Exploring Fidelity's 403(B) Investment Options: Making Changes

A 403(b) is a tax-advantaged retirement plan available to employees in healthcare, education, and other tax-exempt organisations. It allows employees to set aside money for retirement from their paychecks and invest their contributions in assets like mutual funds and annuities. While 403(b) plans are less common than 401(k)s, they are still powerful tools for retirement savings, offering many of the same benefits. This article will discuss how to change 403(b) investing options on Fidelity.

Picking a single fund option

Target date funds are a good choice if you are planning for retirement in the long term. These funds are managed with a focus on a specific retirement year. For example, if you plan to retire in 30 to 35 years from 2025, you could choose a fund with a target retirement date of 2055 or 2060. The fund will invest in a mix of investments suitable for that time frame and will become more conservative as the target date approaches, usually by reducing stock investments and increasing investments in bonds.

On the other hand, target allocation funds provide a diversified portfolio of investments across various asset classes, including stocks, bonds, and short-term investments. These funds are based on your risk tolerance and time horizon. If you are unsure about your risk tolerance, it is a good idea to assess your comfort level with market volatility and the potential for losses.

When choosing a single fund option, it is important to consider your investment goals and time horizon. If you are saving for retirement, a target date fund can be a good choice as it automatically adjusts its investment mix over time. However, if you are more concerned about short-term gains and are comfortable with higher risk, you may want to consider other options or consult with a financial advisor to discuss your specific situation.

Additionally, it is worth noting that while a single fund option simplifies your investment strategy, it may not be the most optimal choice for everyone. If you have a complex financial situation or desire more personalized attention, you may benefit from a managed account service, where a team of professionals can create and manage a portfolio tailored to your needs. This service comes with a fee, but it can provide you with a more customized investment strategy that takes into account various factors, such as your workplace savings, financial goals, and other sources of retirement income.

Remember, investing for retirement through a 403(b) plan is a long-term commitment, and it's important to carefully consider your options before making any decisions.

Target date funds

TDFs are diversified mutual funds with a portfolio consisting of stocks, bonds, and/or cash equivalent assets. The defining characteristic of TDFs is their glide path, which is the planned schedule for changes in asset weightings over time as the fund approaches the target date and beyond. The glide path determines how frequently and by how much the stock weighting decreases. TDFs are designed to become more conservative as the target date nears, usually by reducing the level of stock investments and increasing investments in bonds.

When choosing a TDF, investors typically select a fund with a date that matches or is close to their expected retirement year. For example, if you plan to retire in 30 or 35 years from 2025, you could choose a fund with a target retirement date of 2055 or 2060. The fund will then invest in a mix of assets appropriate for that time frame.

It's important to note that TDFs are not a one-size-fits-all solution. While they are designed to reduce the complexity of investing, there are still important considerations to keep in mind. TDFs make the assumption that everyone at the same age has the same investment risk tolerance, which may not be the case. Additionally, TDFs do not take into account individual risk tolerance levels or differences in retirement resources, such as pensions or Social Security.

When selecting a TDF, it's crucial to consider factors such as the fund's objective, composition, investment style, historical performance, and fees. Reading the fund's prospectus is essential to understanding these factors. It's also important to compare TDFs with other investment options, such as index funds, and to stay involved by tracking the fund's performance and reading updated prospectuses.

Target allocation funds

Fidelity offers seven Asset Manager® target allocation funds, with varying levels of equity exposure, ranging from conservative (20%) to aggressive growth (85%). The specific fund chosen depends on the individual's risk tolerance, time horizon, and investment goals. For instance, the Fidelity Asset Manager 20% maintains an equity allocation of around 20%, catering to investors who are less comfortable with risk or have a shorter time horizon. In contrast, the Fidelity Asset Manager 85% maintains an equity allocation of approximately 85%, targeting those more comfortable with risk and a longer time horizon.

A key advantage of target allocation funds is that they provide exposure to multiple asset classes through a single fund, simplifying the financial picture for investors. This diversification helps to manage risk and potentially enhance returns. Additionally, these funds leverage Fidelity's expertise in asset allocation and security selection, offering a convenient option for individuals who may not have the time or expertise to build and adjust their investment portfolios actively.

It is important to note that while target allocation funds provide a convenient investment strategy, they do not guarantee profits or protection against losses. Before investing, individuals should carefully consider the funds' investment objectives, risks, charges, and expenses, and consult the fund's prospectus for detailed information.

Asset allocation funds

Fidelity offers a range of asset allocation funds, including the Fidelity Asset Manager funds, which are diversified single-fund strategies. These funds provide exposure to multiple asset classes, including domestic and international stocks, investment-grade and high-yield fixed income, and short-term investments. The specific equity exposure of these funds ranges from conservative (20%) to aggressive growth (85%). For example, the Fidelity Asset Manager 20% maintains an equity allocation of around 20%, while the Fidelity Asset Manager 85% maintains an equity allocation of approximately 85%.

When choosing a Fidelity Asset Manager fund, it is essential to consider your risk tolerance, time horizon, and investment goals. Stocks are generally considered more volatile than bonds or short-term investments. Therefore, investors who are less comfortable with risk or have a shorter time horizon may prefer the Fidelity Asset Manager 20%. On the other hand, those who are more comfortable with risk or have a longer time horizon may opt for the Fidelity Asset Manager 85%.

Fidelity's asset allocation funds offer several benefits. Firstly, they simplify the task of monitoring your investments, as experienced portfolio managers select and combine investments to help meet your goals. Regular rebalancing by these managers ensures your portfolio stays on track, regardless of market activity. Additionally, asset allocation funds dynamically shift to reduce your risk as you get closer to your horizon or retirement date. This makes them a good option for those seeking modest growth and below-average risk.

Managed account service

If you're looking for more personalized attention or are dealing with a complex financial situation, Fidelity's managed account service may be a good option for your 403(b) investing. This service offers professional management of your investments, tailored to your specific needs and circumstances.

With a managed account, a team of investment professionals will create and manage your portfolio, taking into account various factors such as your workplace savings, risk tolerance, financial goals, and investment horizon. This means your investment strategy will be customized based on your unique situation, ensuring that your money is working hard for you in a way that aligns with your comfort level and objectives.

One of the key benefits of a managed account is that it provides a comprehensive approach to investing. Your portfolio can include a mix of stocks, bonds, and other asset classes, and the professionals managing your account will employ tax-smart strategies to optimize your investments. This means they'll consider the tax implications of buying and selling assets to potentially reduce your overall tax liabilities.

To get started with a managed account, you can choose to work directly with a Fidelity advisor or utilize their digital investment management tools. Either way, you'll benefit from expert guidance and a personalized plan built around your full financial picture. There is typically a fee for this service, plus the cost of the underlying investments, but the exact amount will depend on the specifics of your account and the services provided.

Keep in mind that investing always carries risks, and the value of your investments may fluctuate. However, with a managed account, you'll have a team of professionals dedicated to helping you navigate those risks and making adjustments as needed to keep your financial strategy on track.

Frequently asked questions