this thread I had started a while back to ask questions about it, and realized it was the same fund I had asked about before (this time last year)! Haha.
Last time I visited this topic I decided to just stick with the Target Retirement fund. I'm still questioning that though.
Seattlecyclone you asked me some good questions last time:
"what's your desired asset allocation? Your target date fund offers a reasonable allocation and the fees are quite low."
In looking into this further, I see that my fund actually offers the following allocation.
Vanguard Instl Ttl Stk Mkt Idx InstlPls: 53.25% 
Vanguard Total Intl Stock Idx InstlPls: 22.23% 
Vanguard Total Bond Market II Idx I: 19.60% 
Vanguard Total Intl Bd Idx Institutional: 4.92% 
Basically it's:
Stocks 75%
Bonds 25%

This is a little less-than-ideal in my opinion after reading JLCollins stock series. He suggests 100% stocks for my stage of life (I'm 25). Then he 'allows' room for a 80%/20% split being appropriate as well. I'd like to get to 80/20 or 90/10, maybe even 100%.

Keeping in line with this Target Retirement fund (it is subsidized on the expense ratio after all), JLCollins says I should just pick a later date to get more aggressive.
"If you want more aggressive (greater percentage of stocks), just pick a later date."
The problem is, the only other option is 2060, and it has about the same allocation (76/24). (Interestingly enough the Fidelity website also notes that the "Turnover Rate is 38% for the 2060! Not sure if that's a typo or what..but it sure seems like it would impact my expenses. The turnover rate in the 2055 fund is only 5%)

So, to get the asset allocation closer to 90/10, I could start buying that FXAIX right? I can divert some of my 401k contribution each month to different funds, so I divert some of it to the FXAIX and some of it to the TRF.

Right now we're only talking about $15k in my 401k. So the amounts are (roughly):
Stocks: $11,250
Bonds: $3,750

To get to 90/10 by the time I've got $25k in there, I'd need to sell some bonds (and I can't sell off specific parts of the fund anyway...):
Stocks: $22.5k
Bonds:$2.5k

So if I wanted to not buy anymore bonds, I could get to 90/10 by the time I have 37,500 in my 401k (3750/.10), by switching over my future contributions to only be FXAIX for the next few years. hmm...

Are there any better ways to do this? I basically need to dilute my bonds as a percentage of my total holdings.

Oh, worth mentioning, I've also got an IRA! It is fully invested in VTSMX and the balance is my first years contribution plus a little growth, so $5800.
So in total, my asset allocation is:
Stocks: 82% ($16,550)
Bonds: 18%  ($3,580)
Total: $20,135

Alas! I should just hold off then on any moves with FXAIX. I am going to dump another $5500 into the IRA soon enough (before April '16). By then, even while continuing to buy some bonds in the 401k over that time I will reach closer to 90% stocks.

So by April I will be at roughly:
401k: $16,000
          Stocks: $12k
          Bonds: $4k
IRA: $12,000 (all stocks)

Percentages of total portfolio:
Stocks: 85%
Bonds: 15%

Shoot.
Close enough I guess...

ZiziPB

  • Magnum Stache
  • ******
  • Posts: 3276
  • Location: The Other Side
Re: 401k Fidelity "Trust" a little confusing
« Reply #16 on: December 02, 2015, 10:15:16 AM »
Having a Target Retirement Fund in the mix makes the math a bit complicated but you are getting that fund at a really good ER.  I think you have two options to reach your desired asset allocation.  Either start investing more money into stocks (I haven't looked but I think the fund you are considering is S&P500?) or switch to a different target fund that has more stocks (look at funds with target dates that are later than the current one).

BTW, please double check the allocation of your fund - Vanguard Target 2055 is about 90/10 stocks to bonds.  Not sure why you are seeing 75/25?

