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Smoke, Mirrors, and Alphabet Soup

Mar 19th, 2012
by jblankenship.
7 comments
A bowl of alphabet soup nearly full, and nearl...

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In an environment of Ponzi schemes and financial scandals many Americans have lost trust and confidence in the financial profession; seems like there are some financial advisers that have been helping themselves, more than their clients. To fight back against this trend of lost trust and skepticism, advisors are being more creative with credentials, some of which can be earned with minimal or no study and can be bought with a couple hundred dollars. A quick look at the Financial Industry Regulatory Authority’s web site (FINRA) (http://apps.finra.org/DataDirectory/1/prodesignations.aspx) shows over one hundred and twenty different credentials being used by advisors to build creditability and trust.  I’m sure there are many more not tracked by FINRA.

Professional certifications arose decades ago as a way for people in various industries to identify qualified practitioners. It’s always good to know that our doctor has an MD or our account is a CPA. In the financial realm, many well-established credentials, including the Chartered Financial Analyst (CFA) and Certified Financial Planner (CFP®) designations, require long study, demand continuing education and enforce strict codes of ethics. In order to become a CFP®, for example, one must meet the following requirements:

1)      A bachelor’s degree or higher from an accredited college or university

2)      Three years of full time financial planning experience

3)      Complete a CFP® board registered program or hold one of the following

  • CPA
  • ChFC
  • Chartered Life Underwriter (CLU)
  • CFA
  • Ph.D. in business or economics
  • Doctor of Business Administration
  • Attorney’s License

4)      Successfully complete the 10 hour CFP® certification exam

5)      Complete 30 hours of continuing education every two years.

Increasingly, I suspect, financial advisers are using dubious designations as marketing tools to win back the trust of older, wealthier clients.  Some of the more popular are those that use the term “senior” in their name. Some examples are: certified senior adviser, certified senior consultant, certified senior specialist, certified senior financial planner, chartered senior financial planner and chartered adviser for senior living. I get confused when hearing all the “senior” designations and am left wondering, do the advisors who hold these, really have any special education or experience working with seniors, or do they just want you to think they do?

To confound the issue even more many designations sound similar (and I think this is intentional) for example, the certified retirement financial adviser, or CRFA, sounds similar to the CFA designation. But the CFA requires roughly 900 hours of study in accounting, economics, ethics, finance and mathematics, and only 42% of candidates pass its three required exams, a process that can take several years. The CRFA, by contrast, requires that students pass one exam consisting of 100 multiple-choice questions, for which 40 to 75 hours of preparation is typically sufficient preparation.

In much the same way, the CSFP, or chartered senior financial planner, credential could be confused with the certified financial planner, or CFP®, designation. The CFP®, established in 1972, requires that students pass the equivalent of 15 credit hours of college-level courses, culminating in 10 hours of exams. The CSFP, launched in 2003, requires a three-day review course and the passing of one two- to three-hour exam.

Over the last few years the term “Wealth Management” has become popular with advisors as a way to attract wealthier clients.  It didn’t take long for a list of wealth management designations to appear.

  • WMS – Wealth Management Specialist
  • CWC – Certified Wealth Consultant
  • CWS – Certified Wealth Strategist
  • AWMA – Accredited Wealth Management Advisor
  • CWM – Chartered Wealth Manager
  • CWPP – Certified Wealth Preservation Planner

While some of these designations may be good for consumers by giving their advisor specific knowledge and experience, many will turn out to be marketing gimmicks employed by advisor to attract wealthier clients.

Credentials are used because they help advisers make more money. A 2007 study by FINRA’s educational foundation determined that 46% of older investors were more likely to accept financial guidance from someone with a professional designation – and 17% of investors would be more receptive to advice from a “certified adviser for senior investing,” even though such a credential doesn’t exist.

