The more I learn about finance the more confusing it becomes for me.
To put it simply: where should my retirement money live once I am retired? Right now my IRA resides in a Fidelity Total Money Market Index fund. An exclamation point popped up on the site indicating that this may be too aggressive for my circumstances.
So, what sort of mutual fund(s) should I be looking at, given my already-retired state. Perhaps a mixture? I don’t want to be too conservative, perhaps a 5 or 6 on a 1-10 risk scale.
Specific Fidelity fund suggestions would be wonderful.
(I will be meeting with a Certified Financial Planner soon, but I always welcome Doper input)
Are you sure you don’t mean “Total Market Index Fund”? That means the stock market, and there is a Fidelity fund called that. What is the symbol?
“Money Market” means short term debt, which is completely different. It is a very low risk investment, it would not trigger a “too aggressive” warning.
So is this your entire retirement fund, or do you have other investment assets or sources of income?
The conventional philosophy is that the stock market consistently outperforms fixed income in the long run (20 years+), but can and regularly does drop 50% or more. So as you get older you should steadily shift more of your assets away from stocks into lower risk fixed income.
If you’re mid-60s with a life expectancy of 20-25 years and already retired, maybe about half in fixed income at this point would be sensible.
Unless you have a pension that is rock solid that along with social security could sustain your lifestyle for the rest of your life, you are invested way too aggressively.
Or this IRA is only one small component of your portfolio.
If it were me I would diversify. Nothing wrong with the fund you have, but I wouldn’t keep all my eggs in it. How are you set for income in retirement? If it’s going to be tight you could invest in some income bearing investments. I would normally suggest government bonds and T-bills as part of the portfolio, but those are pretty volatile these days with interest rate swings. If you think interest rates have peaked, some bonds might be good.
But don’t take my advice. I’m just an amateur like you.
Your age, whether you get SS now, and how big it is, your health, how many dependents you have, as @Riemann says, what other assets you may have, all that stuff affects the answer to “what’s best for me?”
You probably ought not share all those details with the whole darn internet by posting them here. So absent that, anything any of the rest of us could say is mostly platitudes not arising to the level of specific advice.
Assuming you’ve invested aggressivley when you were younger, and gradually rebalanced along the way as you got older into some less risky stuff, by the time you retire your portfolio should be the least risky of your life. Hopefully, you are not just plopping your nest egg in one place and hoping for the best - investing does take a little bit of effort, but the payoff is usually better than relying on hope.
Generally, stocks are more risky, but may offer better returns - when you are young having a large share of your investments in stocks makes sense, since you can afford the higher risk (you have time to recover from a loss). Approaching retirement means lower risk tolerance - you cannot afford to have a big loss at this point, so you should be rebalancing your portfolio along the way to reflect your age - to less risky stuff like bonds and other income-generating securities. Not plopping, but managing, or at least working with a financial advisor along the way.
I looked at the holdings. Large-cap growth stock that are pretty much in any portfolio. Extremely low expense ratio. Looks pretty rock solid. Yes you want to diversify but I don’t see this fund as particularly aggressive.
I’ve done a little more learnin’ and have concluded that I definitely need to diversify. I am not necessarily looking to add a ton of increased value to my portfolio at this point, I’m leaning more toward protecting and preserving what I have over the next couple decades.
For starters I am looking at these bond funds: FFRHX or FMNDX.
Which leads to my next (very basic) question: I have most of my dollars in a Fidelity IRA. When I split up my FSKAX “position”, do I leave it within that same IRA account, or create a second one (all within Fidelity)?
FMNDX is a definite no. Municipal bonds carry tax advantages that make them attractive to tax-paying investors, and thus they trade at a lower yield. So it makes no sense to hold them in an IRA that is protected from tax for normally taxed higher-yielding instruments too.
FFRHX is not a definite no, but I’m not enthusiastic. The high yield is achieved by taking on risky loans. It is a diversified set of risky loans, so you’re not exposed to any single entity, but essentially what you’re getting is something that will likely perform poorly if the economy overall (and the stock market) does poorly. You’re trying to diversify away from exposure like that.
Separately from that:
IRA money needs to stay in an IRA designated account until you remove it to spend or to comply with RMDs. Both of which moves incur income tax and should be avoided until/unless necessary.
Although you could create an additional IRA-designated account for different funds, there’s no reason to. That will add complexity without benefit.
No idea about investments, but one thing I had to do as I approached retirement was to seriously think about life expectancy. Both my parents lived well into their ninth decade and were in full possession of their marbles right to the end. This, together with all the other factors I could think of, meant that I had to plan for at least 30 years of retirement.
There is also the question of protecting any dependents. A will is essential.
My choice would be a straightforward diversified bond fund of short to intermediate duration (0-5 years). There are offerings with very cheap fees from all the major providers.
The one thing I do that’s slightly unconventional with my own fixed income is to keep duration fairly short - in other words, avoid locking in a fixed interest rate for very long periods. So I wouldn’t choose a “total bond market” fund. My primary objective is to protect against inflation, and if you lock in the interest rate on a long term bond, you’re gambling that the market’s current prediction of inflation over that long period is correct. If you stay fairly short, and essentially keep rolling over shorter term bonds, you should track actual inflation better.
You can view this “keep duration fairly short” advice as a personalized version of avoiding what bankrupted Silicon Valley Bank and has so many other small banks in trouble. They locked in interest rates on long term bonds and were screwed when inflation spiked and interest rates went up sharply.
Of course, there is no free lunch in choosing to track actual inflation more closely. A conventional longer term bond portfolio will outperform from here if inflation turns out to drop back down to 2% for the next 10 years.
I would highly suggest signing up for an account at Bogleheads.org - Index page and the members of that community will be more than willing to provide assistance. Their Wiki is also a good place to start as well.
Neither one of those has accomplished much over the past five years. FFRHX has declined 6.22% over that time. Other bond funds generally haven’t performed well either.
Investors would’ve had a much better return by putting their money in bank CDs.
Some of the “Bogleheads” mentioned upthread favor a “three-fund portfolio”. Typically, this would include a total domestic stock market fund (much like the one the OP is already invested in), a total bond market fund and a total international stock market fund. You might split the total amount in thirds invested in each, or have more in the stock fund if you’re younger.
The OP said they already have a meeting with a certified financial planner planned, so they may choose to discuss this option with them.
Lots of very good advice, including the excellent advice to go to the Bogleheads forum for even more information.
I would add that if you are retired, it may be a good idea to create a “bucket” of “safe” money (think treasury-backed bonds) that will cover X years of expenses (minus any fixed income like SS or a pension). Then you can invest the rest of the assets more aggressively.
It’s similar to the 3-fund portfolio mentioned above but rather than trying to use a percentage of assets for your bond mixture you just calculate exactly how much money you think you will need to live on for the next X years and keep that “safe”.