While some individual stocks can play roles in retirement planning, investors planning for or nearing retirement should also consider exchange-traded funds (ETFs), index funds and mutual funds.
Fidelity, one of the largest issuers of index funds and actively managed mutual funds, has a substantial stable of funds suitable for retirement planning.
Traits investors should consider when evaluating funds for retirement include fees, track record and management, safety, income-generating potential, and the underlying asset class.
“Fidelity analyzed extensive spending data and found that most people needed to replace between 55% and 80% of their preretirement income after they stopped working to maintain their lifestyle,” according to the fund issuer. “Why the drop? Well, you don’t need to save for retirement once you are retired. And not working generally means lower taxes, less need for life insurance, and lower day-to-day expenses. After all, you don’t need to pay for work clothes or commuting costs. You may also decide to pay off your mortgage.”
Here are several Fidelity mutual funds that can help investors at various stages of the retirement planning process.
Best Fidelity Mutual Funds for 2018: Fidelity Freedom 2040 Fund (FFFFX)
Expense ratio: 0.75% per year, or $75 on a $10,000 investment.
The Fidelity Freedom 2040 Fund (MUTF:FFFFX) is an ideal choice for investors currently in their 40s or those planning to work until around 2040 because this is a target-date fund.
Target-date funds, be they ETFs or mutual funds, liquidate in the year attached to the fund, meaning in the case of this Fidelity fund, it liquidates in 2040.
“Freedom Funds invest in a collection of underlying Fidelity mutual funds that provide exposure to multiple asset classes, creating a diversified portfolio of investments,” according to Fidelity.
With 2040 being a long way off, FFFFX is currently heavy on equities and lightly allocated to bonds, a scenario that will change with each passing year. Currently, FFFFX allocates over 62% of its weight to domestic stocks and over 30% to international equities.
Best Fidelity Mutual Funds for 2018: Fidelity Focused High Income Fund (FHIFX)
Expense ratio: 0.83% annually, or $83 on a $10,000 position.
The Fidelity Focused High Income Fund (MUTF:FHIFX) requires a minimum investment of $2,500. Fixed income strategies are integral parts of retirement planning, but conventional wisdom often dictates that retirement and bonds mean U.S. government debt and municipal bonds.
With that in mind, the Fidelity Focused High Income Fund is better suited for younger retirement planners or risk-tolerant retirees. This Fidelity mutual fund has a 30-day SEC yield of 4.14%, which is lower than what investors will find on some popular junk bond ETFs.
That means FHIFX is taking on less credit risk, a trait evident by the fact that this fund allocates about 94% of its weight to bonds with BB or B ratings.
Best Fidelity Mutual Funds for 2018: Fidelity Four-in-One Index Fund (FFNOX)
Expenses: 0.11% annually, or $11 on a $10,000 stake.
The Fidelity Four-in-One Index Fund (MUTF:FFNOX) also requires a $2,500 minimum investment. This Fidelity product uses the fund of funds strategy that has become increasingly popular in the ETF space in recent years. Translation: FFNOX holds other Fidelity funds.
FFNOX holdings are the Fidelity 500 Index Fund (FXAIX), Fidelity Extended Market Index Fund (FSMAX), Fidelity International Index Fund (FSPSX) and Fidelity U.S. Bond Index Fund (FXNAX), according to Forbes.
Due to a combination of impressive returns and low expenses, FFNOX carries a five-star Morningstar rating.
Best Fidelity Mutual Funds for 2018: Fidelity Dividend ETF For Rising Rates (FDRR)
Expense ratio: 0.29% per year, or $29 on a $10,000 investment.
As was noted earlier, ETFs should be considered as important parts of the retirement planning equation. Reasons include favorable fees and income-generating potential, two traits the Fidelity Dividend ETF for Rising Rates (NYSEARCA:FDRR) delivers.
The $264.3 million FDRR follows the Fidelity Dividend Index for Rising Rates, a benchmark “designed to reflect the performance of stocks of large- and mid-capitalization dividend-paying companies that are expected to continue to pay and grow their dividends and have a positive correlation of returns to increasing 10-year U.S. Treasury yields,” according to Fidelity.
FDRR allocates about 40% of its combined weight to technology and financial services stocks, while the healthcare and consumer discretionary sectors combine for over a quarter of the fund’s weight.
Fidelity clients can realize additional cost savings because FDRR is available commission-free on Fidelity brokerage accounts.
Best Fidelity Mutual Funds for 2018: Fidelity Conservative Income Municipal Bond Fund (FCRDX)
Annual fee: 0.35%, or $35 on a $10,000 position.
The Fidelity Conservative Income Municipal Bond Fund (MUTF:FCRDX) carries a minimum investment of $10,000. Historically, municipal bonds are a beloved asset class for retirees because these are low-risk bonds with better yields than cash instruments. Plus, municipal bonds deliver some tax advantages to investors.
Nearly 65% of this Fidelity fund’s holdings are revenue bonds with over 32% being general obligation bonds. Bonds issued by Illinois, Texas and New York combine for about a third of the fund’s roster.
Over 70% of FCRDX’s holdings are rated AA or A. FCRDX has a duration of just 0.63 years.
Best Fidelity Mutual Funds for 2018: Fidelity Large Cap Value Index Fund (FLCDX)
Annual fee: 0.17%, or $17 on a $10,000 investment.
The Fidelity Large Cap Value Index Fund (MUTF:FLCDX) is a passively managed index fund, hence an annual fee that is lower compared to actively managed mutual funds.
However, FLCDX does require a minimum investment of $2,500. This Fidelity index fund usually invests at least 80% of its assets in the Russell 1000 Value Index.
At the end of last year, FLCDX held over 700 stocks with its top 10 holdings combining for nearly 23% of its weight. The top 10 holdings include JPMorgan Chase & Co. (NYSE:JPM), Johnson & Johnson (NYSE:JNJ) and Intel Corp. (NASDAQ:INTC).
Member firms in FLCDX generally have market values north of $10 billion. Financials are the largest sector weight in the fund at 26.5%.
Best Fidelity Mutual Funds for 2018: Fidelity Low Volatility Factor ETF (FDLO)
Expense ratio: 0.29% per year, or $29 on a $10,000 investment.
Another Fidelity ETF for retirement investors. In fact, the Fidelity Low Volatility Factor ETF (NYSEARCA:FDLO) is an ideal ETF for retirement planners of all ages to consider because history confirms that, over the long haul, the low volatility factor is a winner.
This Fidelity funds tracks the Fidelity U.S. Low Volatility Factor Index, which is designed to hold stocks with less volatility than the broader market. FDLO, which debuted in the third quarter of 2016, holds nearly 130 stocks.
In what may be a surprise to some retirement investors, technology stocks can also have favorable volatility traits as highlighted by FDLO’s 24.6% weight to that sector. Apple Inc. (NASDAQ:AAPL) is FDLO’s largest holding. The financial services and healthcare sectors combine for over 29% of the fund’s weight.
Cost-conscious retirement investors will enjoy the fact that like the aforementioned FDRR, FDLO is available to Fidelity clients commission-free.
As of this writing, Todd Shriber does not own any of the aforementioned securities.