Buyers beware when it comes to initials behind someone’s name. According to the American Academy of Financial Management, based in New Orleans, the things to look for are these: accredited degrees, licenses, or master’s degrees from government-recognized or accredited programs or educational institutions with concentrations in Finance, Investments, Securities, Economics, or Accounting. These requirements make individuals eligible for Professional Designation. You can also check out designations yourself by calling the issuing organization and finding out what the requirements are – you might be surprised by what you find.
Steven Young, CFP® (XZ$, LMNOP, EIEIO)

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A brief overview on currency trading

Nov 7th, 2011
by Ms Smith.
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Note from Jim: The guest article below is simply an overview of the currency trading marketplace.  This sort of investing is extremely risky and should not be undertaken with funds that you are not prepared to lose completely, especially if using leverage (described below).  I don’t condone or recommend investing in this market; it is only presented here for edification, and the opinions presented are those of the author.  Proceed at your own risk!

Series of 1917 $1 United States bill
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The currency trading market is the largest financial market in the world where currencies are traded on a daily basis. Individual retail investors, corporations and financial institutions are the major participants in the currency market. The currency trading is mainly done through the brokers and the market makers. If you want to enter into this market, you are required to place trades through brokers, who will place equivalent trade on the interbank market. The most important hallmark of this market is its extreme liquidity. The investors can cash in or cash out of their investment with no time at all. This market is also characterized by high leverage ratio. If your investment amount is say $1000 and if the leverage ratio is say 100: 1, it implies that in actual practice you can trade with $100000. Whatsoever, currency trading offers you excellent income earning opportunities.

If you purchase some units of a currency at a certain rate and sell those units at some higher rates, then you can make some profit. The difference between the selling price and the buying price is your gain from currency trading. Value of a currency can change for a variety of reasons. The value of a currency is determined by several factors such as international inflows and outflows of business, speculation activities and political & economic activities. Say, US companies are importing the products made in the Euro zone. It implies that US dollars have to be exchanged for Euros to pay for the products produced in the Euro region. When huge amount of goods are imported from Euro to the US, it increases the demand for Euros and resultantly the value of Euro increases vis-à-vis US Dollars.

Whatsoever, trading in currencies is very risky too. In comparison to other markets, currency market is very much volatile in nature. In order to become successful as a currency trader, you need to follow a conservative risk management strategy. There are many aspects of effective risk management strategy. The bottom line is that you should have a proper trading plan and use caution while trading in currencies.

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3 Top Jobs that can Help your Child Escape Loan Debt

Aug 15th, 2011
by Mariana.
1 comment
Modern differential, cut away to show structure
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The summer is quickly ending which means school will shortly commence. While it’s great that your child is college bound, that doesn’t mean you want to be forced to take out hefty loans or spend your life savings to foot the bill. Fortunately there is a way your child can go to school for free (or at least for a fraction of the price) by simply choosing a specific career. The careers highlighted below are known to give loan reimbursement after a few years of employment. With that said, your child may just be able to pursue their dreams while their employers pay back their loans. To see what some of these career choices are, continue reading below.

1. Educator. If your child wants to pursue elementary or secondary education, he or she may be eligible to receive a full reimbursement of their Federal Perkins Loan if after graduation they are hired to teach in a low-income school district. The trick is that they have to be employed for a minimum of 5 years.  While a new teacher may not be thrilled at locking into five years under unknown circumstances, a 5 year contract does guarantee a steady pay-check. If your child decides to become certified in areas that are in great demand right now, such as math and science, special education, or foreign languages, your child may very well be eligible to receive an additional $17,500 loan reimbursement of their Federal Family Education or Loan Direct Stafford Loan. Of course, your child must meet certain conditions and requirements. To get a better understanding of what they are, click here.

2. Nurse/ Doctor. The healthcare industry is a lucrative career field to pursue for many different reasons. The first is that the hire-ability rate is generally high because there is always a constant need for people who can aid the sickly and elderly. The second is because there are tons of loan forgiveness programs available for those who particularly want to be nurses and doctors—and those paying their way through medical school are going to want all the help they can get.  Because individual hospitals and states set their own standards of who can qualify for the various loan forgiveness programs it’s hard to say how much employees can get reimbursed.  But, typically employees must work a minimum of two years at a hospital or medical facility that is understaffed in order to earn up to 60 percent in loan forgiveness. Those who choose to work in the understaffed environment for an additional year can earn even more loan reimbursement. To look at some of the various loan forgiveness programs offered in each state, click here (remember that this is not all and your child should specifically ask the medical facility he or she works for to get some insight to additional options).

