Hi everyone!
My husband and I have paid off all of our debt (except for our mortgage) and saved an emergency fund covering 4 months worth of expenses. We’re both contributing 10% each to our retirement accounts and believe it should be closer to 15% each. Is that correct? If it is, should we contribute to a Fidelity target date fund or the Fidelity 500 Index Fund? I think the main difference is that we can withdraw from the index fund at any time but not the target date fund until we’re 59.5.
The fund itself doesn’t determine when you can withdraw, it’s the account through which you are investing. You can pick a target date fund in a regular taxable brokerage account and there are no age-related withdrawal restrictions. If you are buying either of those funds through a retirement / tax advantaged account, then regardless of the fund you pick, you’re restricted by tax laws for when you can withdraw.
Hey Anna!
@Getbacktocenter is right! The fund you choose doesn’t impact when you can withdraw the money. The type of account it’s in does. If these investments are in a regular brokerage account, you can take the money out whenever you want (even if you’ve invested in a target date fund). If the investments are in an IRA or 401k, you generally need to wait until you’re 59.5 (even if you’ve invested in an S&P 500 index fund).
That said, the more you invest the better! Try plugging your numbers into the retirement investment growth calculator to see if you’re on pace:
And regarding your fund choice, check out this video:
Hi Jeremy and Natalie,
Thank you both so much! I believe the S&P brokerage will be what I go with.
Currently, I contribute 6% of my salary to my pension and 3.5% to my 457(b) plan. My husband contributes 6% of his salary to his 401(k) and 3.5% to his Roth IRA. We have around $900 extra each month to use towards investing. My question is should we use all of this to throw at our S&P brokerage account, or split it up and put some towards his Roth IRA and some towards the S&P?
Hi @annarain it’s a late reply, so I am curious what you ended up doing with your extra $900? I usually refer to Jeremy’s Ultimate Investing Checklist where he suggests the optimal tax advantaged investing order of accounts
Hi @Getbacktocenter! I apologize for the late reply. Here’s what I decided to do:
What do you think of this?
That sounds like a great spread to me! I like how you balanced it across investing, debt, and savings goals!
@Getbacktocenter
Thank you! We spent quite a bit of time coming to this. I just took a look at the checklist:
□ Choose 1-5 low cost index funds diversified across US, international and bonds
should i change my $300 to others besides the 500?
□ Turn on dividend reinvestment
what’s the best strategy for this?
□ Rebalance on a fixed schedule
what’s the best strategy for this?
□ Reallocate towards bonds as you age
what’s the best strategy for this?
You are fine just picking one index fund, and the Fidelity 500 Index looks like a good one!
Dividend Reinvestment is something you select when you set up your account. It tells Fidelity what you want to do with the dividends the fund pays out. If you select reinvest, it’ll just throw those dividend dollars back into the fund for you, as opposed to you getting an actual pay out and paying taxes on the dividends received.
Rebalancing is when you periodically adjust the composition of your investments to ensure you manage your risk appropriately (not too risk heavy, not too conservative). Investopedia has a great article on rebalancing. Rebalancing does require buying and selling stocks, so don’t do it too frequently or it may incur fees or taxes. Maybe look at it every quarter or once a year and see if you need to make adjustments. If that’s too hands on for you, you can always try a Target Date Index Fund (see below).
Reallocating toward bonds as you age is important to develop a more conservative blend the closer to retirement age you get. You probably don’t want to be 100% stocks as you hit retirement, because that’s higher risk and more volatile and you don’t want to risk the whole portfolio taking a tumble. On the other side of that, you don’t want to be heavily into bonds when you are farther from retirement because you’re not going to benefit from massive compound growth.
Target Date Index Funds do the rebalancing and reallocating toward bonds for you automatically, that’s what a lot of employer 401k options offer (though anyone can invest in a TDIF in a regular brokerage or Roth IRA, it doesn’t have to be in a 401k). Investopedia has a good article on these types of funds. You just pick the target year for retirement (i.e. 2055) and let the fund manage the rest. You’ll see your portfolio shift from heavy stocks now toward more bonds the closer you get to 2055. It’s great for people who want to “set it and forget it” or don’t feel comfortable managing their portfolios themselves.
@Getbacktocenter wow, thank you for the detailed explanation! I actually contribute some $$ from my paycheck each month to a UNC457B plan that is tied to a target date index fund. I contribute half to this than what I do to the Fidelity 500 - is that ok?
I did select dividend reinvestment, so I’m good there.
The article you sent is great! It says: Monthly and quarterly assessments are typically preferred because weekly rebalancing would be overly expensive while a yearly approach would allow for too much intermediate portfolio drift. Do you recommend monthly or quarterly? Is there some sort of calculation I could do to see which is more beneficial (transaction costs/allowable drift)? Corridor-based or portfolio-insurance based seem to intense for me right now.
I’m intimated by reallocating (which I think is the same as rebalancing?). I don’t want to put all of our contributions to the target date fund as the 500 yields such high results! Should I try to figure this out myself? Hire someone? I think this is generally not advised because of all the fees they charge.
Thank you so much for taking the time to help me- you have no idea how much this means to me!
To be honest, I’m far enough from retirement that I feel comfortable with most of my holdings following the S&P 500. My current employer 401K is a TDIF, but the rest of my accounts are VTI or SWTSX. @Jeremy might have some recommendations for rebalancing, but I’m with you, it feels like a lot to learn at the moment, and I’d rather give my money as much time in higher risk funds than play conservative. I figure, if I keep a portion of my funds in a TDIF, that’ll be the account I draw from first if I hit retirement and the market is tanked for some reason, there’s at least a higher bond mix that may shelter me from some of the volatility. Once the market corrects, I’d likely be comfortable drawing down from my stock-heavy accounts.
I’m learning as I go as well, thank goodness there’s a wealth of articles out there to self educate, and Jeremy has been amazing at providing succinct educational material to empower us to manage our path to financial freedom ourselves. For myself, I’ve already started trying to diversify in Real Estate Investments and a REIT (I’m trying out Fundrise), to hedge against market volatility.
Either way, be proud of yourself that you’re thinking about all this and you’re learning and making decisions for your life and your family. Any savings you’re putting toward the future can’t do you wrong. The only “wrong” move might be sticking cash under your mattress. No matter what, you’re already doing great things for your future!
Thanks for the great answers Natalie! You are amazing! 
@annarain, to answer your question about how often to rebalance, I know a lot of smart people who rebalance once a year. Like Jeremy said in the bonus chapter, “you should pick a day like your dog’s birthday, not YOUR birthday because you should be having fun on your birthday, not thinking about your investments, you nerd”… with that being said, some even say every 2-3 years.
Reallocating and rebalancing are different… here are examples of each:
Reallocating - Your target allocation is currently 80% stocks and 20% bonds. However, 5 years down the road, you want to change your allocation to 70% stocks and 30% bonds since you are getting closer to retirement. That is reallocating.
Rebalancing - Your target allocation is currently 80% stocks and 20% bonds. However, 1 year later, stock prices have gone way up but bonds have not grown much. Because of this, your allocation would be off balance and look something like 84% stocks and 16% bonds. You would rebalance to get it back to 80/20.
If a TDIF is not aggressive enough for you, and you can handle the risk of holding the S&P 500, I think that is totally fine! Especially when you have half of your money in a TDIF already. You can always ~reallocate~ as you get older if you ever change your mind. However, I personally would go for the total US stock market instead of only the S&P 500. (I don’t think it makes a big difference but I feel more comfortable with more diversification)
I think you are doing great so no, I don’t think you need to hire someone