Author Topic: Exchange/Rebalance Fidelity Funds?  (Read 5411 times)

VioletVixen

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Exchange/Rebalance Fidelity Funds?
« on: January 24, 2015, 08:04:17 PM »
I have two Fidelity accounts through my employer; a 403(b) that I contribute to, and a 401(k) that the employer contributes to (5%). After doing some research, I think I would be better off moving the money in my 403b/Fidelity Freedom 2055 [ER: .78%] and my 401k Fidelity Freedom 2050 [ER: .78%] funds each into a personalized mix of:

80% Spartan® 500 Index Fund - Fidelity Advantage Class (FUSVX)  [ER: .07%]
20% Spartan® Long-Term Treasury Bond Index Fund - Fidelity Advantage Class (FLBAX) [ER: .1%]

Is my portfolio still considered 'diversified' if I have both the 403b and 401k invested into these funds at an 80/20 mix?

What are the differences between Large-Cap, Mid-Cap, Small-Cap, International and Income? How do you determine where to put your money?

If I want to move the money I have in my Fidelity Freedom Funds into the Spartan funds, is that called exchanging or rebalancing? Does it cost to move the money between funds? Do I have to wait until the Freedom funds are "up" to sell, then wait until the Spartan funds are "down" to buy (in other words, try not to lose money in the transaction)? What is the best way to move my money between funds?

Would the Fidelity® Blue Chip Growth Fund (FBGRX) be a better long-term investment over the Spartan 500 Index Fund? It has a higher 10-year return (9.15%) vs Spartan 500 Index (7.64%), but the ER for Blue Chip Growth Fund is .8% vs. Spartan 500 Index .07%. I would think the Spartan's low ER would win over time, but I'm not sure if the gains of the Blue Chip would be worth it (I would have to assume it would always stay that high).

Thanks!





johnny847

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Re: Exchange/Rebalance Fidelity Funds?
« Reply #1 on: January 24, 2015, 11:24:08 PM »
Is my portfolio still considered 'diversified' if I have both the 403b and 401k invested into these funds at an 80/20 mix?
Yes, you're still diversified, because you've got US stocks and bonds. Not quite as diversified as using Fidelity's total US market Index, and total bond index, but I recognize you may not have access to such funds in your 401k or 403b.

What are the differences between Large-Cap, Mid-Cap, Small-Cap, International and Income? How do you determine where to put your money?
Large, mid, and small cap (short hand for market capitalization) just refers to the valuation of the company. Market capitalization = # of shares * price per share
International: Pretty self explanatory - international stocks.
Income: Assets such as bonds that give off a stable income

If I want to move the money I have in my Fidelity Freedom Funds into the Spartan funds, is that called exchanging or rebalancing?
Strictly speaking, that is always exchanging.
Rebalancing is the act of exchanging some of your funds for another because your asset allocation has deviated from your desired allocation by more than a threshold. I don't know what your current asset allocation is (because I don't want to look up the composition of the 2055 and 2050 funds), so I don't know if you're currently sitting at 80/20.

Does it cost to move the money between funds?
It shouldn't, but check the plan rules. Also, check if there are any applicable early redemption fees or back end loads on the funds. I don't think there are any back end loads on those funds, but it's possible there's an early redemption fee.

Do I have to wait until the Freedom funds are "up" to sell, then wait until the Spartan funds are "down" to buy (in other words, try not to lose money in the transaction)?
No. If you're exchanging between the funds because you want it to actually match your desired allocation of 80/20, then you should just change it right now (because I'm assuming the 2055 and 2050 funds are not 80/20).

What is the best way to move my money between funds?
Just log into your account and initiate the exchange.

Would the Fidelity® Blue Chip Growth Fund (FBGRX) be a better long-term investment over the Spartan 500 Index Fund? It has a higher 10-year return (9.15%) vs Spartan 500 Index (7.64%), but the ER for Blue Chip Growth Fund is .8% vs. Spartan 500 Index .07%. I would think the Spartan's low ER would win over time, but I'm not sure if the gains of the Blue Chip would be worth it (I would have to assume it would always stay that high).
The low ER is hard to beat over long periods of time. Also, FBGRX focuses on a subset of the total US stock market. Nobody knows if this subset is going to do better or worse than the total market. I unfortunately can't get my crystal ball to clear up. What I do know is choosing the Spartan 500 Index fund is going to get me a lot closer to average market performance (not quite the average, because it's missing mid and small caps. It's not something you should worry about if you don't have a mid+small cap index or a total market index available in your 401k or 403b, but if you do, you should consider using that too in a 4:1 ratio of S&P 500 index to mid+small cap index). And while we're taught in school to not settle for average....in this case shooting for average is great. Average performance is boring, but it will get you where you need to be. I don't recommend chasing funds that seem hot - they tend to regress to the mean.
« Last Edit: January 24, 2015, 11:34:25 PM by johnny847 »

ClaycordJCA

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Re: Exchange/Rebalance Fidelity Funds?
« Reply #2 on: January 24, 2015, 11:31:30 PM »
Well said, Johnny847. 

