Retirement investment strategies and asset allocation?

ZortlePunch

ZortlePunch

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Hi everyone,

I’m just starting out as an investor and looking to build a strong financial foundation for myself and my future family. I’d love to hear any tips or advice on how to choose investments and divide assets wisely.

Right now, I’ve invested in the Fidelity Freedom Fund (FDKVX) based on recommendations, and I’ve also started putting money into the Fidelity 500 Index Fund (FXAIX).

My main goal is to grow my investments steadily over time through compounding, but I’m also curious about strategies that might lead to faster returns, if possible.

I’m still learning the ropes, so any guidance would be greatly appreciated!

Thanks so much!
 
Looks like you’re off to a great start!

What tax-advantaged retirement accounts do you have access to? If you share your details in the standard format for this community, you’ll probably get more tailored advice.

Also, be cautious with terms like 'accelerated returns'—it’s just a marketing buzzword. Higher-than-market returns always come with higher risk, often unnecessary or unwise risks. Your best bet is to stick with index funds and choose an asset allocation that matches your goals and risk tolerance.
 
Unfortunately, you’re invested in the 'Fidelity Freedom Fund,' which is actively managed and has a 0.75% expense ratio, not the 'Fidelity Freedom INDEX Fund,' which is a low-cost passive index fund.

If this is held in a tax-advantaged account like an IRA or 401(k), I’d recommend switching to the index fund as soon as possible.
 
FDKVX is costly, with a 0.75% expense ratio.

Take a look at the expense ratio for FXAIX and compare it.
 
I'm using my Rollover IRA account for both the Fidelity 500 Index Fund and the Fidelity Freedom 2060 Fund. I also have a Roth IRA.

The expense ratio for FXAIX is 0.015%, while the expense ratio for FDKVX is 0.75%.
 
ZortlePunch said:
Right now, I’ve invested in the Fidelity Freedom Fund (FDKVX) based on recommendations, and I’ve also started putting money into the Fidelity 500 Index Fund (FXAIX).
Click to expand...

Alright, here’s the deal. Fidelity offers both Freedom funds and Freedom Index funds (I know, the names are a bit tricky). The Freedom funds are actively managed and have higher expenses, while the Freedom Index funds are what we recommend because they come with much lower costs. For example, the Freedom Index 2060 is FDKLX, with an expense ratio of 0.12%, compared to the 0.75% for the regular Freedom fund. That’s a significant difference.

FDKLX - Fidelity Freedom ® Index 2060 Fund Investor Class | Fidelity Investments

Analyze the Fund Fidelity Freedom ® Index 2060 Fund Investor Class having Symbol FDKLX for type mutual-funds and perform research on other mutual funds. Learn more about mutual funds at fidelity.com.
fundresearch.fidelity.com
 
Should I move my investment from FDKVX to FDKLX?

Aside from the lower cost, could you explain why this might be a better option?
 
Cost is key. Lower costs are the biggest factor in a fund outperforming its peers. Higher investment costs can really slow the growth of your savings.

Target date funds are a solid default option and could work well for you. My general advice would be to switch to the Freedom Index fund that aligns with your risk tolerance, even if it’s not the one closest to your retirement date. Using the template I linked earlier to ask about your portfolio could help you get more specific advice than just the general kind.
 
Emergency Fund: Yes, I have 6+ months of expenses saved.

Debt: Yes, I have a car loan and student loan.

Tax Filing Status: Single

State of Residence: Indiana

Age: 33

Desired Asset Allocation: I’m thinking 70% stocks / 30% bonds, but I'm unsure.

Desired International Allocation: Unsure of the percentage of stocks.

Total Portfolio Size: Less than $30K, with $600/month going into the account.

Current Retirement Assets:

Rollover IRA

  • Cash (Held in Money Market): 84.37%
  • FDKVX (Fidelity Freedom 2060 Fund): Expense Ratio: 0.75%, 8.68% of account
  • FXAIX (Fidelity 500 Index Fund): Expense Ratio: 0.015%, 6.95% of account
Roth IRA

  • Cash (Held in Money Market): 100%
I’m sure I’m missing some details, though.
 
Great start! Also, don’t forget to explore the wiki for more educational resources.

As you mentioned, it’s challenging to determine the right allocation, especially early in your career when you haven’t experienced significant market drops. Vanguard recommends a quiz to help with finding a suitable allocation. I would consider 70/30 a conservative approach for your age. Target date funds discussed above typically allocate closer to 90% in stocks for someone planning to retire around 2055-2060.

