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Best Fidelity Index Funds for the Easiest Investing Strategy Ever - YouTube
Channel: Let's Talk Money! with Joseph Hogue, CFA
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I鈥檓 using just three Fidelity index funds
to create the easiest investment strategy
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you鈥檒l ever find.
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Not only will this strategy take the guesswork
out of investing, it鈥檚 also going to protect
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you from some of the worst investing mistakes.
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I鈥檒l show you how to find the best Fidelity
index funds and how to build your own portfolio.
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We鈥檙e talking index fund investing today
on Let鈥檚 Talk Money!
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Beat debt.
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Make money.
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Make your money work for you.
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Creating the financial future you deserve.
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Let's Talk Money!
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Joseph Hogue with the Let鈥檚 Talk Money channel
here on YouTube.
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I want to send a special shout out to everyone
in the community, thank you for taking a little
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of your time to be here today.
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If you鈥檙e not part of the community yet,
just click that little red subscribe button.
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It鈥檚 free and you鈥檒l never miss an episode.
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Working as an equity analyst, one of the lies
I saw first hand was how Wall Street tries
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to convince investors that you have to be
picking stocks.
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Turn on CNBC or really anything in the financial
media and all you鈥檙e likely to see a long
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list of stock recommendations for that day.
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But what the pundits and analysts won鈥檛
tell you is that鈥檚 not the best strategy
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for 99% of investors out there.
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It鈥檚 great for the pundits and analysts.
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They collect billions in fees and ad dollars
but all that money is just going from your
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pocket to theirs.
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That鈥檚 why I wanted to do this video, sharing
one of the simplest investing strategies you鈥檒l
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ever find and the best strategy for anyone
that just wants to see their money grow.
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Now I鈥檒l be using Fidelity index funds through
the video but honestly, you can put this strategy
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together with Vanguard or just about any fund
provider.
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In fact, I鈥檝e got a video on using Vanguard
funds that I鈥檒l link to in the video description
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so you can compare the two.
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I鈥檓 receiving no compensation from Fidelity
or commissions for the video.
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I just wanted to show you how easy it is to
build a solid portfolio of stocks, bonds and
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real estate for a stress-free investing strategy.
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The problem with the whole stock-picking lie
Wall Street pulls over on investors is that
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it just leads to bad investing decisions.
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You end up jumping in and out of stocks, losing
thousands in fees and get nowhere.
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In fact, Dalbar鈥檚 annual study shows the
average investor earned just 2.6% annually
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over the decade to 2013 versus a stock market
return of 7.4% and even a 4.6% annualized
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return in bonds.
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What I鈥檓 going to show you right now is
going to protect you from those bad investing
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decisions and save you thousands in those
stock-picking fees.
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I鈥檒l first take you through the website
for Fidelity funds, show you how to find the
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best fidelity funds for your portfolio.
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I鈥檒l then reveal that simple three-fund
portfolio and even how to combine it with
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a little stock-picking for extra returns.
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First though, I want to get your opinion.
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I鈥檓 using Fidelity funds here but I鈥檝e
talked about Vanguard and iShares on the channel
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as well.
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Question is, do you have a preference for
funds?
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Do you prefer Vanguard, Fidelity, Schwab or
some other fund company for your investments
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and why?
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Scroll down and let me know in the comments,
which do you use and why.
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The fund screener on Fidelity is extremely
detailed with over 2,000 ETFs and will actually
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help you find funds from other companies like
Vanguard and iShares as well.
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It鈥檚 almost a little too detailed and you
kind of need to know what you鈥檙e looking
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for, what filters you want to use to find
a fund, but I鈥檒l take you through a few
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here.
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On the left menu, you鈥檒l find over 100 filters
you can use to find funds including filtering
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by asset class; so stocks, bonds and real
estate, filtering funds by sectors or performance
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and even analyst ratings.
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For example if we wanted to find a high yield
bond fund, we would toggle Basic ETF Facts
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and Asset Class here and fixed income.
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Then we could scroll down to Investment Philosophy
and toggle this Passively Managed.
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That鈥檚 going to give us mostly index funds
that are going to be a little cheaper compared
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to actively managed funds.
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Then down to Fundamentals here and we can
filter on this 30-Day SEC yield for funds
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paying over 3% dividend yield.
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That leaves us with 59 funds to choose from
and you can get all the data on each through
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these tabs at the top.
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If we click on Income Characteristics, we
can see the dividend yield.
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This Performance and Risk tab shows returns
as well as some risk measures like Beta.
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The Analyst Opinions tab here gives you ratings
from FactSet, Morningstar and Ned Davis.
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Now I鈥檒l be the first to admit the expense
ratios on Fidelity funds surprised me.
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With most funds from Vanguard and Schwab down
to less than a tenth of a percent, I was surprised
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to see Fidelity charging around three-tenths
of a percent on most of its funds.
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The difference is in management.
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While most fund companies have gone to a passive
indexing model where their funds follow strict
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rules for the investments, Fidelity is still
largely managing its funds.
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So when you鈥檝e got that passive indexing
strategy, fees are going to be lower because
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you don鈥檛 need as many portfolio managers
or analysts.