VioletVixen

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Re: Exchange/Rebalance Fidelity Funds?
« Reply #3 on: January 25, 2015, 12:41:18 AM »
So, a Total Stock Market Index fund is always better for diversification (and less risk) than just a Large-cap? The Large-Cap fund by itself is more volatile/risky than the TOTAL Stock Market Index fund because it's not as diversified?

These are the funds I have access to in my 403b:
https://www.fidelity.com/mutual-funds/index-funds/overview

For the 401k I am limited to these Stock Funds:
DOMINI SOCIAL EQ INV (DSEFX) 06/03/1991    Stock Investments    Large Cap    13.97%    19.01%    14.06%    6.60%    12/31/2014    
FID BLUE CHIP GR (FBGRX) 12/31/1987    Stock Investments    Large Cap    14.60%    23.58%    17.04%    9.15%    12/31/2014    
FID DIVIDEND GR (FDGFX) 04/27/1993    Stock Investments    Large Cap    11.87%    20.46%    14.15%    7.19%    12/31/2014    
FID FIDELITY FUND (FFIDX) 04/30/1930    Stock Investments    Large Cap    12.85%    19.28%    13.68%    7.44%    12/31/2014    
INVS DIVRS DIVD INV (LCEIX) 12/31/2001    Stock Investments    Large Cap    12.09%    19.21%    14.26%    8.07%    12/31/2014    
SPTN 500 INDEX ADV (FUSVX) 02/17/1988    Stock Investments    Large Cap    13.62%    20.36%    15.40%    7.64%    12/31/2014    
ARIEL FUND (ARGFX) 11/06/1986    Stock Investments    Mid-Cap    10.95%    24.53%    16.62%    7.16%    12/31/2014    
FID LEVERGD CO STK (FLVCX) 12/19/2000    Stock Investments    Mid-Cap    5.59%    22.49%    15.38%    9.22%    12/31/2014    
FID MID CAP STOCK (FMCSX) 03/29/1994    Stock Investments    Mid-Cap    7.11%    19.60%    15.59%    9.23%    12/31/2014    
SPTN EXT MKT IDX ADV (FSEVX) 11/05/1997    Stock Investments    Mid-Cap    7.71%    20.68%    16.81%    9.37%    12/31/2014    
FID STK SEL SM CAP (FDSCX) 06/28/1993    Stock Investments    Small Cap    3.46%    16.61%    15.62%    7.05%    12/31/2014    
NORTHERN SM CAP VAL (NOSGX) 03/31/1994    Stock Investments    Small Cap    7.07%    18.46%    15.54%    8.22%    12/31/2014    

So, I should go with the Spartan Total Market Index Fund for my 403b and add a percentage of mid/small cap options to my Spartan 500 401k? For the 401k bonds I have 20% in Invesco High Yield Fund R5 Class (AHIYX) because that seemed like the best choice among my options:

FID INTERMED BOND (FTHRX) 05/23/1975    Bond Investments    Income    3.31%    2.51%    4.23%    4.11%    12/31/2014
INVS HIGH YLD R5 (AHIYX) 07/11/1978    Bond Investments    Income    1.45%    8.67%    8.37%    7.31%    12/31/2014    
PIM EM LOCAL BD INST (PELBX) 12/29/2006    Bond Investments    Income    -6.27%    -1.12%    2.07%    4.62%    12/31/2014    
PIMCO TOT RETURN ADM (PTRAX) 05/11/1987    Bond Investments    Income    4.43%    4.00%    4.87%    5.72%    12/31/2014    


To summarize:

403b (currently):  80% Spartan® 500 Index Fund - Fidelity Advantage Class (FUSVX)  [ER: .07%]
                           20% Spartan® Long-Term Treasury Bond Index Fund - Fidelity Advantage Class (FLBAX) [ER: .1%]

403b (future): 80% SPTN TOT MKT IDX ADV (FSTVX)
                     20% Spartan® Long-Term Treasury Bond Index Fund - Fidelity Advantage Class (FLBAX) [ER: .1%] <--keep because of better ratings/ER  than the US Bond Index Fund (better return 7.6% vs. 4.37% for US Bond Index Fund)?