3. Government/ Public Service Employee. If you child works for the government—either at the federal, state or local level—or a non-profit organization he or she may be eligible to receive a full loan reimbursement. The same applies for those who pursue a career in public service, either as a public safety worker, fire fighter, social worker or even a librarian for example. However the requirements to earn this loan forgiveness are pretty intense. Your child must be employed in the field for 10 consecutive years and make 120 timely loan payments before the loan forgiveness can kick-in. Your child can also earn educational credits or a stipend that can be applied to debt and loans if he or she chooses to work for various philanthropic organizations, including the Peace Corps or AmeriCorps. For more information about becoming eligible for loan forgiveness programs within these career fields, click here.

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What Amount of Savings Should You Have at 40?

Apr 25th, 2011
by Kelly Austin.
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International Money Pile in Cash and Coins

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By the time you turn 40, your attention is likely to gain more focus on the amount of savings that you have. If you haven’t already gained control of your spending and saving habits, now is the time to do so. 40 is also an age when you’re probably beginning to think about future retirement or sending the kids off to college. What amount of savings should you have put back by then, and how will you ever be able to accomplish your goal? The truth is, there are no restrictions to the amount of money that you can save if you put your creativity and knowledge to good use.

What Are You Saving For?

Building a hefty savings account is only made more difficult if you do not have a clear idea of exactly what it is that you are saving for. Saving money just to save it can be effective, but it is still important to set a clear goal for yourself. If you know what you are saving for, deciding between a $5 latte and that trip to Italy is made a lot easier. Do you want to be able to travel after the kids leave for college? Do you want to retire early? What about college tuition for your children? All of these are important questions to ask yourself when building a savings account.

Start Saving Early for the Best Payoff

Did you know that if you start saving just $50 per week at the age of 30, you will have more than $40 thousand dollars by the time you are 40 years old? Starting early on savings can have a huge payoff in the end. Ultimately, the longer you are able to save for your goal, the less you have to save each week or month.

Earn Savings by Freelancing Your Skills and Talents

Freelancing your skills on the side can be an excellent source of revenue for your savings. Offering guitar or beading lessons, tutoring and even landscaping on the weekends are all ways that you could earn money towards your savings goal. Trying to save can be difficult if you’re on a tight budget, but there are always new ways to make money.

Maintaining a clear focus on your goals and getting creative with your ideas (rather than letting your savings account overwhelm you) is by far among the best foundations for building a strong savings at 40, or at any age.

This article was written by Kelly Austin from HigherSalary.com. Visit her site for information about the average accountant salary and pay information for other popular careers.

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Bankruptcy – what it means, and where to begin your recovery

Apr 11th, 2011
by dspader.
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Do you truly understand the consequences of your bankruptcy? Many consumers believe that their financial futures are ruined after such an event. The details below reveal the truth about what it means and how to start your recovery.

The Truth About Bankruptcy

The extent to which bankruptcy changes your life depends on the particular track followed. Chapter 7 is liquidation path, in which some of your property is sold to repay creditors and almost all debts are canceled. Chapter 13, on the other hand, is a three-to-five-year repayment plan in which most debts remain in force.

Eiko and her credit card
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Elimination of All Debts

While bankruptcy can develop a plan for canceling or repaying auto loans, credit card bills, personal loans, and medical bills, you may not end up with a clean slate. Some debts, such as student loans or child support, typically remain intact.

Loss of Belongings

Under Chapter 7, you are likely to lose possessions such as your car, new furniture, or certain other disposable assets. In most cases you can keep your home, but the lender can still foreclose on the property if agreed-upon payments are not made.

