Warning about Your Rollover Investment

A cautionary tale about your 401k's if you're looking to rollover or transition an account! I figured I'd be safe with a rollover of funds from my former employer (exited in June of this year) since I was keeping the funds with Fidelity. But alas, that was not the case.

You may be asking yourself, "What does he mean"? Let's go through it.

When you leave an employer where you had a 401k account through, you have a few options:

a) Leave the 401k there (whoever the custodian was - in my case, Fidelity), and keep the funds, though unable to contribute anything. This risks a change in an administrator (happens frequently, so much so that there are various startups out there trying to solve for these 'lost accounts').

b) Rollover funds to the same holder but your own, separate account. (Okay, seems reasonable)

c) Rollover funds to a different provider, usually requested from the new provider of the old using the account number information, sometimes a bit more leg work.

In my case, I chose option B, thinking I didn't want to deal with changing funds up that much and I could deal with an aggregation of accounts a bit later. I found out, though, that the risk / return profile from my 401k did not at all transition to the new rollover account! I went from moderately aggressive to conservative, where the majority (75%!) went to a money market fund of ~4.5-5%.

Now, you may be thinking - that's great! - but not in a year where the market's done 16%+ and I had an aggressive equity profile that I planned to stick with, which is why I elected to stay with Fidelity. I am left wondering that if someone rolls over the funds and doesn't change them, maybe they stick funds into a money market fund so you aren't susceptible to the fluctuations from another fund - where a worst case is someone comes back to check on their funds and notices a drop when they hadn't elected which specific funds. I'd chosen an option in setting the rollover up to stick with closely matching funds. I'm not sure SPY-esque ETF matches a money market fund (it doesn't).

So I'm perplexed by why Fidelity opted into this fund for me. It's really not a big deal because it's only been a short time, but I'd like to think that by staying with a provider, though you may not get exactly the same funds, it should at least be a similar profile (maybe a smarter way would be to err on the side of less fees)? Let this be a warning to anyone looking to rollover to either pre-select your funds (so dedicate a time where you can do this ahead of initiating the transfer) or make sure to follow up and select funds once they've gone through and set up a new account.

Silly, maybe, but I feel like this wasn't a good experience.