401k (currently): 80% Spartan® 500 Index Fund - Fidelity Advantage Class (FUSVX)  [ER: .07%]
                          20% Invesco High Yield Fund R5 Class (AHIYX)

401k (future): 80% (Spartan® 500 Index Fund+ ? % mid and small-cap funds)
                      20% Invesco High Yield Fund R5 Class (AHIYX)

Currently, my Fidelity Freedom funds appear to be a blend of 92% stocks and 8% bonds. Is there ever a benefit to just using a "blended" fund vs. trying to customize and "blend" one yourself?

Thanks for the detailed responses, Johnny847!

johnny847

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Re: Exchange/Rebalance Fidelity Funds?
« Reply #4 on: January 25, 2015, 01:51:03 PM »
Yup, total stock market is better for diversification. I wouldn't say it's got less risk - in fact, it's probably more risky because mid and small caps tend to get hit harder during market downturns. But by the same token, they tend to do better than large caps in bull markets.

Honestly, while it's nice to say oh you should add some small and mid caps to complete the total market index.  It may not be worth the trouble of managing that. It's up to you really. Since you have a total market fund in your 403b, I'd go with that. In your 401k....*shrug* It's up to you

If you had freedom of choice, I'd go with a total US bond market index. But, an ER difference is generally more important than the fact that a long term treasury bond index is only invested in US treasuries (and long term ones at that). We buy bonds to get stability, not to chase returns (not to say that there haven't been periods where bonds have performed really well).

Keeping your holding of flbax looks good to me. As for your 401k bond holding....why not just get rid of it, and then increase the bond allocation in your 403b? You should consider all of your accounts as one big portfolio, that just happens to be held in a couple buckets. All you want to have is 80/20 stocks/bonds, but that doesn't mean each bucket has to be 80/20.

I'm guessing your 401k and 403b balances are roughly equal. In that case, I'd go with
403b:
60% FSTVX, fidelity spartan total market index, ER .07%
40% FLBAX, fidelity spartan long term treasury, ER .1%

401k
100% Spartan 500 index (chosen for simplicity - but you can split this off into 80% 500 index and 20% FSEVX - spartan extended market index (this is "completion index" that combined with the 500 index in an approximatley 4:1 ratio, will give you the total market index))

This way you're still 80% stocks and 20% bonds, but your overall weighted ER (again, assuming your 401k and 403b balances are roughly equal) is 0.5*.07 + 0.3*.1 + .5*.07 = 0.059%, as opposed to your current plan, which has a weighted overall ER of 0.4*.07+.1*.1+.4*.07+.1*.66 = 0.132%

The benefit to using a "blended" fund as opposed to doing it yourself is that you don't have to rebalance - the fund will do that for you. For people who truly want to set and forget, and never have to worry about anything, then this is good. I'd argue that for not much more effort you can do better, but if it's either a target date fund or nothing, a target date fund is certainly better than not investing at all.
However, in a taxable account, that also means that you can't tax loss harvest as effectively (I realize we're not talking about taxable accounts, but I just thought I'd throw that out there for your benefit). And of course like I discussed earlier, it throws of bond interest that is always taxed at your normal rate when held in a taxable.

VioletVixen

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Re: Exchange/Rebalance Fidelity Funds?
« Reply #5 on: January 25, 2015, 08:25:05 PM »
Okay, so this is what I've done for FUTURE contributions (I have not exchanged anything yet):

403b:
60% FSTVX, Fidelity Spartan Total Market Index, ER .07%
40% FLBAX, Fidelity Spartan Long Term Treasury, ER .1%

401k:
80% FUSVX Spartan 500 Index
20% Spartan Extended Market Index

My accounts are not equal. 403b is ~$6000, 401k is ~$3,000. Does this make a difference in the above percentages? What is the formula I can use to make sure I am always keeping the ratio of stocks/bonds that I want across all of my "buckets"?

Right now, this is how my money is distributed:

403b:

96.04%   FID FREEDOM 2055
           $5,705.85   
3.16%   SPTN 500 INDEX ADV
          $187.97   
0.79%   SPTN LT TR IDX ADV
          $46.99      

401k:

100.00%   FID FREEDOM 2050
                $2,997.95   

I am not sure how to exchange my money from the Freedom funds into the new funds. You said before that this does not have to be 'timed' with the market, but isn't this still considered 'selling' my shares from the Freedom funds and 'buying' shares from the new funds? If that's the case, isn't it possible to lose money if I sell my Freedom fund shares when they are 'down' and buy the new shares when they are 'up'? Are there any taxes/fees associated with exchanges (aside from selling certain shares before 90 days have passed)?

