Fidelity Bogleheads: Smart 403(B) Investment Strategies For Long-Term Growth

When it comes to investing in a 403b with Fidelity, Bogleheads generally recommend keeping it simple and choosing low-cost index funds. While the specific funds available depend on the individual's plan, some common recommendations include:

- Fidelity 500 Index (FXAIX): This fund is often suggested as a core holding, providing exposure to the S&P 500 index.

- Fidelity International Index Fund (FSPSX): For international diversification, this fund is frequently recommended.

- Vanguard Total Bond Market Index Fund (VBTIX): For fixed income allocation, this Vanguard fund is suggested by some Bogleheads.

- Fidelity Extended Market Index Fund (FSMAX): This fund is sometimes chosen to complement the FXAIX fund, approximating the total US stock market.

It's important to note that individual circumstances, risk tolerance, and investment goals vary, so it's always recommended to do your own research and consult a financial advisor before making any investment decisions.

How to allocate funds in a 403b

When allocating funds in a 403b, it is important to consider your age, risk tolerance, and investment goals. Here are some steps and guidelines to help you make informed decisions about how to allocate your funds:

• Assess your risk tolerance: The first step in allocating your 403b funds is determining your risk tolerance, which refers to how much risk you are comfortable taking in pursuit of potential gains. Younger investors can generally tolerate more risk, as they have more time to recover from market downturns. As you approach retirement age, it is generally advisable to shift towards more conservative investments to protect your savings.
• Determine your investment goals: Are you investing for retirement, saving for a down payment on a house, or pursuing another financial goal? Different goals will influence the timeline of your investments and the level of risk you are willing to take.
• Consider your investment options: Review the investment options available to you through your 403b plan. Look for a mix of stock and bond funds, including domestic and international options.
• Create a balanced portfolio: Diversification is a key principle in investing. Instead of putting all your money into one or two investments, spread it across various asset classes, sectors, and geographic regions. This helps reduce the impact of market volatility on your portfolio.
• Consider your age: If you are younger, consider allocating a larger portion of your portfolio to stocks, as they historically offer higher returns over the long term. As you get older, gradually shift your allocation towards more conservative investments, such as bonds and cash equivalents.
• Monitor and rebalance your portfolio: Regularly review the performance of your investments and make adjustments as necessary to maintain your desired allocation. For example, if stocks have performed well and comprise a larger portion of your portfolio than intended, you may want to sell some stocks and buy bonds to restore your desired balance.
• Age 30: At this age, you can afford to take on more risk, so a larger allocation to stocks is appropriate. You might allocate 70% to stocks (50% US stocks, 20% international stocks) and 30% to bonds.
• Age 40: As you enter your fourth decade, consider shifting the balance towards more conservative investments. You might allocate 60% to stocks (40% US stocks, 20% international stocks) and 40% to bonds.
• Age 50: During this decade, continue to adjust your portfolio to reduce risk. You might allocate 50% to stocks (35% US stocks, 15% international stocks) and 50% to bonds.
• Age 60+: As you approach and enter retirement, preserving your capital becomes a priority. You might allocate 40% to stocks (25% US stocks, 15% international stocks) and 60% to bonds and cash equivalents.

Remember, these are general guidelines, and you should tailor your allocation to your specific circumstances, risk tolerance, and investment goals. It is also important to review and rebalance your portfolio periodically to ensure it remains aligned with your investment strategy.

Additionally, consider seeking the advice of a qualified financial advisor, who can provide personalized guidance based on your unique situation. They can help you navigate the complexities of investing and ensure your 403b allocation aligns with your short-term and long-term financial goals.

The best funds for a 403b

When it comes to investing in a 403b, there are a few key things to keep in mind. Firstly, it's important to consider the fees associated with the different funds, as higher fees can eat into your investment returns over time. Secondly, you'll want to think about your investment goals and risk tolerance, which will help you determine the appropriate asset allocation for your portfolio. Finally, it's a good idea to review the specific funds available to you through your 403b plan and select those that align with your investment strategy. Here are some suggestions for funds that might be suitable for a 403b, assuming you have access to them through your plan.

Target-date funds

Target-date funds are a popular option for many investors because they provide a simple, hands-off approach to investing. These funds automatically adjust their asset allocation over time, becoming more conservative as you get closer to retirement. If you're not sure how to create your own portfolio or don't want to worry about rebalancing, target-date funds can be a good choice. However, be aware that some target-date funds have higher fees than individual index funds, so be sure to check the expense ratios before investing.

