Fidelity Portfolio Advice?

Question

My company offers a 401k through Fidelity. I'm 28 years old and have not previously invested in a 401k. Can anyone suggest a good, simple portfolio through Fidelity? Thanks in advance!

Answer 1

My company also offers 401(k)s through Fidelity, so I'm looking at their site in another window.

Fidelity offers 31 different investment choices (at least in the program they provide for my employer). As a very general rule, look at the cumulative return for each of these options and choose the ones with the higher values. However, the higher return funds also have the risk of higher losses, because they're made up of companies that may be more volatile -- that's why they go up, but they may also go down.

At your age, you have 30+ years before you can start withdrawing from your 401(k), so you can afford to shoot for the higher-risk funds with some of your money and put less of it in the lower-risk funds.

The lowest risk fund is Fidelity's Managed Income fund, which is a bond-backed fund that is guaranteed never to lose money. It's currently returning less than 4%, so it's not a good place for growth, only for safety. The best return this year has been Fidelity Diversified (FDIVX), which has returned about 17% this year.

If you're looking for a simple rule of thumb, you might consider something like this: Pick one fund from each of the main categories -- small-cap, medium-cap, and large cap -- and put 25% of your contribution in each, then put the last 25% in the Managed Income fund for safety. Pick the highest-earning funds from each of those categories, because they all have varying strengths and weaknesses. (Short version: small-cap funds tend to have higher swings in value, both up AND down; large-cap funds tend to stay up more but can still drop; medium-cap funds split the difference.)

But only you can decide your threshhold of acceptable risk. Earlier this year my mutual funds were whipsawing back and forth at an alarming rate -- in daily gains and losses in the thousands. Too scary for me, so I pulled back a lot into the Managed Income. That was smart in May, but I've left a fair amount on the table since the Dow hit its record highs. Still, I'm not losing money so rapidly either, and since I turned 50 earlier this year, it's time for me to start thinking more about conserving and less about rapid growth. However, at 28, you can afford some high-risk action -- if you want to.

The most important thing, though, is to contribute to your 401(k) at whatever rate gets you the maximum contribution from your employer. THAT is the key -- make sure they match you however their program is set up. I believe that Fidelity will, by default, put your money in their Managed Income (low-gain but no loss) fund, but you can do a lot better.

And, through their Web site, you can change your investments at any time, so if you decide that a fund is looking doggy you can drop out of it and put your money somewhere else. With time and a little attention, you can do a reasonable job of growing your retirement money, and believe me, there is NOTHING quite as comforting as seeing the 401(k) grow.

Answer 2

Navigating through the 401k.com site can be daunting for a new user.

The first step in investing is knowing your risk profile. They provide a tool that gives you 6-8 questions to answer.

Based on you profile, you can choose from different portfolio mix.
Aggressive: More stocks or growth strategy
Moderate: : Balance between, stocks and bonds
Conservate: More bonds: or income strategy.

If it's too much, you should be able to call in the officer and a consultant will walk you through the process.

Hope this helps.
"Investing is the only way to accumulate wealth"

Answer 3

At your age you should be investing mostly in stock funds. Get a broad-based fund, like an S&P 500 index fund. Call Fidelity and ask them to send you some of their literature or get it from your HR department.