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When you鈥檙e actively managing your funds,
buying and selling to eke out a little higher
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return, you鈥檒l just naturally have higher
costs.
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When we look at a comparison of returns between
Fidelity funds and others, and this surprised
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me as well, it looks like that active management
is paying off for the company and producing
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returns that make up for the higher costs.
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We鈥檙e going to get to that simple, three
fund strategy using Fidelity index funds now
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but if you鈥檙e liking the video and the info,
do me a favor and tap that thumbs up button
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below.
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Now let鈥檚 look at that portfolio of Fidelity
funds because I think this is the simplest
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strategy I鈥檝e ever seen, just these three
exchange traded funds can take care of all
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your investments.
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First we鈥檝e got the Fidelity High Dividend
fund, ticker FDVV, for stock market exposure
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and a solid 4% dividend yield.
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That鈥檚 more than twice the yield paid on
the market and the fund charges a relatively
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low 0.29% expense ratio.
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One of my biggest gripes about index funds,
and those of you in the community know this
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because I complain about it constantly, is
what you actually get in a supposedly diversified
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fund.
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For example, a lot of investors just put their
money in an S&P 500 fund to get that whole
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stock market diversification but what they
don鈥檛 realize is that more than a fifth
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of their money is in one single sector, technology.
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In fact, we see in this graphic that just
three sectors; IT, health care and financials
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make up almost half of the S&P fund.
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Just five of the 11 sectors make up 70% of
the fund.
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That mean whatever happens in these sectors
of the economy is basically your investment.
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So sectors like technology and consumer discretionary,
which are extremely volatile around the economy,
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are going to make the market fund see those
big ups and downs rather than a smoother,
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safer ride like you鈥檇 expect with a diversified
fund.
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Now the Fidelity fund has it鈥檚 own weighting
problems with six sectors accounting for most
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of the fund, but you鈥檝e got different sectors
in here than in a market fund.
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So you鈥檝e got consumer staples, energy and
utilities with larger weights.
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What you can do, to get a little more diversification
and safety, is to split the amount you have
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in stocks between this dividend fund and maybe
a market fund or some other stock fund.
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That鈥檚 going to give you more even exposure
to those different sectors but you鈥檒l still
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get the benefit of high dividends from the
Fidelity fund.
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Looking at the Fidelity dividend fund versus
the SPDR S&P High Dividend fund, ticker SPYD,
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you see what I was talking about with active
versus passive management.
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The annual fee on the Fidelity fund is 0.23%
higher than the SPDR fund but Fidelity has
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managed to make up for it with a 12% return
over the last two years versus 7% on that
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SPDR fund.
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We鈥檒l use the Fidelity MSCI Real Estate
Index ETF, ticker FREL, for real estate exposure.
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The fund charges a 0.08% expense ratio which
is about the lowest you鈥檒l find at Fidelity
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and pays a 4.74% dividend yield.
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Now this was really interesting that Fidelity
is only charging 0.08% on its real estate
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fund but fees on all the other funds are still
so much higher.
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It really doesn鈥檛 make much sense but I
think you鈥檒l start seeing the company lowering
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fees on other funds as that competition with
Vanguard and Schwab heats up.
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The Fidelity real estate fund holds shares
of 176 companies in that REIT and property
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space, just about the same as the Vanguard
REIT fund we talk about on the channel.
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I like that even the largest holdings here
are less than 5% of the fund so no single
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company really is going to destroy the returns
if something happens.
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What really surprised me was the Fidelity
fund versus Vanguard on returns.
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I鈥檝e made the Vanguard fund, ticker VNQ,
a regular investment on the channel and have
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it in our 2019 Challenge portfolio but the
Fidelity fund has actually beaten it pretty
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soundly over the last two years.
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Our third fund is the Fidelity Total Bond
ETF, ticker FBND, with a 0.36% expense ratio
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and a 2.9% dividend yield.
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I鈥檓 including this one to round out our
Fidelity portfolio but this is one where I
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think you could use a different fund like
the Vanguard Long-Term Bond ETF, ticker BLV.
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There is no reason to pay a 0.36% expense
ratio on a bond fund when other funds like
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that Vanguard one charge just 0.07% and pay
comparable dividend yields.
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With the Fidelity fund, you do get a nice
mix of bonds with just under 40% in super-safe
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US government bonds and the rest mostly in
corporate and mortgage bonds.
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It really hasn鈥檛 helped the fund though
with returns similar to other bond funds like
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the iShares Core US Bond ETF, ticker AGG,
both with a 0.8% return over the last two
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years.
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With just these three funds though, you鈥檙e
getting solid diversification across three
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asset classes; stocks, bonds and real estate.
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If you want a little more stock-picking, you
can put maybe 70% of your money in these funds
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and invest the rest in a handful of maybe
10 individual stocks you really like.
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See how I did this same simple fund portfolio
strategy with Vanguard funds in the video
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to the right.
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Click through to compare how the fees and
returns of the Fidelity funds stack up and
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compare the two.
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Don鈥檛 forget to join the Let鈥檚 Talk Money
community by tapping that subscribe button
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and the bell notification.
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