Fidelity Target Date Retirement Portfolios, Will The Freedom Funds Give You Freedom?

Fidelity Freedom Funds

 

Fidelity Target Date Retirement Portfolios can be built with 5-6 ETFs. They are exposed to between 40% and 100% equities. They have low-risk portfolios and high-risk portfolios.

For the past 10 years, the Fidelity Freedom Index 2050 portfolio has returned 10.10% with a standard deviation of 15.47%. The dividend yield is 2.11. The 30-year return is 8.77%. Year to date the Fidelity Freedom Index 2050 portfolio has returned 5.51%.

How do you build the Fidelity Freedom Index portfolios with ETFs?

This is for the Fidelity Freedom Index 2050 (35 years old)

  • 62.11%  US Total Stock Market
  • 26.58%  International All-World ex-US stocks
  • 9.97%    Total US Bond Market
  • 0.02%    Cash (money market fund)
  • 1.32%    Commodities

You can find the asset allocation for the rest of the portfolios below.

What is the return of the Fidelity Freedom Index portfolios?

NameAsset class countYear to dateReturn in 201910 year returnCAGR since 1989 (%)Risk levelExpense ratio
Fidelity Freedom Index 2030 (55 year old)65.6723.09.05%8.4820.05%
Fidelity Freedom Index 2040 (45 year old)55.5125.9310.10%8.7730.06%
Fidelity Freedom Index 2050 (35 year old)55.5125.9310.10%8.7730.06%
Fidelity Freedom Index 2060 (25 year old and younger)55.5125.9310.10%8.7730.06%

Fidelity Target Date Retirement Portfolios, Will The Freedom Funds Give You Freedom?

Fidelity is a well know mutual fund provider. Fidelity is a privately owned company being the 4th largest in assets under management.

They offer a slew of target-date retirement funds. They have two broad categories of target-date funds. One is passive (indexed) and one is active. We focus on the passive target-date portfolios in this article.

Fidelity is featured in the book Fidelity’s World: The Secret Life and Public Power of the Mutual Fund Giant.

fidelitys-world

Description of Fidelity target-date retirement portfolios

Fidelity’s Freedom Funds are simple to compare in contrast to other target-date funds. They are also very cheap to buy as a one-fund solution.

They are slightly cheaper than a comparable Vanguard target-date retirement fund. The 2060 target-date fund from Fidelity carries a 0.12% expense ration while the comparable 2060 Vanguard target-date fund carries a 0.15% expense ratio. This comes out to a $30 difference per year per $10,000 invested.

There is one more interesting thing about the funds.

The interesting thing about the Fidelity Freedom Funds is their glide path. The funds hold off much longer with taking on bonds. This means that the funds are allocated more to stocks for longer. This should equal higher returns in the end as bonds have had a lower return historically than stocks.

This of course also adds more risk and more volatility. This should be a non-issue as they are target-date retirement funds and you shouldn’t care about them until retirement. Reality is far different, however. Many people will get queezy when they see their retirement savings diminish.

fidelity-freedom-funds-allocation

This chart is a few years old but it is a good representation of how the Fidelity Freedom Funds manages to hold off going into bonds.

Notice that their 2060 fund holds 10% in bonds? If they had even more courage they would go 100% into stocks as for each 10% allocation to bonds roughly create an approximate 0.5% drag on returns while not supplying any meaningful stability to the portfolios.

A 100% stock allocation experienced a 37.07% drawdown during 08′-09′. A 90/10% stock/bond allocation experienced a 32.83%

You can see their glide path progression here with a nice slider.

Note: Fidelity has changed the composition of their target-date funds. They no longer include for example commodities. This will be corrected in the near future.

Disclaimer: These are target-date funds. By design, their asset allocation will change over time. In general, target-date funds shift more of their assets towards bonds as you age to lower your risk. This means that the asset allocation below will have changed until we update it here at portfolioeinstein.com. This information on these funds was collected in 2018.

Asset Allocation of Fidelity target-date retirement portfolios

Note: Please check the fund prospectus for the exact asset allocation and funds to use.

We benchmarked these portfolios in 2018. Their allocation have changed since then so make sure you check up on them!

Fidelity Freedom Index 2030 (55 years old)

  • 51.46%  US Total Stock Market
  • 22.11%  International All-World ex-US stocks
  • 24.03%  Total US Bond Market
  • 0.05%    Cash (money market fund)
  • 1.29%    Commodities
  • 1.06%    TIPS

Fidelity Freedom Index 2040 (45 years old)

  • 62.11%  US Total Stock Market
  • 26.58%  International All-World ex-US stocks
  • 9.97%    Total US Bond Market
  • 0.02%    Cash (money market fund)
  • 1.32%    Commodities

Fidelity Freedom Index 2050 (35 years old)

  • 62.11%  US Total Stock Market
  • 26.58%  International All-World ex-US stocks
  • 9.97%    Total US Bond Market
  • 0.02%    Cash (money market fund)
  • 1.32%    Commodities

Fidelity Freedom Index 2060 (25 years old and younger)

  • 62.11%  US Total Stock Market
  • 26.58%  International All-World ex-US stocks
  • 9.97%    Total US Bond Market
  • 0.02%    Cash (money market fund)
  • 1.32%    Commodities

Check the best mutual funds and ETFs here.

Resources for Fidelity target-date retirement portfolios

See a comparison of target-date funds in our article What Is The Best Target Date Fund?

Learn way more about target-date funds in our article Target Date Fund Portfolios

Fidelity has a few podcasts, most provide good financial information.

 

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