Kris,

I don't know a thing about life-cycle funds and I suspect few of the regular posters here do either, though I may be proven wrong. So I can't respond to your question.

I am, however, curious as to what tax code is your new retirement plan. I was not aware that T-C was into 401-ks; they are predominantly provider of 403-b plans and of IRAs. Now if your T-C plan is either a 403-b or a IRA, either ROTH or Traditional, you should have choices other than the life-cycle funds. T-C has some investment choices that are usually available to all who have retirement accounts with them, and to some, quite a few more choices. But what I am getting at, is that you can make a fairly good investment using their traditional offerings and a few of these are quite good. And people here would be glad to give you some recommendations on them.

So if you don't mind, could you tell us what tax code your retirement plan with T-C falls under? And if it is a 403-b or IRA could you list the funds/"accounts" available to you in it?

Ray

I don't own a Lifecycle Fund.  Your post sounds like you're near the beginning of your career.  It's very sensible to get started on investing without waiting to learn all about it.  The sooner the better.

I'll observe that you may have many employers with many different plans by the time you retire.  Some of your plans will get rolled over or combined (at your choice, I mean), others you'll find so attractive that you'll want to hold on to them even though it makes your record-keeping more difficult.

Originally, Lifecycle Funds were conceived of as a one-stop choice.  That is, they were intended to be someone's entire investment at a fund company.  But the way investing and marketing is today, it's very hard to persuade a customer to stop with one fund.  My point is, suppose in five years you get a new job, and that the US economy runs poorly for the next five years?  Your Fidelity or TIAA-CREF lifecycle fund may also be a disappointment.  But it probably will have done exactly what it was promised to do: Invest mostly in stocks, and buy more shares with your periodic payroll contributions while the market was down and fewer shares while the market was up.  You'll look at it and think, "Maybe I made the wrong choice", and you'll roll it over into the new employer's plan, with a new set of choices.

So one issue is whether your desire to make a prompt decision reflects your ability to disregard short-term fluctuations in your retirement account, and keep your hands off it. I'm not arguing with you, just asking you to think about what your risk tolerance is, and what your reaction to a possible U.S. economic recession might be.

You would have to learn a little about investing to make the other choice, two or three funds that you hope will have different performance characteristics, so that you'll see (when they go up and down) that you don't have all your eggs in one basket. Unfortunately, two of the most special choices at TIAA-CREF, TIAA Traditional and TIAA Real Estate are the hardest to understand.

I don't usually find Fidelity to be the lowest-cost provider, but it might be useful to find out if the Retirement-plan status gets you some of their especially low-cost funds without having to get the minimum amount in the fund you'd need in a plain retail account.  They certainly have a fund for every purpose (!), but you probably just have 15 or 20 available in the retirement account.

Tim 

Hi Kris,

There are several members in our extended family who have the same choices you are presented with, and, like you, they are both new to investing and don't want to spend much time on their investments (at least for the time being!).

You ask for opinions on several matters so I'll share some with you based on conversations and decisions made by other family members.

First, though, let's quickly clear up two matters.  There's nothing wrong with you crossposting when the crosspost involves two different fund families.  You did a smart thing.  Second, I see no mention of a 401-K so I assume we are talking about some version of a 403-b (or 401-a).

Factors you should consider:

1. TIAA is very new to the Lifecycle/Target game.  The asset base of their funds, relative to Fidelity's, is quite small.

2. Fidelity has been at the business much longer than T/C.  I'd give the nod to experience, but for all I know T/C might do very well over the long haul (I have no crystal ball available).

3. Fidelity's fees are established, somewhat lower than T/Cs, and most important of all do not have fee waivers.  If you look at the expense ratios of the T/C funds you'll see some asterisks about fee waivers--always a warning sign in my view.

4. The two Fidelity funds aren't nearly as aggressive as T/Cs 90/10 equity allocation. Fidelity is closer to the low 80s, a third of which is in international holdings.  Personally, I would find this more acceptable since I don't buy the "stocks in the long run" optimism of some folks.

5.  The Fidelity funds can hold as many as 24 different Fidelity funds, so it's unlikely that you'll ever quite know  what management's reasoning is.

6. As I recall, the Fidelity funds do not have a high turnover ratio, which means they don't do a lot of trading (that's good in my view).  I'll doublecheck this and edit my post if I'm incorrect.

7. Fidelity may have the most sophisticated software in the business.  They are not likely to screw up your transactions.  Alas, the same cannot be said for TIAA-CREF currently.