FrugalFisherman10

  • Bristles
  • ***
  • Posts: 310
    • Fly Fishing Photo Project
Re: 401k Fidelity "Trust" a little confusing
« Reply #17 on: December 02, 2015, 11:56:01 AM »
I took a screenshot directly from my Fidelity netbenefits website on the "Composition" tab for this fund. See attachment. Perhaps the difference is because I am in the "Target Retirement Trust Plus" (as we discussed before in this thread)? Maybe there's more of a difference to this "Trust Plus" thing than I initially realized.

It also shows that the Share Class Net Assets are $684 M, as compared to the $2.5 B in the true Vanguard 2055 fund.

seattlecyclone

  • Magnum Stache
  • ******
  • Posts: 4986
  • Age: 34
  • Location: Seattle, WA
    • My blog
Re: 401k Fidelity "Trust" a little confusing
« Reply #18 on: December 02, 2015, 12:08:21 PM »
Vanguard's own page about their Target Retirement 2055 Trust Plus shows a 90/10 allocation. I think your Fidelity site is wrong.

FrugalFisherman10

  • Bristles
  • ***
  • Posts: 310
    • Fly Fishing Photo Project
Re: 401k Fidelity "Trust" a little confusing
« Reply #19 on: December 03, 2015, 09:41:01 AM »
I just called Fidelity and they clarified for me by pointing me to a different screen. This shows the true composition:

It's 88% Equity and 10% bonds, so that's good to know. Thanks for the help. Glad I looked into it.

It's odd to me that the other composition tab I was looking at was incorrect, but Fidelity just says "Thats the info we get reported to us by the fund managers."

ZiziPB

  • Magnum Stache
  • ******
  • Posts: 3276
  • Location: The Other Side
Re: 401k Fidelity "Trust" a little confusing
« Reply #20 on: December 03, 2015, 11:03:09 AM »
Very strange.  In any event, sounds like you are all set now :-)

FrugalFisherman10

  • Bristles
  • ***
  • Posts: 310
    • Fly Fishing Photo Project
Re: Should I rollover my 401k Fidelity "Trust" to my IRA
« Reply #21 on: November 16, 2016, 09:01:26 PM »
Resurrecting an old thread here, because I think the thread adds context and I'd like to hear from some of the original responders that helped me out before.

I have since left my job where I had this seemingly great 401k option.
I now have the decision of rolling that 401k money into my Roth IRA at Vanguard, or leaving it with Fidelity in the Vanguard "Target Retirement Trust" where it sits now. Given the lows fees and other factors considered above, it doesn't seem like a bad idea to leave them with Fidelity in the 401k.
That being said, I'd like to have as few 'accounts' as possible, because I like simplicity.

Now that I'm going to have a new 401k at my new employer, and it is with Schwab (see new thread here for more on that: http://forum.mrmoneymustache.com/ask-a-mustachian/help-me-choose-a-fund-(or-two)-in-my-new-401k/ ),
and I'm going to have an HSA,
and I'm probably going to have an ESPP account (recordkept by Fidelity),
I like the idea of consolidating this Fidelity 401k from my old employer to my Vanguard Roth IRA.

Thoughts? What are the real things I should be considering with this?
Is the whole 'rollover your 401k' thing just a marketing gimmick from those that benefit from it?

Thanks!

letired

  • Pencil Stache
  • ****
  • Posts: 823
  • Location: Texas
    • Needs More Glitter
Re: 401k Fidelity "Trust" a little confusing
« Reply #22 on: November 16, 2016, 10:16:41 PM »
It you roll over your 401k, make sure it goes into a Traditional or Rollover IRA instead of a Roth IRA, otherwise you have to pay income taxes on it.