Recovery

Bankruptcy can mean the end of a financial struggle, but it is also the beginning to new opportunities. The advice below will help ease the transition.

Repay Your Bills

Because bankruptcy may not eliminate all of your bills, one of the most important post-discharge actions you can take is to repay these creditors. Payment history accounts for about 35% of a credit score, so on-time payments are key to eliminating the bad credit stigma quickly.

Address the Problem, Not the Symptoms

Even though new laws have made filing more difficult, some people still think of this process as an easy way to eliminate debts and continue life as if nothing happened. Instead of returning to old ways, figure out what caused the bankruptcy and fix it. Consider whether you would benefit from a monthly budget or a larger emergency fund.

Apply for New Credit

After you understand how to use credit wisely, you may want to apply for one or two new accounts. Secured credit cards are the easiest to obtain because borrowers must make collateral deposits. Department store and gas cards are also effective.

Seek Help

Bankruptcy can be an isolating experience. Instead of accepting the status of a financial leper, find sources of moral and financial support. Talking with other people who have gone through a similar discharge can be an eye-opening experience. Finally, spending a few dollars for the advice of a financial professional can give you the tools you need to recover from bankruptcy and improve your financial future.

David Spader is a freelance writer and blogger who usually looks at savings account deals over at SavingsAccount.Org. His most recent review looked at the best saving account rates.

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Kinds of financial form – Why they’re essential in every financial transaction

Mar 7th, 2011
by graceruskin.
2 comments
Form 1

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If you’re in the market for some financial transaction, you must be aware of the importance of financial forms. Financial forms are the first thing that you see when you apply for a mortgage or a loan or even for any kind of membership. There are different kinds of financial form like membership forms, loan application forms, real estate forms, legal forms, business forms and many more. No financial transaction can be complete without a financial form. It completes the process and makes the transaction authentic. Whether you’re buying a house, paying taxes or paying an insurance premium, the need of a financial form is obligatory. Read on to know the various types of financial forms available and their purposes in every financial deal.

Where can you get a financial form?

The aforementioned question is mostly asked by those consumers who are in the market for any kind of financial transaction. Well, with the widespread use of the internet, almost everything under the sun can be downloaded by a click of the mouse. Financial forms are no exception. You can easily browse through the internet in order to get the financial form that you need. Though there are certain websites that offer various kinds of financial forms free of cost, there are many more that may charge a nominal fee per form. You just need to choose the form and click on the ‘download’ option. The financial forms that you get through the internet are usually available in .doc or .pdf or html format.

Financial forms – Why is every financial deal incomplete without them?

As already mentioned earlier, financial forms are a prerequisite for every financial transaction. But have you ever thought why a financial deal can’t be complete without using a financial form? Well, every transaction requires being authentic so that there are few chances of any kind of discrepancies in future. For instance, if you’re applying for auto insurance, there are a number of financial forms that you need to fill out during the entire transaction. You have to start the transaction by filling out a financial form and also close the application by filling out some other forms. Therefore, you can well understand that financial forms are usually needed to commence and also close a particular financial deal. This boosts the credibility of the transaction as everything is written and there are no chances of being hoodwinked by your lender in future.

3 Kinds of financial forms that may help you legalize your deal

Here are some kinds of financial forms that care available on the internet and that can help you legalize all your financial transactions.

  • The real estate forms: There are various real estate financial forms like deeds, contracts, purchase agreements, eviction forms and many more. All these forms are very important for any real estate transaction. Contracts are unilateral and bilateral and it is a legally binding agreement. Deeds are legal instruments that are implemented to grant a right. Deeds are financial documents that fall under a wider class of documents that are under seal.
  • The bankruptcy forms: A debtor usually files for bankruptcy when he declares himself to be financially unable to repay his debts to his multiple creditors. However, when a person files for bankruptcy, he has to seek the help of a bankruptcy attorney, fill out a Chapter 7 bankruptcy form with the exact information demanded by the bankruptcy petition court.  Filling out a Chapter 7 bankruptcy form will put the debtor as well as the creditor into certain restrictions. Thus, it is necessary for you to fill the form without any error so that you could avoid any further discrepancies.
  • The insurance forms: An auto insurance financial form is required when you’re applying for an auto insurance policy to protect you and your vehicle. You usually provide the insurance lender with all your personal information, your vehicle details, household details and many more things.