In light of your choices, my opinion is that Fidelity is the superior choice.  Bob U.

Disclosure: I do not own any Fidelity funds.

Does anybody have an opinion on TIAA-CREF Lifecycle vs. Fidelity Freedom? I'd be happy to hear it. And if there are other factors that I should take into account when making my decision, that would also be great advice.

Kris,

Like some other posters here, I've been a TIAA-CREF participant since 1970. At first I didn't want to know anything about this stuff and left it alone. Then 12 years later I became interested and took charge, believing that I would learn as I went. I tried everything I could think of including transferring most of the money and buying individual stocks, ETFs, different funds (mostly Fidelity) and following the advice of every newsletter that claimed to have the answers. I even hired "well-known" expensive advisors at times.

Now that I've been retired since 1992 and if I could go back and do it all over again, I would put most of my contributions into TIAA Traditional, and a reasonable amount in TIAA Real Estate and just leave it alone. I would think about other more interesting and important things and let these two Annuities take care of everything. TIAA Traditional is the only investment that is guaranteed to always increase in value and contains the miracle of compounding. TIAA Real Estate is the next best thing to it.

Mutual Funds, ETFs, stocks, and bonds are a scam. Everyone involved with them makes money that's guaranteed except the customer. Investors are the only ones that are gambling with risky securities that are subject to chance and can be manipulated as well by professionals for their own gain. You may get lucky or you may have extraordinary skill and win sometimes, but the price in losses, fees, and management is very high, including emotionally, so you have to subtract those things from your winnings. Those losses also unfortunately compound for the investor.

Best of luck,

Sy    

Kris,

A few more comments in part a response to some posted after my initial post.

I would reinforce Tim's suggestion (he may not have said it this way) that what is important between Fidelity and T-C is not so much the firm itself (they both have pluses and minuses and I have experience with both) but what investment choices are available to you in the plan offered to you at each. 

In the past I had access to a good friend's 401-k for a Fortune 500 firm that was offered via Fidelity and though there was a wide choice of investment options in the plan there were some Fidelity funds which I had expected to be in it that were not. With T-C it is not clear as to how much variation there is in the funds available to the participant with respect to tax code of the plan and also to the specifications and limits specified by the funding organization, not by T-C itself.

Therefore, I suggest you find out what investment options are available in each. Fidelity does indeed have some very inexpensive (they like to advertise the least inexpensive) index funds but if these are not available in your plan they might as well not exist in as far as you are concerned.

I am quite fond of Sy, in general he and I tend to have similar investment strategies but I would not agree with the inference in his post that YOU should do what he would do IF he had to start all over again! I am not one to recommend a 100% equity portfolio to anyone but neither do I agree one should have 0 equity (real estate technically is not equity but let's not open that can of worms here). I do agree with Sy that at T-C, the best and unique investments are the TIAA Traditional Account and the TIAA Real Estate Account and that alone would be enough for me to recommend it over Fidelity.

If I had to make a recommendation for you, it would be to start with something like this; it could be changed later when economic conditions are less confused than they are right now. I would suggest 25% in the TIAA Traditional Account (an account with a guarantedd minimum rate of return of 3% per year backed by what may well be the best financed insurance company in the nation), 25% in the TIAA Real Estate Account (not doing that well now because of the credit crisis and concern for the overall economy but which will bounce back and is a very sound investment in commercial real estate), and 50% invested in equities.

With respect to the investment in equity, the simplest thing to do would be to put it all in the TIAA Stock Account which is well diversifed acorss market capitalizations and across domestic US stocks and international ones. We could do other things with the equity such as using T-C's quite low cost index mutual funds - not a low in cost as some that are available at Fidelity - but that need not be done now. You can always change the allocation later.

These are just my personal preferences. I have to admit I have not had a lot of luck in having my kids follow it but then again they do at least invest some in the Traditional Account and in the Real Estate Account!

Ray

 

Hi Again Kris,

Just to give you a little more context for some of the responses you're receiving here and on the Fidelity board . . . there's a considerable amount of academic research that says a) small stocks and b) value (i.e. "more beaten-up than average") stocks have outperformed big stocks and growth (i.e. "hot") stocks in the past . . . this could change in the future, but both TIAA-CREF and Fidelity's Lifecycle Funds are currently mostly oriented toward big growth stocks . . . . even though I believe that research, however, I don't think it should worry you too much . . . one thing that /is/ a little more worrisome to me about both funds is that their bond choices are oriented toward relatively high risk bonds (which tend to also go down when stocks go down) and don't seem to be oriented toward safe government bonds with inflation protection in particular (TIPS).  At least over the past year, that seems to me to be something that their managers got wrong and the do-it-yourselfers mostly got right . . . maybe to the tune of a 1.5% or so gap in returns.

