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Sizing Up 2 Passive Target-Date Fund Series

Jeff Holt, CFA

Jeff Holt: The BlackRock LifePath Index funds (LIBIX) and the Fidelity Freedom Index funds (FQIFX) are both target-date fund series, both invest in passively managed strategies, and they both earn a Morningstar Analyst Rating of Silver. But there are distinct differences between the two.

One major difference between the two is in the equity glide path. The BlackRock series hits its most conservative equity landing point of 40% in equities at the target date and will continue to hold that much in equities throughout the retirement phase, whereas the Fidelity series will have over 50% in equities at the target date but will continue to become more conservative for another 15 years.

Both these series are considered passive because they invest in index funds, but that does not mean they are investing in the same asset classes. For example BlackRock includes REITs, both international and domestic, as well as international small caps, whereas Fidelity includes commodities and has a higher allocation to cash. For example, the Fidelity Freedom Income (Index) fund (FIKFX) holds as much as 30% of its assets in a money market fund, whereas BlackRock keeps its cash allocation minimal.

While both of these series are solid low-cost options for target-date investors, it's important to be aware of the differences between the two.