Is FBIFX an index fund? Choosing an Index Fund on Fidelity (Roth IRA)

Investing
#1

Choosing a Target Date Index Fund on Fidelity (In a Roth IRA)

Hey guys. I’ve been loving the content on this account, and I’ve been following step by step (best I can) on my Roth IRA and 401k investing. I thought I’d selected a Target date index fund for 2040, but I’ve logged in today and noticed the fund is categorized as a Mutual Fund. It’s called the Fidelity Freedom Index Fund 2040 - But (here’s my questions) Is an “Index Fund” referred to as a mutual Fund sometimes? Aren’t Mutual Funds what we’re trying NOT to do? It had a low expense rate, no transaction fees, but it does have Fund Managers. Confused. It has Index Fund in the name but was in the mutual fund category. Was this a good fund or did I get lost along the way?

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#2

Hey @JessieClarke!

You did perfect! It turns out, index funds are just a special TYPE of mutual fund.

Mutual fund just means a bunch of people (mutually) put money together (into a fund). The type of mutual fund that generally has higher fees and worse performance is an “actively managed” mutual fund. That’s where there a smart mutual fund manager who charges a high fee to pick and choose stocks for you.

Your TDIF is indeed an index fund (technically it’s a collection of a few index funds). But they don’t charge a high fee and no one is actively spending time and money doing research to pick and choose stocks. They still DO need a manager, just to make sure make sure everyone’s money goes in and out correctly and the computer program that buys all the stocks is running correctly, but a single manager can run a LOT of index funds at a very low fee since they’re not doing much.

So I know the terminology can be confusing, but it sounds like you did perfect! Here’s an article on target date index funds:

And here’s an IG post on how they’re mutual funds!

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