While choosing among the various kinds of financial form, it is always advised by most financial experts that one must download the forms from a reputable website. Seek the help of financial professionals if needed, so that you can choose the right form and fill it up without making any errors.

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Remortgaging Your Home at a Lower Interest Rate

Jan 31st, 2011
by jsanders.
1 comment

Remortgaging your home at a lower interest rate comes with several advantageous aspects. Many people purchase a home with what they think are reasonable interest rates; however, many times as time goes by they see that interest rates have dropped. Remortgaging is a wonderful way to access and take advantage of a lower home interest rate. Many times the result of remortgaging leads to a lower monthly mortgage payment, as well as being able to consolidate other debts. Both lenders and brokers can help a person decide if it is best they proceed through a remortgage process.

Important Things to Consider

It is always important to keep in mind that a remortgage should be heavily evaluated and contemplated before completed; this is the key behind making a remortgage cost efficient. Thinking ahead often allows a debtor to secure a remortgage rate several months in advance. Being able to secure a rate in advance enables a debtor to stay ahead of potentially rising interest rates. Almost all lenders will advise debtors to think ahead at least 6 weeks when they want to secure a loan before one expires.

Plan Ahead

Being prepared and staying ahead of the market involves a great deal of research. This allows a person to find the absolute best interest rates to help them save money on a remortgage. Most times it is wise to consult with a broker and/or lender and follow their advice; after all, remortgaging is a daily part of their lives. There are many online websites that offer remortgage price comparisons, and these are very helpful tools to view when it comes to receiving an accurate idea as to whether a debtor should refinance.

Lowering the amount of a loan significantly helps the chance of securing a remortgage loan with a low interest rate. Many lenders will allow a debtor to pay off part of their existing mortgage with any savings or extra money they have on hand. Lower interest rates are almost always accompanied with loans that have a lower value.

Be Prepared and You’ll Be Fine

The remortgaging process is often confusing; however, being prepared is the key aspect at obtaining all the benefits it has to offer. Always think ahead, shop around for different available interest rates, and always try to lower your mortgage loan amount. Not only will remortgaging save you time and money, many times it can help bring you peace of mind.

There is no need to stress about remortgaging. The easiest way to see if you qualify for a remortgage is to talk to your lender. They can guide you through the complete process of a remortgage, and most times offer you helpful tips that will save you time and money when it comes to completing the process.

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New Book: “Can I Retire?”

Dec 6th, 2010
by jblankenship.
4 comments

Can I Retire CoverMy friend Mike Piper at Oblivious Investor recently published a new book Can I Retire? Managing a Retirement Portfolio Explained in 100 Pages or Less. The book is available for sale on Amazon.

As the latest addition to Mike’s “…in 100 Pages or Less” series, this book answers two questions:

  1. How much money will you need to retire?
  2. How should you manage your retirement portfolio to minimize the risk of outliving your money?
What Makes This Book Unique?

How does this book hope to be better than, for example, The Bogleheads’ Guide to Retirement Planning or Jim Otar’s Unveiling the Retirement Myth?

It doesn’t. It’s not better. It’s shorter.

Can I Retire? is written for the person who might not be able to find the time to read Otar’s entire 525-page book or the 370-page Bogleheads’ Guide.

If you’re considering reading a more in-depth guide to retirement planning, I wholeheartedly encourage you to do so. (Both of the above-mentioned books are excellent!) But if there’s a good chance that, if you were to buy one of those other books, it would sit unread on your coffee table or bookshelf, then this book is written for you.

What Topics Does the Book Address?