Index funds

Index funds are a type of mutual fund or exchange-traded fund (ETF) that tracks a specific market index, such as the S&P 500. They tend to have lower fees than actively managed funds and can provide broad diversification, making them a popular choice for many investors. Here are some index funds that are commonly available in 403b plans and may be worth considering:

• S&P 500 index funds: These funds track the performance of the S&P 500 stock market index, which includes 500 large US companies. Examples include the Fidelity 500 Index Fund (FXAIX) and the Vanguard Institutional Index Fund (VIIIX).
• Total stock market index funds: These funds track the performance of the entire US stock market, including large, mid, and small-cap companies. Examples include the Vanguard Total Stock Market Index Fund (FZROX) and the Vanguard Institutional Total Stock Market Index Fund (VITSX).
• Extended market index funds: These funds track the performance of the stock market excluding the S&P 500, providing exposure to mid- and small-cap companies. An example is the Vanguard Extended Market Index Fund (VIEIX).
• International index funds: These funds invest in stocks of companies based outside of the US, providing international diversification. Examples include the Vanguard Total International Stock Index Fund (VXUS) and the Fidelity International Index Fund (FSPSX).
• Bond index funds: These funds invest in a diversified portfolio of bonds and can provide a more stable component to your portfolio. Examples include the Vanguard Total Bond Market Index Fund (VBTLX) and the Fidelity U.S. Bond Index Fund (FXNAX).

Actively managed funds

While index funds are generally recommended due to their lower fees and strong performance relative to actively managed funds, there are some actively managed funds that may be worth considering for a portion of your portfolio. Here are a couple of options:

• Fidelity Contrafund (FCNKX): This fund invests in both US and international stocks and has a strong long-term track record, although it does come with a higher expense ratio than the index funds mentioned above.
• T. Rowe Price Equity Income Fund (REIPX): This fund invests in dividend-paying stocks and has a relatively low expense ratio for an actively managed fund.

Remember, the funds you choose will depend on your specific investment goals, risk tolerance, and the options available to you through your 403b plan. It's always a good idea to review the fund prospectuses and consider seeking advice from a financial professional before investing.

How to choose funds in a 403b

When choosing funds in a 403b, it is important to consider your age, risk tolerance, and investment goals. Here are some steps to help you make informed decisions about fund selection in your 403b:

• Assess your investment options: Review the list of funds available in your 403b plan. Look for a variety of investment options, including stock funds, bond funds, and target-date funds. Take note of the expense ratios and historical performance of each fund.
• Determine your investment strategy: Decide on an investment strategy that aligns with your financial goals and risk tolerance. Consider a long-term investment horizon, as retirement savings are typically meant for the long term. A common strategy is to allocate a larger portion of your portfolio to stocks when you're younger and gradually increase your bond allocation as you approach retirement.
• Create a balanced portfolio: Diversify your investments across different asset classes, sectors, and geographic regions. You can achieve this by selecting a target-date fund or creating your own mix of stock and bond funds. Consider your risk tolerance and investment goals when determining the stock-bond allocation.
• Consider a three-fund portfolio: A simple and effective approach is to build a three-fund portfolio using low-cost index funds. This typically includes a total stock market index fund, an international stock index fund, and a total bond market index fund. You can adjust the allocation percentages based on your risk tolerance and investment goals.
• Monitor and rebalance your portfolio: Regularly review the performance of your selected funds and make adjustments as needed. Over time, some funds may outperform others, causing your portfolio to deviate from your desired allocation. By periodically rebalancing, you can maintain your desired asset allocation.
• Seek additional resources and advice: If you are new to investing or have specific questions, consider seeking advice from a financial advisor or tax professional. They can provide personalized guidance based on your financial situation and goals. Additionally, online resources and investment forums can offer valuable insights and fund recommendations.