There’s nothing wrong with picking a target date index fund that aligns with your desired allocation. You can hold it in both a regular and Roth IRA. Since this is a DIY forum, it's more common and tax-efficient here to split your portfolio into separate stock and bond/cash buckets by buying separate funds for each. You can fill your Roth IRA entirely with stock funds and allocate bond funds to your traditional IRA. Use any remaining space in the traditional IRA for additional stocks.

A couple of other questions for you:

  • What’s the interest rate on your loans? This could affect whether you should focus on paying them off faster or investing.
  • What’s your current tax bracket? This can help determine whether contributing to a traditional or Roth IRA is more beneficial for you.
 
Thanks a lot for your help!

I think my main challenge is figuring out what to focus on when investing. I want to invest in a way that's smart and doesn't require constant attention—just let it grow until I need it. But a big obstacle for me is deciding which funds to pick.

Here are my answers to your questions:

  1. How much interest are you paying on your loans? This can help decide whether it's better to pay them off faster or invest.
  • I’m paying 4% on my car loan and between 8-10% on my student loans.
  1. What’s your tax bracket? This will influence whether you should contribute to a Roth or Traditional IRA.
  • I think I'm in the 24% tax bracket.
 
Get that cash in your Roth IRA working for you! Personally, I’m confident in the long-term growth of the American economy, so I’d put it all into a low-cost S&P 500 index fund.

The most important factor here is keeping costs low. Beyond that, focus on living within your means—skip buying coffee at Starbucks and make your own. Save as much as you can to invest.

At 33, you’ve got plenty of time to let your retirement funds grow. Right now, I’d go all-in on something like VOO or VTI.

And remember, there’s no such thing as “quick returns” unless you create them yourself.
 
Lunk_5G said:
At 33, you’ve got plenty of time to let your retirement funds grow. Right now, I’d go all-in on something like VOO or VTI.
Click to expand...
Thanks for your advice! Should I put all my Roth IRA into VOO or VTI, or just a portion since they’re doing well? I keep seeing people on Reddit recommend these, and I’d love to understand why!
 
For Bogleheads, choosing the right funds is often the easiest part of the process. Once you’ve decided, for example, that you want 70% of your portfolio in US stocks, you can just pick one of the few broad market, low-cost index funds. There aren’t a lot of options, and the ones available are quite similar. For instance, at Fidelity, you could choose FSKAX or FXAIX, and that could be the only US stock fund you ever buy (ignoring some considerations if you also have a taxable account).

With a 24% tax bracket, you might not qualify to contribute to a Roth IRA, and it could be more beneficial for you to focus on contributing to a traditional IRA instead.

Do you have any chance of loan forgiveness? If not, I’d highly recommend making extra payments on your student loans. That’s essentially a risk-free return of 8-10%.

Lastly, and this may seem obvious but is often overlooked—your savings rate is the biggest factor in wealth accumulation for most people.
 
ZortlePunch said:
Thanks for your advice! Should I put all my Roth IRA into VOO or VTI, or just a portion since they’re doing well? I keep seeing people on Reddit recommend these, and I’d love to understand why!
Click to expand...
Great question! The short answer is that you're tapping into the strength of the American economy. Stocks can go up and down, but a well-diversified portfolio has generally increased in value over time. So, it works. On the other hand, cash just loses value over time due to inflation.
 
The most important step is to move out of your current high-fee fund. VOO would be a great option. It’s an index fund that tracks the S&P 500.
 
Note: I’ve switched from FDKVX to FDKLX, so that’s all set! Thanks for the help!

As for VOO, with Fidelity, I’m not sure how to place an order since the layout is quite different from a fund layout 🫨

Borklum78 – Thanks for the advice! I’ll focus on paying off the loans and check out the link you shared!
 
It doesn't necessarily need to be VOO—I'm just not too familiar with the options at Fidelity. I think FXAIX would be a similar mutual fund. FDKLX works, but it's a bit on the conservative side for someone your age.
ZortlePunch said:
Note: I’ve switched from FDKVX to FDKLX, so that’s all set! Thanks for the help!

As for VOO, with Fidelity, I’m not sure how to place an order since the layout is quite different from a fund layout 🫨

Borklum78 – Thanks for the advice! I’ll focus on paying off the loans and check out the link you shared!
Click to expand...
 
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