Some of the topics addressed in the book include:

  • How to calculate how much you’ll need saved before you can retire,
  • How to use annuities to minimize the risk of outliving your money,
  • How to choose which accounts (Roth vs. traditional IRA vs. taxable) to withdraw from each year,
  • When it makes sense to use a Roth IRA conversion to save on taxes,
  • How to choose an appropriate asset allocation for your retirement portfolio, and
  • How to minimize taxes by proper use of an asset location strategy.
Retiring Soon? Pick Up a Copy of Mike’s New Book:

Can I Retire CoverCan I Retire? Managing a Retirement Portfolio Explained in 100 Pages or Less

Click here to see it on Amazon.

Household Businesses that are Doing Well During the Recession

Sep 13th, 2010
by Louise Baker.
1 comment

recession by Anders VWhile many small businesses have been suffering as the nation tries to emerge from a struggling economy, certain household-name businesses are doing quite well. From restaurants to retail stores, there are many examples of companies having success during these tough times.

McDonald’s (NYSE: MCD)

McDonald’s has profited quite a bit in this economy. Offering meals well under $10.00 and a number of new menu items, the chain served some 60 million customers each day in 2009, up 2 million per day from the previous year. Earnings per share for calendar year 2009 were up 9% from the previous year. The latest 2010 figures for July 2010 show United States sales growing by 5.7% over the same period in 2009. Sales in Europe rose 5.3% and Asia, the Middle East and Africa had a very impressive growth rate of 10.1%.

Walmart (NYSE: WMT)

The nation’s leading retailer has been able to hold up well during this most recent economic downturn. Long known as the low price leader, Walmart has attracted more customers that used to shop at somewhat more upscale stores. The regular clientele continue to shop at Walmart for hardware, household goods and groceries. Attractive pricing, a wide variety of items and many special deals have made Walmart the preferred choice of millions struggling with the difficult times. People still need to buy all the necessities such as clothes and food and Walmart is amongst the most affordable options out there.

Dollar General (NYSE: DG)

This store has found a niche that does very well in times where people need to make the most of a dollar. Offering most of their merchandise for a single dollar (some items are more), the store is great for things like cleaning supplies, paper plates, toilet paper and all sorts of other household items. People always have a few dollars in their pocket and can fill a bag for $10.00 or less. Shoppers still like to shop in quantity and Dollar General, with its conveniently located stores, has accomodated that need.

Goodwill Stores

Goodwill Industries has experienced a surge in customer traffic and sales. The king of the second hand or thrift stores is a well managed company that sells donated second hand merchandise (and some brand new items) at highly discounted prices. Women love shopping for clothes as they can pick up jeans for $5.00 that would sell new in a Department store for $50.00.

Florida Power & Light (FPL)

Like all regulated utilities, FPL continues to make a profit by providing service at a price determined by government agencies. They have invested well and are able to cut costs in many areas while providing excellent service. Management has taken advantage of technology and has instituted innovative plans to improve productivity which transfers to the bottom line.

Louise Baker is a freelance blogger and journalist who writes for Zen College Life, the directory of higher education, distance learning, and online schools. She most recently wrote about the top online colleges.

Photo by Anders V

What Does A Fidelity Target Date (Freedom) Fund Invest In?

Aug 11th, 2010
by jblankenship.
3 comments

Note from Jim:  I’m on vacation this week – hope you enjoy the following post from my friend and colleague, Roger Wohlner, CFP® who writes at the blog Chicago Financial Planner.  Roger operates his Fee-Only financial planning practice out of Arlington Heights, Illinois.

Fidelity is one of the largest providers of 401(k) plans and like many fund company platforms it is common for their plan sponsor clients to offer several or all of Fidelity’s Target Date funds known as the Fidelity Freedom funds. These funds have target dates from 2005 every five years out to 2050 with an even shorter-term Retirement Income fund. The premise behind these and other Target Date funds is that a plan participant will choose a fund with a date close to when he or she might retire, invest their contributions and let the fund manager do the rest. The funds typically lighten up on equity investments as the target date draws nearer, at some point they go to a “glide path” into retirement typically at the target year. This means the fund at that point is geared to the typical life expectancy of someone retiring in that year, the allocation allows the fund shareholder to “glide” into retirement.

