Helping buddy (early 20's) with retirement

[ECrew28]

I have a buddy in his early 20's that is looking to open a Roth IRA.  He opened an account at Fidelity and funded it with $1000.00.  He plans on contributing $50 a month to start.  He is a full time coach, and with the uncertainty of things, I need some options to give him for investments.  He is in for the long term (has an emergency fund and still lives at home).  Any guidance? 

[terran]

Fidelity Freedom Index 2065 Fund - FFIJX

[MustacheAndaHalf]

The fund terran mentioned has a low expense ratio (0.12%) and aims to adjust things ~45 years from now as your friend approaches retirement.  In one fund, it not only invests in U.S. and international stocks, but it moves towards bonds based on their age.  Risk when it's the right choice, and safer bonds when that's the right choice.  To stay invested in thousands of stocks around the world and various bonds, the fund consumes $1.20 per year on that $1,000 investment.

[jc4]

I like that answer. It's the easiest he's going to get, and relatively safe considering he's not doing this himself. He wouldn't do any better if he were though.

Mainly comenting to say, thanks for helping out your friend. Things go better when we look out for each other.

[Tyler durden]

FCNTX - Fidelity Contra fund run by Will Danhoff. Tell him his only job is to check the website once or twice per year to make sure Will Danhoff is still the manager. If he leaves as the fund manager then go with the above and buy the freedom fund.

There is a herd mentality especially on websites like this that the only thing you can do is invest in index funds and everything else is garbage. Don't listen to that. It takes minimal effort to find high quality funds.

[John Galt incarnate!]

FCNTX - Fidelity Contra fund run by Will Danhoff. Tell him his only job is to check the website once or twice per year to make sure Will Danhoff is still the manager. If he leaves as the fund manager then go with the above and buy the freedom fund.

There is a herd mentality especially on websites like this that the only thing you can do is invest in index funds and everything else is garbage. Don't listen to that. It takes minimal effort to find high quality funds.

I'm a fan of Danhoff and FCNTX.

IIRC,  a few years ago in December the fund distributed a LTCG of ~$10 per share.

*Prior to that distribution I gradually sold out of FCNTX into FSKAX  for its tax efficiency.

*I did not anticipate the ~$10 per share LTCG. 

Selling out of FCNTX was just the way part of my financial plan worked out.

[Tyler durden]

Contra definitely not ideal to be held in taxable accounts, as you said its notorious for large capital gains payouts. All though with that performance record maybe I wouldn't mind so much...

Not sure how people look at a fund like FCNTX and still ignore it and preach index... ill never understand that all or nothing mentality.

[UnleashHell]

Contra definitely not ideal to be held in taxable accounts, as you said its notorious for large capital gains payouts. All though with that performance record maybe I wouldn't mind so much...

Not sure how people look at a fund like FCNTX and still ignore it and preach index... ill never understand that all or nothing mentality.

try doing a graph of FCNTX and the s&P.

there is very little difference in the graph - except that the s&P ends up 3% higher...

why look at FCNTX and think its worth investing it?? may as well just go with a vanguard S&P fund. I'll never understand that desperation to clutch at straws in order to be different...

[MustacheAndaHalf]

Strongly agreeing with UnleashHell, without even looking.  Years ago I thought Fidelity Contrafund was a great idea, until I noticed it tended to drop when the stock market dropped.  Not very contrarian!  When I graphed it against the S&P 500, there was almost no difference.  Save your money and buy the same thing for less.

[Tyler durden]

The CONRTA fund is not a contrarian fund. Read the prospectus.

Look I've read this forum for awhile, I know the pervailing wisdom that nothing can beat an index fund. Its hard to let go of your religious like belief in your index funds, i get it. And dont get me wrong I like index funds and use them. They are phenomenal in taxable accounts.

As to the facts, because facts matter and are stubborn things...

10 year Contra Fund perfomrance vs Sp 500 - Contra = 13.49% ( NET OF FEE ) SP 500 = 11.67%

10 years not long enough for you? How about 15 ?

15 year performance Contra fund = 11.00% ( NET OF FEE ) vs SP 500 = 8.47%

These numbers are through 4/30/2020 from Morningstart.

[J Boogie]

Contrafund seems pretty redundant if you could just buy a Nasdaq index fund. If you want to beat the s&p, the nasdaq is the easiest way.

Contrafund is similar to the nasdaq in that it is large cap tech heavy. But the fund manager(s) seem to engage in plenty of put options/inverse hedges during periods of volatility that causes them to be up when the market is down and down when the market is up. So there seems to be some market timing involved in the strategy and my impression is that the qqq is a more reliable option for beating the s&p.

[Tyler durden]

Yeah Contra fund is pretty tech heavy. I looked at the composition just now and its got an 8% overweight to tech compared to the SP 500. I don't recall if its always been tech heavy, but it is a large growth fund, not even a blend so it certainly favors that.

I like your thought process though. If one has confidence tech will do better, chuck some money into the QQQ's and enjoy.

To the OP - one more thought is the Fidelity four in one index. Blends 3 stock index funds at 85% and 15% in a bond index. Might not be a bad choice if he wants to hedge a bit with some bonds. I haven't tracked performance or owned that fund in years but I recall it did fairly well and was low cost.

[MustacheAndaHalf]

Look I've read this forum for awhile, I know the pervailing wisdom that nothing can beat an index fund. Its hard to let go of your religious like belief in your index funds, i get it. And dont get me wrong I like index funds and use them. They are phenomenal in taxable accounts.

Where are you seeing everyone agree that "nothing can beat an index fund"?
Claiming that's prevailing wisdom seems like a straw man argument you invented.

Since you brought up facts, here's the 15 year performance of the total stock market versus active funds:
https://www.spglobal.com/_assets/documents/corporate/us-spiva-report-11-march-2019.pdf#page=9
The total stock market beats 89% of active funds, which is neither religion nor religious belief.  It's a measurement.

[UnleashHell]

and the Vanguard large value growth fund VIGRX beats the contrafund - with lower fees.

the thread is for the OP to give advice to someone else early in their investing career.
Keep it simple. S&P or total market to start with. They want to get more involved then maybe they investigate themselves then maybe the different funds become more suitable.

[Tyler durden]

and the Vanguard large value growth fund VIGRX beats the contrafund - with lower fees.

the thread is for the OP to give advice to someone else early in their investing career.
Keep it simple. S&P or total market to start with. They want to get more involved then maybe they investigate themselves then maybe the different funds become more suitable.

That sounds like a fair compromise. You can not go wrong with the index fund tracking SP 500 or Total market. If the investor is so inclined they can research some active funds.

[MustacheAndaHalf]

and the Vanguard large value growth fund VIGRX beats the contrafund - with lower fees.

According to Morningstar's data, Fidelity Contrafund is 92% large caps (5% value, 25% blend, 62% growth).  That and it's P/E of 23 both point to it being a large cap growth fund.  Annual expense ratio 0.85%:
https://www.morningstar.com/funds/xnas/fcntx/portfolio

Vanguard Large Growth is 86% large caps (5% value, 30% blend, 51% growth) with a P/E ratio of 23.5 (expense ratio 0.04%):
https://www.morningstar.com/etfs/arcx/vug/quote

The two are apparently 0.96 correlated, according to Portfolio Visaulizer:
https://www.portfoliovisualizer.com/asset-correlations?s=y&symbols=FCNTX+VUG&timePeriod=2&tradingDays=60&months=36

[Tyler durden]

Are those stats current or all time ? I could be wrong but the fund does usually have some international exposure as well.