FrugalFisherman10

  • Bristles
  • ***
  • Posts: 310
    • Fly Fishing Photo Project
Re: 401k Fidelity "Trust" a little confusing
« Reply #23 on: November 19, 2016, 09:35:36 AM »
It you roll over your 401k, make sure it goes into a Traditional or Rollover IRA instead of a Roth IRA, otherwise you have to pay income taxes on it.
Dude - great handle. Is that perhaps derived from this video?: https://youtu.be/kCpjgl2baLs?t=45s

letired

  • Pencil Stache
  • ****
  • Posts: 823
  • Location: Texas
    • Needs More Glitter
Re: 401k Fidelity "Trust" a little confusing
« Reply #24 on: November 20, 2016, 10:44:36 AM »
It you roll over your 401k, make sure it goes into a Traditional or Rollover IRA instead of a Roth IRA, otherwise you have to pay income taxes on it.
Dude - great handle. Is that perhaps derived from this video?: https://youtu.be/kCpjgl2baLs?t=45s

:D Yes, yes it is

FrugalFisherman10

  • Bristles
  • ***
  • Posts: 310
    • Fly Fishing Photo Project
Re: Should I rollover my 401k Fidelity "Trust" to my IRA
« Reply #25 on: April 02, 2017, 10:20:18 AM »
Resurrecting an old thread here, because I think the thread adds context and I'd like to hear from some of the original responders that helped me out before.

I have since left my job where I had this seemingly great 401k option.
I now have the decision of rolling that 401k money into my Roth IRA at Vanguard, or leaving it with Fidelity in the Vanguard "Target Retirement Trust" where it sits now. Given the lows fees and other factors considered above, it doesn't seem like a bad idea to leave them with Fidelity in the 401k.
That being said, I'd like to have as few 'accounts' as possible, because I like simplicity.

Now that I'm going to have a new 401k at my new employer, and it is with Schwab (see new thread here for more on that: http://forum.mrmoneymustache.com/ask-a-mustachian/help-me-choose-a-fund-(or-two)-in-my-new-401k/ ),
and I'm going to have an HSA,
and I'm probably going to have an ESPP account (recordkept by Fidelity),
I like the idea of consolidating this Fidelity 401k from my old employer to my Vanguard Roth IRA.

Thoughts? What are the real things I should be considering with this?
Is the whole 'rollover your 401k' thing just a marketing gimmick from those that benefit from it?

Thanks!
- Bumping this -
Old 401k Rollover considerations
What are the real considerations for a rolling over a 401k from an old employer? Any advice?
 
Is the whole 'rollover your 401k' thing just a marketing gimmick from those that benefit from it?

(I'm doing my taxes now and trying to figure out if I should roll it over or leave it alone.)

Pension decision
Additionally, after leaving my old employer, I have a pension benefit projected to be $712.50 per month under the Single Life Annuity form of payment, if I start receiving benefits on my 65th birthday. I'm currently 26 year old, and have no idea what to do with this money/circumstance.
I can also:
- take a lump sum payment now (probably subject to taxation), then invest it myself
- start receiving benefits immediately
- start receiving benefits at some point in the future (if before age 65, not sure how taxes would work)


On the one hand, if I were to 'win the lottery', I would take the lump sum and invest it. But I also like the idea of 'source diversification', in that by keeping this 'money' with the benefit administrator/employer, I hedge myself a little against my own errors, or a crash of other investments or things I encounter over the next 40 years before I need this money. That may just be made up/unfounded worries, but I somewhat like the idea of this money being completely 'safe' and separate from all the money i save and invest on my own. However, I don't know if this is any more safe than just investing it myself.
If my prior employer isn't around one day , then is my pension money gone forever (think Arthur Andersen, I used to work for a big 4 accounting firm)?   (Given my inside experience with the current landscape of public accounting firms and their willingness to stretch the limits on 'independence', it's not unrealistic that another of these firms will collapse/disband at some point.)
What if the plan/benefits administrator isn't around one day (Benefits Express/Hewitt), then is my pension money gone forever?

So in summary - I'd like some feedback on:
1) Should I rollover my 401k? it is in Vanguard Target Retirement Trust 2055, held with Fidelity, with a .06% Gross ER.
2) What should I do with my pension benefits from my old employer?

Thanks!