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LaurieL

Please help me choose a 403(b) provider

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Good morning,

I am a teacher in Florida, and I currently have the following choices for my 403(b). I am currently with Suncoast (a local credit union, and shame on me, but it was convenient to set up at the time) though they are now combining with Nationwide, effective early June. I am a 64-year-old career changer, so I have only taught for 4 years so far and likely will teach for another 4-5 years or so. I have been looking to max out my contributions lately, a move that has probably not worked out in the best way considering the events of recent months!  Nevertheless, I do not need the funds currently and I believe the tax savings due to the income referrals will offset the current disadvantages so I hope to continue making contributions. I am not interested in an annuity.

I would like feedback on both the plan to maximize my contributions and where I should put my contributions going forward.

  • American Century 403(b) & 457
  • AXA 403(b)
  • Fidelity Retirement Services 403(b) & 457
  • VOYA 403(b)
  • The Legend Group 403(b)
  • MetLife 403(b)
  • PlanMember Securities 403(b) & 457
  • Ameriprise (Riversource) Life 403(b)
  • Suncoast Nationwide 403(b) & 457
  • AIG Retirement Services (VALIC) 403(b) & 457

Thank you in advance for your time and assistance.

Laurie

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LaurieL welcome to the forum!  Without a doubt, Fidelity Retirement Services is the best and lowest cost vendor. I think that maxing out your retirement accounts, even at age 64 makes sense. Hopefully your 84 year-old self will be grateful. I admit that the times are scary and the markets are and will continue to be volatile. I wouldn't have an asset allocation of more than 60/40 stocks/bonds, maybe 50/50, depending on your expected income in retirement. A 3 fund portfolio makes sense to me: Total (US) Stock Market, Total Int'l Stock Market and Total Bond Market. Some omit International stocks, it's a personal decision.

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I agree Fidelity is the way to go.  Just picking fidelity alone won't be a solution all on to Itself but it certainly is a  major step in the right direction.

Which funds to pick? . A target retirement fund or a basic 3 fund  index portfolio as mention are good options. Do you wish to manage it yourself(3 fund portfolio) or do  wish to have it internally managed so you can set and forget it and focus on socking away money in it (target fund ) ?

Any other investment questions?

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+1 to Tony

Fidelity has low cost passive index funds and a lot of higher cost managed funds. You'd still need to do some homework on them, plus there's a lot to consider with your time horizon and overall personal finance situation. The most popular response you'll get from most people is, "it depends."

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Yea you have to  be careful with Fidelity. I would not venture past their index funds. They have lots of higher cost managed funds.

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I would stick with these Fidelity Index Funds if you want to go the 2 or 3 fund portfolio route:

Fidelity® Total Market Index Fund, FSKAX, ER 0.015%

Fidelity® International Index Fund, FSPSX, ER 0.035%

Fidelity® U.S. Bond Index Fund, FXNAX, ER 0.025%

If you want to go the target retirement fund route, I would choose one of the Freedom Index funds:

Fidelity Freedom Index Funds, ER 0.12%

https://pcs.fidelity.com/public/netbenefits/planfunds/performance?plan=95924&client=99999

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@tony if you account for fees, historically, how would $10,000 invested in something like FID OTC PORTFOLIO compare to the Total Market Index Fund, FSKAX?

 

Pick whatever time period and start date you think makes sense.

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I hope this is not a gotcha question.

                                                         OTC                                Fidelity Total Market Index

YTD -13.53% -20.97%
YTD as-of date 03/31/2020 03/31/2020
1-year 2.64% -9.28%
3-year 12.64% 3.93%
5-year 11.99% 5.72%
10-year 14.77%
1-, 3-, 5-, 10-year as-of date 03/31/2020 03/31/2020
Since inception 13.36% 11.28%
Inception date 12/31/1984 09/08/2011
Expense ratio     
0.89%— 0.01%—
 

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O.k This is some info.

 

On first reflection OTC seems like a much better performer. It is . But keep in mind the OTC fund is a concentrated fund  ( 200 -300 funds ) and not as diversified as a Total Stock Market Fund (3, 500 funds) which has the total market which reflects the total market. The OTC is very heavily invested in technology and has amazingly actually lost less in this down turn than the total stock market index if this info is accurate. The fees are much much higher for the Fidelity OTC Fund. So OTC for a managed fund is a great performer and is categorized as a mid cap fund / lower capitalization large caps fund. Info varies as some websites call the fund a mid cap others call it a large cap.  A better comparison might be with a Vanguard Mid Cap Index Fund. 

Most managed funds usually do not outperform the market indexes over time. Fidelity OTC might be an exception, perhaps one of the 20% that do. But past performance does not mean that fund will continue to perform like it has in the past. Also, the fund has enjoyed a good ride over the last 12 years  with a rising market.and it certainly is an aggressive holding. It is  not diversified so you live and die by the performance of the stocks in its portfolio. I certainly wouldn't want to own it as my only holding if at all. It remains to be seen how far it would fall in a market crash. I used to own   technology heavy stock funds and I learned my lesson as they can drop very hard and fast . The Fidelity OTC fund has had manager changes and will continue to do so most likely. This could cause a change in it"s performance.I owned a small cap managed fund years ago that was doing great, but once the star manager left I lost a bundle. The fund never returned to it's former glory. With an index funds you will never have to worry about that happening or a manager making bad market calls.

Also,  Fidelity index fund  ( FSKAX) is newer so you would be better  off comparing it over ten years to the Vanguard Total Index Fund. Also keep in mind, " the  benchmarks for these two funds ( OTC and Total index) fall into different investing categories". Thie comparison may not provide complete or accurate results.

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Continued

 

Vanguard Total Index fund has an average ten year return of 10.03%

Vanguard Mid Cap Index fund has a ten year return of 8.86%

Fidelity mid-cap index  9.21%  since inception 2011

Keep in mind Fidelity has different fund classes which may add certain  fees and in a 403b   the fees for the OTC might not match the retail fund performance or fees. If you buy the OTC fund in an annuity account your performance will certainly be lower because of added fees and often several layers of fees might be involved. If you buy it outside a retirement plan, it probably isn't very tax efficient and you will give back a good bit of your gains to the government in capital gains and dividends taxes. Index funds are much more tax efficient.

I still believe a 3-4 basic low cost index fund portfolio over time will outperform this fund. If you wish to own it I would own it in addition to the index fund portfolio but not in place of it. Only 20% of managed fund outperform index funds over time and there is no guarantee that will continue to happen with any particular fund . OTC however will overlap with the total stock market index in holdings.

I could not find charts that show growth of 10,000 over ten years as a comparison and i don't have the math skills to figure it out.

I hope this helps

Tony

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Thanks for your thoughtful reply @tony it's not a gotcha question as much as I'm just trying to find a graph or calculator that shows the actual numbers. I've been in OTC for a while now and it's not my only investment in my Fidelity 403b but it is about 25% of it. Just wondering how that compared to a lower fee ETF. I'll keep trying to workout the numbers.

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Cal

You might try morningstar or this vanguard  nifty comparison tool.   https://personal.vanguard.com/us/faces/JSP/Funds/Compare/CompareEntryContent.jsp

Sorry i gave you more info than you wanted or needed.  I do think 25% in the OTC fund is a bit much but I don't know your age or your other holdings. We prefer index funds here.   If you find a direct comparison chart please share.

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