Fidelity Target Date Funds (Perfect For Beginners!)

there's reason why Americans have 20% of their retirement assets in target-date funds that's because target-date funds are an easy and effective way to invest what is up everyone I'm rose and welcome back to my channel the number one place for financial education empowerment and inspiration in today's video I'm going to be talking about fidelity target date funds also known as Fidelity's freedom funds you'll learn the answers to common questions like how does a target date fund work our fidelity target date funds a good investment and I'll also wrap up with some recommendations on whether target date funds are a good fit for you or not in this day and age nobody is responsible for your retirement but you your country your company ain't nobody looking out for you as much as you look out for yourself and in case you're not aware many of you actually already have target date funds in your 401 K by default so I think it's important for everyone to understand how target date funds work target date funds are mutual funds that target a specific date for retirement whenever you look up a target date fund you'll see that it has a target retirement year as part of its name I'm 30 years old right now so I'm assuming I'm planning to retire around age 65 so I'd go for the 2055 target date fund like this one here okay on a side note I actually never plan on retiring because I love to work I love what I do and I'm pretty sure I'll be making youtube videos for you until I'm at least 90 years old anyway so why our target date funds age-specific let's take a look at an example the fidelity Freedom Index 2055 fund so here it is I've pulled up the fund summary page for the fidelity Freedom Index 2055 fund just a couple things to note here has a very low expense ratio of 0.1 percent so that's low and that's good general rule of thumb is anything under 0.2 percent is considered cheap and now let's just take a look at what's inside this fun so as I said target date funds are mute all funds and you'll see here that there's gonna be a number of different funds usually anywhere from three to five funds inside this mutual fund and they're gonna each give you exposure to a different portion of the market so this is domestic equities and they also have international equities equities is jargon for stocks they also have exposure to bonds and then exposure to short term debt and net other assets which essentially means cash and what's interesting here is so I just want to point out that target-date funds are actually a fund of funds because they are a mutual fund that contains other funds inside it so that's something interesting to note and because it's a 2055 fund it's going to have a pretty aggressive stock allocation so if you add up the domestic and international stock allocation that is about what is that about about 90% and then bonds and cash make up the other 10% roughly just rounding up here and if we go over to the the 2025 fund which is for someone who would be retiring in the next couple years so they would probably be in their 60s then they would be looking at something more like this to fidelity freedom index 2025 fund and it has a lot of the same characteristics expense ratio is the same it's just the target retirement here is different and what's interesting is that of course their allocation is a little slightly different again it's going to be a fund of funds it has multiple different funds in it but the percentage allocations between stocks and bonds is very different so domestic and international stocks add up to about about 60% and then the rest of the rest of the 40% is in bonds and cash so as you can see the 20 2015 5 fund has sixty sixty to forty stock bond allocation whereas the twenty fifty five fund remember has a 90 stock 10 bond allocation so 90 percent stocks 10 percent buns the 2055 fund for the 30 year old has a bigger chunk allocated to stocks whereas the 20 25 fund in other words the fund for the 60 year old has a lot less in stocks and more in bonds and cash that's because stocks are more volatile stocks are pieces of ownership in companies if the company can sell its products keep expenses down and make a good profit the stock price is gonna go up to reflect that success but that is all based on a very uncertain future in all kinds of assumptions and expectations so there's really no guarantees however on the other hand uncertainty is exactly what causes the huge potential for growth in stocks if you didn't have uncertainty you wouldn't have growth either so stocks have more volatility uncertainty and more growth however a 90 year old granny she doesn't want uncertainty she can't afford that she needs stability and that's why the older you are the last year target-date funds will be allocated to stocks and the more it'll have in bonds instead bonds are more stable than stocks because bonds are essentially loans they're contractual and when you own a bond somebody actually has a legal obligation to pay you back so compared to stocks there are a lot more reliable but you're also not gonna get very high returns you already know what your return is gonna be when you go in in other words what interest rate you're gonna get and that's that there's no growth beyond that of course that's assuming you're gonna hold the bond to maturity but that's a conversation for another day I'm covering a lot of information here so I want to just check in with you really quick with a fun challenge now if you were to invest in a target date fund what would be your targets retirement year in other words what would the number at the end of the target date fund that you buy what would that number be so do the calculation just really quick figure out your year and just type it in the comments below for me it's 20 55 for some of you it might be 20 65 and everything in between so whatever your year is just drop it below in the comments okay in addition to automatically adjusting your portfolio as you get older the target date fund also balances it what this means is that as the market value of your investments shift the target date fund is gonna buy and sell the stocks and bonds in your portfolio in order to maintain those initial percentage allocations so for example when the stock prices go up a lot relative to bond prices then the target date fund is gonna sell some stocks and buy more bonds in order to stay at the 90 percent stock ten percent bond allocation or whichever allocation you started with because the markets are always moving the pie chart that I showed you earlier that's always gonna shift depending on how the market is moving and so the fund needs to proactively buy and sell constantly in order to maintain those that pie chart what rebalancing forces you to do is to sell something after the price has gone up and to buy more of something after it's gone down and this results in automatically selling high and buying low and that juices your returns even more so rebalancing is a