All of that said, it probably doesn't matter much which fund you choose . . . I think research conducted by a relatively neutral third party (Vanguard) has concluded that TIAA-CREF funds do slightly better than Fidelity's funds over time, but Fidelity has now been replaced by Vanguard as the #1 fund company in the US and is trying to adapt.  They seem to be taking kind of a kitchen sink approach to these lifecycle funds but that's not necessarily a bad thing  . . . .I do strongly agree with Sy that TIAA-CREF's Traditional and Real Estate funds are very special (and they're currently the only two funds I own) but they're conservative funds and /probably/ won't equal the return of the Lifecycle Funds from either company over time.

All best,

Pete  

I would suggest 25% in the TIAA Traditional Account (an account with a guarantedd minimum rate of return of 3% per year backed by what may well be the best financed insurance company in the nation),

Kris & other newbies, 

Just to clarify for the uninitiated: Even though the TIAA Traditional Account guarantees a minimum rate of 3%; during its very lengthy life it has always delivered a reasonable return well above the guaranteed 3%. For example; today it pays 5.25% in its liquid form, and 6% for its long-term form.

(After retirement; if a person purchases a Life Annuity; the guaranteed minimum drops to 2.5%)

I invite (or challenge) anyone to list another investment that pays a guaranteed rate of 6% in today's environment.

Sy

To further clarify the interest rate paid on the Traditional Account in the past I have records of having received 11% in my RA. I believe it has paid an interest rate as high as 13% which is why I describe it as having been a good hedge against inflation in the past. As to whether or not it will be as good a hedge of future inflation I must admit my crystal ball does not respond! In short there is no guarantee it will perform as well in the future as it has in the past but I do believe it will continue to be a good hedge against inflation.

Ray

Hi everybody,

wow, thanks a lot for all these replies and all the information! It's much more useful than any help I have gotten from my College or the two companies, so far. I feel that I have some new insights now which will help me take another look at the retirement plan decision.

@Ray: My retirement plan is a 403(b) and the choices I have with T-C are listed at the end of this post. Both the TIAA Traditional Account and the Real Estate Account that you and others have mentioned are on the list. I actually realized that with all the paperwork I didn't even get such a list for the Fidelity option. (I asked for it but don't have it, yet.)

Again, thanks a lot, Kris

--------------------------------
TIAA-CREF choices

Equities

    * CREF Equity Index Account
    * CREF Global Equities Account
    * CREF Growth Account
    * CREF Stock Account

    * TIAA-CREF Growth and Income Fund
    * TIAA-CREF International Equity Fund
    * TIAA-CREF Large-Cap Value Fund
    * TIAA-CREF Mid-Cap Growth Fund
    * TIAA-CREF Mid-Cap Value Fund
    * TIAA-CREF Real Estate Securities Fund
    * TIAA-CREF S&P 500 Index Fund
    * TIAA-CREF Small-Cap Equity Fund
    * TIAA-CREF Social Choice Equity Fund

Real Estate

    * TIAA Real Estate Account

Fixed  Income

    * CREF Bond Market Account
    * CREF Inflation-Linked Bond Account

Money Market

    * CREF Money Market Account

Guaranteed

    * TIAA Traditional Account

Multi-Asset

    * TIAA-CREF Lifecycle Fund 2010-2040
    * CREF Social Choice Account
--------------------

Kris,

You have a somewhat non-standard mix of investment choices. It includes the nine traditional variable annuities (consider them to be mutual funds that upon retirement you could if you desired to do so convert into an immediate annuity). I do not know what class of mutual funds you have but I am reasonably sure they are of T-Cs Retirement Class. The selection of mutual funds with one exception are actively managed funds; the one exception if the S&P 500 fund. The managed funds will have higher expense rations (ERs) than index funds so while they are not cheap, they are not expensive either.

For the moment I would stick with the allocation I mentioned in my second post for equities - stick with the Stock Account. An alternative would be the Global Equities. If you want information on them go to this Link select the one you want, say Global Equities and click on it; a new window will open with information on the account. Look to the right hand side and note the column of choices the first (at the top of the column of choices) is View - there select and click on Fact Sheet and you will get a two page summary of the Global Equities Account.

You should have enough information now, or will when you get the relevant fact sheets, to make some informed judgments if you go with T-C.

Ray