How to invest in a 403b

• Assess your current financial situation: Before investing in a 403b, it is important to understand your financial situation. This includes evaluating your income, expenses, debt, and savings. Determine how much you can afford to contribute to a 403b plan while still meeting your short-term financial obligations.
• Understand the basics of a 403b plan: A 403b plan is a tax-advantaged retirement plan offered by certain employers, including public schools, tax-exempt organizations, and some small businesses. It allows employees to save and invest for retirement on a tax-deferred basis.
• Review your investment options: The investment options available in a 403b plan will depend on the specific plan offered by your employer. Review the list of investment funds available to you and assess their performance, fees, and risk level.
• Determine your investment strategy: Consider your risk tolerance, investment horizon, and financial goals when deciding how to allocate your contributions among the available investment options. You may opt for a simple strategy, such as investing in a target retirement fund, or a more complex approach involving multiple funds.
• Enroll in the 403b plan: Contact your employer's human resources department or the plan administrator to enroll in the 403b plan. They will provide you with the necessary forms and information to get started.
• Select your investments: Based on your investment strategy, choose the specific funds or investment options that align with your goals and risk tolerance. Consider factors such as fund performance, fees, and historical returns when making your selections.
• Monitor and rebalance your portfolio: Once you have made your investment selections, regularly review the performance of your chosen funds. Over time, the allocation of your investments may drift from your desired strategy due to varying returns. Periodically rebalance your portfolio to ensure it remains aligned with your investment goals and risk tolerance.
• Maximize your contributions: Contribute as much as you can afford to your 403b plan, up to the maximum amount allowed by law. Take advantage of any employer matching contributions, as this is essentially free money added to your retirement savings.
• Seek professional advice if needed: Investing in a 403b plan can be complex, especially if you have a wide range of investment options. Consider consulting a financial advisor or tax professional to help you navigate the process and make informed decisions.
• Stay informed: Stay up-to-date with changes in tax laws, investment options, and economic conditions that may impact your 403b plan. Regularly review your investment strategy and make adjustments as necessary to ensure it remains aligned with your financial goals.

Remember, investing in a 403b plan is a long-term commitment. It is important to carefully consider your investment options and seek professional advice if needed before making any decisions.

How to select funds in a 403b

When selecting funds in a 403b, it is important to consider your financial goals, risk tolerance, and the specific investment options available to you. Here are some steps and guidelines to help you make informed decisions about fund selection in your 403b:

Step 1: Understand Your Investment Options

Firstly, review the list of funds available in your 403b plan. These typically include a variety of stock funds, bond funds, and sometimes target-date funds or blended investment options. Take note of the fund names, investment objectives, expense ratios, and historical performance. You can usually find this information on your plan's website or in the plan documents provided by your employer.

Step 2: Determine Your Investment Strategy

Before selecting specific funds, it's important to determine your overall investment strategy, including your asset allocation and diversification approach. Here are some guidelines:

• Asset Allocation: Decide on the percentage of your portfolio that you want to allocate to stocks vs. bonds. Given your age and risk tolerance, a common starting point is a stock-heavy allocation, such as 80% stocks and 20% bonds, or even more aggressive allocations like 90% stocks and 10% bonds. As you get older, you may want to gradually reduce your stock allocation and increase your bond allocation to reduce risk.
• Diversification: Diversification is a key principle in investing. It involves spreading your investments across different types of assets to reduce risk. When selecting funds for your 403b, consider including a mix of large-cap, mid-cap, and small-cap stock funds to diversify across different segments of the stock market. Also, consider adding international stock funds for further diversification.

Step 3: Choose Specific Funds

Now, you can select the specific funds that align with your investment strategy. Here are some guidelines:

• Stock Funds: Choose a mix of stock funds that provide exposure to different segments of the market. For US stocks, consider a broad market index fund like an S&P 500 index fund (e.g., FXAIX, VIIIX) or a total stock market index fund if available. You can also approximate the total stock market by combining an S&P 500 index fund with an extended market index fund (e.g., FSMAX). For international stocks, select an international stock index fund (e.g., FSPSX, FZILX) or a combination of developed and emerging market funds.
• Bond Funds: For bond funds, consider a broad market bond index fund like the Vanguard Total Bond Market Index Fund (VBTIX) or a similar option. You can also consider specialized bond funds, such as inflation-protected bond funds or intermediate-term bond funds, depending on your goals and risk tolerance.
• Target-Date Funds: If you prefer a simpler approach, consider target-date funds (e.g., FSNFX, FSNBX), which provide a pre-determined mix of stocks and bonds that automatically adjust over time. However, be mindful of the fees associated with these funds.

Step 4: Monitor and Rebalance

Once you've selected your funds and allocated your contributions, remember to periodically review your investments. Over time, the performance of different funds may cause your portfolio to deviate from your desired allocation. When this happens, rebalance your portfolio by buying or selling certain funds to return to your target allocation.

Additional Considerations:

• Expense Ratios: When selecting funds, pay attention to the expense ratios, which represent the annual fees charged by the fund. Lower expense ratios mean more of your money is invested and compounding over time. Generally, index funds have lower expense ratios than actively managed funds.
• Employer Matching: Maximize any employer matching contributions, as this is essentially free money added to your retirement savings.
• Roth IRA: Consider opening a Roth IRA in addition to your 403b. Roth IRAs offer tax advantages and can provide more investment flexibility if your 403b fund options are limited.

Frequently asked questions