Freedom, Freedom Index, or Freedom Blend: Understanding Fidelity’s Confusing Lineup Of Target-Date Funds

September 26th, 2022
15

For beginning investors, I’ve long advocated for target-date funds as a great way to get started with investing.

In a single target-date fund, you are able to get a diversified portfolio in multiple asset classes, including U.S. stocks, international stocks, and U.S. bonds, all with a single fund. The asset allocation of a target-date fund automatically becomes more conservative over time, and it automatically rebalances your portfolio when one asset class does significantly better or worse than another.

However, as simple as target-date funds are to invest in, it’s critical that new investors understand that not all target-date funds contain index funds. Numerous fund companies, including Fidelity, offer high-expense target-date funds that contain actively-managed index funds.

Freedom Blend: A Mix Of Active And Passive

Fidelity introduced a new set of target-date funds, the Fidelity Freedom Blend funds, in August 2018.

The Fidelity Freedom Blend funds are target-date funds that contain both active and passive mutual funds. By comparison, the Fidelity Freedom funds contain only actively managed funds and the Fidelity Freedom Index funds contain only index funds.

Fidelity has blended together active and index mutual funds in creating their Fidelity Freedom Blend funds.

With the Fidelity Freedom Blend funds, Fidelity hopes to attract investors who want a mix of both active and passive investing within a single fund.

Essentially, Fidelity wants to capture investors who can’t decide where they stand in the active vs. passive investing debate, and think the middle ground (a combination of both) would be the best way to invest.

Fidelity Freedom Blend Funds Composition

Fidelity does not disclose the exact portfolio of active and index mutual funds it uses for its Freedom Blend funds. This is similar to what Fidelity does with its Freedom funds.

They do describe in the prospectus the approximate asset allocation they are aiming for with each Freedom Blend fund. However, the fund manager, at their discretion, can deviate from this target allocation by plus or minus 10%.

The typical asset allocation of the target-date fund and the glide path can be derived from the published asset allocation of the Freedom Index Funds, which does not have fund manager discretion.

Target-Date Ticker U.S. Stock Int. Stock Bonds Other
2020 FPIFX 40% 17% 34% 9%
2025 FQIFX 44% 19% 31% 6%
2030 FXIFX 53% 22% 24% 1%
2035 FIHFX 61% 26% 12% 1%
2040 FBIFX 63% 27% 9% 1%
2045 FIOFX 63% 27% 9% 1%
2050 FIPFX 63% 27% 9% 1%
2055 FDEWX 63% 27% 9% 1%
2060 FDKLX 63% 27% 9% 1%

Fidelity Freedom Blend Tickers and Expense Ratios

Here are the ticker symbols of the Freedom, Freedom Index, and Freedom Blend funds by target-date, along with their expense ratios:

Target Date Freedom Freedom Blend Freedom Index
2020 FFFDX (0.61%) FHAVX (0.50%) FPIFX (0.14%)
2025 FFTWX (0.66%) FHAUX (0.51%) FQIFX (0.14%)
2030 FFFEX (0.70%) FHATX (0.52%) FXIFX (0.14%)
2035 FFTHX (0.74%) FHASX (0.53%) FIHFX (0.14%)
2040 FFFFX (0.75%) FHARX (0.54%) FBIFX (0.14%)
2045 FFFGX (0.75%) FHAQX (0.54%) FIOFX (0.14%)
2050 FFFHX (0.75%) FHAPX (0.54%) FIPFX (0.14%)
2055 FDEEX (0.75%) FHAOX (0.54%) FDEWX (0.14%)
2060 FDKVX (0.75%) FHANX (0.54%) FDKLX (0.14%)

And here’s a graph of the expense ratios of the Fidelity target-date funds:

Fidelity Freedom Blend target-date funds offer expense ratios in between the Fidelity Freedom funds (which contain active mutual funds) and the Fidelity Freedom Index funds (which contain index funds)

Conclusion

The Fidelity Freedom Blend funds have the benefits of target-date funds, but contain a mix of both actively-managed and index funds. Because actively-managed funds underperform index funds on average, I would stay away from these funds. For investors wanting to invest in target-date funds at Fidelity, I would strongly recommend their Freedom Index series of target-date funds, which offer the benefits of target-date funds with the lowest fees.

Avoid the new Fidelity Freedom Blend funds; buy the Fidelity Freedom Index funds if you want to invest in a target-date, all-in-one fund. Click To Tweet

What do you think? Who do you think is the target audience for the Fidelity Freedom Blend funds? Do you think the Fidelity Freedom Blend target-date funds will gain traction among investors?

15 COMMENTS

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    Best wishes.
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