How vigilant do I have to be when it comes to rebalancing? How do I know if I need to rebalance? Are there any calculators/equations that can help me determine when I need to rebalance?

As far as the FLBAX fund is concerned; are you saying that this fund is not as diverse (is more risky) than the US Bond Market Index fund? But that the lower ER of the FLBAX 'wins' even if it has more risk? I thought long-term bonds were safer?

Thanks for your help!

johnny847

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Re: Exchange/Rebalance Fidelity Funds?
« Reply #6 on: January 26, 2015, 06:45:11 PM »
My accounts are not equal. 403b is ~$6000, 401k is ~$3,000. Does this make a difference in the above percentages? What is the formula I can use to make sure I am always keeping the ratio of stocks/bonds that I want across all of my "buckets"?
Yes it absolutely makes a difference in the percentages. You've got $9000 total. you want 20% of that in bonds, so that's $1800. So exchange your funds such that you have $1800 of your 403b in FLBAX. Allocate the rest of your 403b to FSTVX (so that would be $4200).
As for the 401k, because it would only be US stocks, 80%/20% FUSVX/Spartan extended market in the 401k funds would still be correct.

So the breakdown, by percentage of each bucket:
403b:
30% FLBAX
70% FSTVX

401k:
80% FUSVX
20% Spartan extended market index

But what's actually important is the breakdown by percentage of total investments
403b:
20% FLBAX
46.67% FSTVX

401k:
26.67% FUSVX
6.67% Spartan extended market index

So if all funds grew at the same rate, then for every dollar you want to put into a retirement account, you'd have to distribute it as above. Of course, these funds will not grow at the same rates. So you will need to rebalance (addressed next).

I am not sure how to exchange my money from the Freedom funds into the new funds. You said before that this does not have to be 'timed' with the market, but isn't this still considered 'selling' my shares from the Freedom funds and 'buying' shares from the new funds? If that's the case, isn't it possible to lose money if I sell my Freedom fund shares when they are 'down' and buy the new shares when they are 'up'? Are there any taxes/fees associated with exchanges (aside from selling certain shares before 90 days have passed)?
This is irrelevant. You're not meeting your target allocation. You should strive to meet your target allocation, within a certain tolerance. This "loss," if any, is a sunk cost.
There are no tax consequences for sales of funds in a retirement account (other than possibly causing a wash sale in a taxable account - if you don't know what this is don't worry about it).
With respect to fees, I've answered this before - look up if there are any redemption fees.

How vigilant do I have to be when it comes to rebalancing? How do I know if I need to rebalance?
Choose a rebalancing scheme. I describe some of them here on my blog, at the end of the post: https://fiby40.wordpress.com/2015/01/10/investment-principles-part-2/

Are there any calculators/equations that can help me determine when I need to rebalance?
There may be ones that keep track of your funds value for you...but just do it yourself. Add up the value of your stock funds, divide by total investments, see if it is close enough to your threshold.

As far as the FLBAX fund is concerned; are you saying that this fund is not as diverse (is more risky) than the US Bond Market Index fund? But that the lower ER of the FLBAX 'wins' even if it has more risk? I thought long-term bonds were safer?
It is not as diverse as a US bond market index fund. That doesn't mean it's more risky - it's probably less risky, as US Treasuries are regarded as a virtually risk free investment.
Long term bonds are more prone to inflation risk - if there is high unexpected inflation, then inflation is going to eat into the real returns of bonds. With long term bonds, you're stuck with low interest rates for longer.
All I'm saying is the fact that you've only got long term US treasuries in the FLBAX fund as opposed to a total bond market index is a downside, but the fact that it's got a much better ER than your previous alternate of AHIYX with an ER of 0.66% is far more important. I really shouldn't have brought this up, it's not that big a deal.

VioletVixen

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Re: Exchange/Rebalance Fidelity Funds?
« Reply #7 on: January 29, 2015, 11:19:14 PM »
Thanks for the clarification!

I rebalanced according to your suggestions:

Buckets-

403b:
30% FLBAX   ER .1%
70% FSTVX   ER .07%

401k:
80% FUSVX  ER .07%
20% FSEVX  ER .07

% Total Investment-

403b:
20% FLBAX
46.67% FSTVX

401k:
26.67% FUSVX
6.67% FSEVX


So, does this make my weighted ER (.20 x .1) +(.4667 x .07) + (.2667 x .07) + (.0667 x .07)= .02+.033+.019+.005= .077?