Why I Switched to Fidelity

Why I Switched to Fidelity

This post is meant to generate discussion regarding the right investment provider with the right investment products for your personal financial situation. Choosing your investment provider is one of the most important decisions people make as they move to financial independence.

I mentioned in an earlier post that I am not going to be “buying back” into our pension plan. The reasons are many, but primarily it is because I want to have control over the money that I make and invest and I don’t trust the political winds in America to strengthen public pensions. So when I decided initially to not join the pension system I signed up for what we call our Optional Retirement Plan (ORP) or better known as a 401k, although technically it is a 401a. The provider that I chose to manage my 401(a) was TIAA-CREF.  TIAA-CREF is an excellent company that provides some good services and products. When I signed up for the ORP they were the best provider that I was allowed to choose. However, a few years ago my employer expanded the options for retirement providers and I immediately jumped ship and transferred all my investments to Fidelity.

So why did I switch?

TIAA-CREF is a fine company, but their retirement options, for me, weren’t the best choices in the world. For many educators, TIAA-CREF primarily offers variable annuity products (e.g. CREF Stock, CREF Global) to choose from. They are typically linked to one of the stock indices (Russell 2000, S&P 500), act much like an index fund (which I am huge fan of), and when you are done investing with TIAA-CREF (perhaps at the end of your career or about to enter retirement) you can turn those annuities into an income stream, similar to a pension. So what’s the problem? First, TIAA-CREF, although it does do it for some 401(a) accounts has a limited number of variable annuities to choose from. When I was researching switching to Fidelity I found that they had a lot more choices for mutual funds. Frankly, I liked the choices more.

Secondly, TIAA-CREF’s variable annuities did not pay out a specific dividend where I would be buying more shares/units of that particular annuity. For example, at the end of the year most mutual funds have a specific dividend yield, an amount of money they give out to their investors. Typically, it isn’t much. Often less than 1% of whatever it is in that particular fund. You can elect to receive those monies in cash. However, most of the time when you are accumulating retirement assets those monies are re-invested and will buy more units of that particular mutual fund. TIAA-CREF’s variable annuities don’t do that. I wasn’t earning more units at the end of a quarter or year. For whatever reason, I didn’t like that idea. I wanted to see my money grow. My investment units increase and hence the value of my investments increase.

Now let me be clear. If you have money with TIAA-CREF you do NOT need to switch providers. They are A GREAT COMPANY! As I understand it (and I could be wrong if I am please post a comment to correct my understanding of what is going on. Remember, I am learning more and more about this stuff all the time and am certainly do not have authoritative knowledge in all things financial) they (like most variable annuities) reinvest the monies they earn to strengthen the reserve of the annuity. TIAA-CREF does a great job for its investors. It is a company with a great reputation. But I didn’t like the limited investment options that I had with TIAA-CREF and I wanted to see the monies I earned from my investments to be re-invested into that mutual fund.

Don’t get me wrong there are some great advantages of TIAA-CREF’s variable annuities over traditional mutual funds. I just choose to invest in a different way. Who knows I might switch back someday. I didn’t have a bad experience with them. I just preferred a different investment provider. Make sure that when you are choosing providers or potentially going to switch that you investigate all of the options, including what kinds of products they offer, what are their potential fees, and where this fits in your overall investment plan and portfolio. Big thing is ask questions, read the information that human resources gives you. Talk with your school’s representative. Call up your provider and potentially ones you might switch too and speak with some of the account representatives to walk you through the process. Go the meetings with the representatives when they come to your campus or school. This is a subject that too many of us don’t do enough research on. We spend more time on finding deals on a hotel for a vacation than on money choices that may have great impacts into our financial lives.

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