There has been much controversy as to whether Target Date funds work as advertised. My purpose in writing this post is not to comment on these issues one way or the other. Rather I want to take a look at how the Fidelity Freedom Funds actually invest shareholder’s money.

The Freedom Funds like many Target Date funds are funds of funds. Each Freedom Fund has its own mutual fund ticker symbol. Unlike many mutual funds which make direct investments into individual stocks or bonds, the Freedom Funds invest in a variety of Fidelity mutual funds. Which funds and the percentage held of each fund will vary by Freedom Fund. I made a list of their underlying holdings using Morningstar’s Advisor Workstation. I then used the Fi360 Toolkit to rate these funds based on their 11 point criteria:

• Fund inception date (at least three years)
• Manager Tenure (min. 2 years)
• Minimum fund size
• 2 measures relating to fund investment style and asset composition
• Expense ratio
• 2 measurements of risk-adjusted return
• Trailing 1,3,5 year returns

All funds are rated relative to other funds in their peer group.

In looking at the 26 Fidelity mutual funds that I found as holdings of the various Freedom Funds I found the following for the ranking period ending 12/31/09:

• Three of the funds received the highest ranking of 0. This means no deficiencies, they passed all criteria.
• An additional four funds earned a score ranging from 1-25 indicating that they passed most of the criteria. This would indicate that these funds rank in the top 25% of all funds in their peer group with enough data to be ranked.
• Four funds had scores ranging from 26-50 indicating that they did not pass in a couple of areas but these funds overall rank in the top half of their respective peer groups based upon the ranking criteria.
• Five of the funds had a ranking in the 51-74 range indicating that they were deficient in several of the criteria and overall place in the lower half of their peers with enough history to be ranked.
• One fund had a score of 87 meaning that it was deficient in most areas and ranked in the bottom 13% of its peers. A ranking in this range indicates that strong consideration should be given to replacing such a fund.
• Nine of the funds did not have enough history to be ranked. These funds are all Fidelity Series funds. This appears to be a new group of funds that Fidelity has designed for use in their Freedom Funds. The funds all have anywhere from a month’s worth of history out to about a year. They would flunk the inception date test for the amount of time the fund has been around. These may ultimately prove to be good funds over time, but as an advisor I am generally loath to invest client money in new, untested funds unless there is a compelling reason to do so.
• Noticeably absent from the underlying funds within the Freedom Funds are any of Fidelity’s low cost core index funds covering areas such as the S&P 500; total domestic stock market; international equities; or their total bond market index fund. These are by and large solid, low cost holdings. Also absent are several top Fidelity funds such as Contra, Low-Priced Stock, and others.

In their defense of the 11 numbered Freedom Funds, 10 earned a score of 0 for the most recent ranking period and the other one earned a top quartile score of 20. Keep in mind; however, these rankings are within the target date peer groups via Morningstar. All of these groupings have a small number of funds and there is not a lot of history in some cases. A really good or really bad quarter or two can skew a target fund’s relative ranking. Additionally the peer groupings have changed and been revamped at least twice in the past several years.

Should you invest in these funds? As a plan participant you need to understand the fund’s investment philosophy, the glide path concept, and the fund’s underlying investments. Remember just because a particular fund has a target date closest to when you might retire, you can go with a closer date fund if you want to be a little less aggressive or a longer-dated fund if you want to be a bit more aggressive.

Plan sponsors it is incumbent upon you to monitor the Target Date funds in your plan as closely as you would review any plan investment choice. In the case of a Fidelity plan you may or may not be limited to the Freedom Funds.

Again I am not saying the Freedom funds are good or bad. Clearly they did well relative to their peers in 2009. Participants and Sponsors need to understand these funds and what they can and cannot offer.

Photo by Paul Keleher

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